<< Yes, you could lose potentially a lot of money. I see that doug has explained shorting but let me add one more thing. I don't short stocks but if I did, I would only short stocks of companies that have very good fundamentals and where the stock is shortable only because it is over extended. The reason for that is pretty obvious......if you end up buying the shorted shares, at least they are of a good company. >>
I believe you're confusing puts with shorting the stock. If you short a stock there is no way you will ever end up with shares in the company. You sell shares which you don't own. At some point you HAVE to buy the shares to give to the person you sold to originally. You would never in this scenario own the stock unless you bought more shares than you shorted. However, that would be completely unrelated to your short position.
If you are using puts, like writing puts on a company, then if it falls you could have the stock put on you, and you'd get stock you didn't want. (Then your scenario makes sense) However, you'd write puts on a company you think looks good, like AMD, and then if the stock does drop, you'd feel less bad because at least the company is good. However, the puts are usually so many shares that you can't afford them and immediately have to sell and take your loss anyway. (writing puts would be a bullish action, while selling a stock short would be bearish, and buying puts would also be bearish) Of course in both buying puts or in shorting you never would get the stock under any circumstances unless in an unrelated event you tried to buy both.
On the otherhand, I would consider shorting the stock or buying puts to avoid taxes. (you can sell a stock short, then give up your shares later) Or buy puts, so that if it drops before your 1 year deadline, you can still put the stock at someone else to lock in profits.
Apologies if I misunderstood you, and you already knew this information.
Doug |
