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Technology Stocks : Applix is back in action
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To: marky who wrote (2017)12/12/1997 12:45:00 AM
From: Kashish King  Read Replies (1) of 3014
 
If you already know what shorting is that's fine, somebody else may not so let me cover that first:

1. Your broker can loan you shares from somebody else's account as long as you promise to return them at some time in the future. It's important to note that you are borrowing shares and returning shares, just like tools from your neighbor.

2. Let's say you do borrow some shares and then immediately turn around and sell them at market prices. Great, you have a boatload of money but you can't touch it until you return shares that you borrowed to get it.

3. Let's say the stock tanks. That's great news because you can now buy back those borrowed shares for a helluva lot less money that you earned when you sold them. If you borrowed and sold at $5 (that is, you sold short) and the stock tanked to $3 you will have done just as well as the guy who bought some other stock at $5 and sold at $7.

The numbers posted earlier simply indicate the ratio of how many shares were "borrowed" during a given month over the average daily volume during those months. That is, if everybody who borrowed shares (sold short) decided to buy back replacement shares (cover), how many days would those transactions likely stretch over. Let's say Applix comes out and says "gee, we have three times as many orders as we thought we would and the average order is about 10 times larger than we thought." The stock would go through the roof and the shorts would be buying to cover their positions, that is, to return the shares. Or, they might decide to wait it out and hope it drops again. I will leave margin calls and short squeezes to somebody else.
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