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Pastimes : All Clowns Must Be Destroyed
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To: re3 who wrote (37576)6/2/2000 8:05:00 PM
From: John Graybill  Read Replies (1) of 42523
 
If you want to stay white-knuckled short at maximum margin, you can keep adding on more JPM shorts as it drops. In theory, the maximum possible gain on such a short can be much higher than a "sell and hold" strategy.

Example: You have $14000 in your account. Short 1000 JPM at $14. Your margin debt is $14000, which is covered by your cash.

Now JPM crashes to $70. Your margin debt is now only $7000, so you can short another 1000 shares to max yourself out again.

If JPM drops to $50, you have a $90 gain on 1000 shares and a $20 gain on the second 1000 shares.

Of course, if you're extremely nimble, you could be adding shorts every couple of points down for a bigger payoff, keeping in mind that you have less and less wiggle room in that case. Very theoretical, high-wire stuff to be sure.
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