Anthony @ Equity Investigations, Dear Anthony, Message Board

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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony,

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To: Frank who wrote (64653)	12/19/2000 8:01:55 AM
From: Louis Riley	Read Replies (1) of 122087

Your math is wrong, as noted by others, but your post does bring up an interesting point about the maximum returns possible from short-selling. That is, the best you can ever do on a single position is to triple your capital. Assume you sell short a stock for $100. Your initial Reg T margin requirement is 50% of the sale or $50. So your capital invested is $50. Assume you hit a home run and have put on a terminal short: the stock goes to $00.01. You cover for a penny and make a $99.99 profit. Your return on invested capital? $99.99/$50.00 = ~200%. Of course, tripling your money is a fantastic return. But it pales next to the percentage returns that were available on the long side during the great Internet Mania. However, the more salient point in today's market is this: be aware that while your potential risk in short selling is unlimited, the potential reward is limited to 200%. Still, shorting has certainly been the most fruitful strategy since the beginning of Q3, and it has offered very quick returns.

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