Applied Micro Circuits Corp (AMCC) Message Board

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Technology Stocks : Applied Micro Circuits Corp (AMCC)

AMCC 8.450

0.0%

Feb 3 4:00 PM EST

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To: funky1 who wrote (67)	6/30/1998 8:10:00 AM
From: craig crawford	Read Replies (1) of 1805

>> I'm new at this game what exactly is short interest? Why does it affect stock price? << Short interest is simply how many shares of a given security are sold short. Selling short means borrowing a security, immediately selling that security and pocketing the proceeds. Now you borrowed someone's stock so you have to repay it to them sometime in the future. The way you repay the loan is to go out and repurchase those shares in the market. (cover) Your hope is that the stock will have dropped so you can replace the shares you borrowed at a cheaper price and pocket the difference. An example: (ignoring commissions) --Short 100 shares of AMCC at $25/share = $2500 <==== you get this --AMCC drops to $20/share and you decide to "cover your short" or return the shares that you borrowed and sold. You do this by going out into the market and buying AMCC. Let's say AMCC has dropped to 20. --Your cost = $20/share x 100 shares = $2000 --You borrowed 100 AMCC and immediately sold it for $2500, and returned the exact same stock at a later date at a cost to you of only $2000 so you pocket the difference of $500. Conversely, if AMCC rises to $30 after you short it and you think it's going even higher you might decide to cover your short. 100 AMCC x $30/share = $3000. So it costs you $3000 to return some shares you borrowed and sold for $2500. You lose $500. The reason investors like to follow short interest is because it tells them a few things. A) With a quick glance it tells them if many people are betting against a company (which might alert you to unknown problems) B) Everyone who sells short a stock has to return those shares eventually. In most cases they have to go out into the market and buy those shares so they can cover their short (return the loaned shares). That provides buying pressure for a stock. If there are 500,000 shares short of AMCC, sooner or later 500,000 are going to have to be bought back, and that can only help people that want the price to go up. Hope that helps...

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