DAYTRADING Fundamentals Message Board

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To: OZ who wrote (8122)	4/30/2000 4:35:00 PM
From: Dan Duchardt	Read Replies (1) of 18137

OZ, As an addendum to my previous reply to Atto, I will add this comment in response to your earlier message. I think you are incorrect in the following assertion: The problem as I see it is that by using Brec's method the value of the stock ($12,000) is used to compute the Short position value on line 5. In actuality it should be calculated by subtracting the original shorting price (10,000) by the amount loss (2000) to give you the $8,000. figure used on line 5 and 6. Using Brecs method results in 12000/18000 or 67% for line 5 (actually this is line 6). This would be riskier but in actuality if it were true. But it is not because the formula is wrong Value and exposure are the same in a long position, but not in a short. At the "value end point" in this example, where the value of the short position, as you have correctly defined it, becomes zero, the "exposure" of that position has in fact grown to twice it's original amount. Brec's argument has merit for precisely this reason. Exposure in a short position is the value of the security held short, not the value of the short position in that security. Dan

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