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Strategies & Market Trends : SHorting Stocks: Education/strategies/techniques
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To: Early Bird who wrote ()2/22/1997 7:06:00 PM
From: Early Bird   of 99
 
More From the Motley Fool:

Example Two: Let's pretend instead that things get ugly. You've sold your Overrated Tech
shares short at $56 1/2 and alas, the stock begins to go up. . . $60, $65, $70. A year later,
it has surpassed $75, and you can't stand it any longer. You want out. With the price at $76
1/2, you call your broker: "Harry," you wheeze into the pay phone, "I've got to get outta this
thing. Buy it back and get rid of it. And don't bother returning my call to confirm the trade;
Ma Bell has cut me off for a couple of months. Just return those damned borrowed
shares!!!"

So what have you lost? A tallying up of the damage shows you sold 100 shares short at
$56 1/2 ($5650). You bought back 100 shares at $76 1/2, for which you had to come up
with $7650. So you paid $7650 and received $5650 -- you lost $2000.

A final note: once in a blue moon, your broker may be forced to return your shorted shares
to the anonmyous lender, usually because he wants to sell them. Forced into doing so, you'll
have to buy back the shares prematurely -- whether you've made money or not. This
happens only with very small companies that have few shares outstanding, and is just a
minor nuisance. Put the money somewhere else.
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