Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: HairBall who wrote (47311)	12/5/1999 11:41:00 AM
From: Louis Cornell	Read Replies (2) \| Respond to of 122088

LG, I think everyone knows that long positions CAN be much more profitable than shorts. Your argument is why so few people short. But no one here yet has clearly addressed return on actual capital invested shorting. Yes, potential loss is unlimited without the use of stops, but when you short, there is a 50% margin requirement, so you don't put up the full $20K for the 2K shares in your example (see below). Rather you put up $10K for the 2K shares, which means the $38K profit in your example is actually a 280% ROI on your $10K investment, not 90%. Although it's not as good as 900%, chances are the 280% will be made much faster than the 900% - why? Because stocks fall much faster than they rise. This improves your annualized return to a higher degree than long trading positions. If you find 900% long positions that are made as fast or faster than my 280% short positions, please let us know when they are $1. How many $1 stocks rise 900%? That is much much harder than finding hyped crap that has already gone up 900% and will soon be $1 again. Your example: Let's say you have 20K allocated for a trade in stock ABC. If you buy $20K at $1 you get 20K shares and if you sell those 20K shares at 10 you now have $200K before commissions and taxes. Now if you short $20K at $10 dollars you get 2K shares and you cover those 2K shares at 1 you now have $38K before commissions and taxes.

To: HairBall who wrote (47311)	12/5/1999 12:03:00 PM
From: Anthony@Pacific	Read Replies (1) \| Respond to of 122088

It is true that if one has limited capital to devote, your scenario makes sense: As a broker, I remember trying to talk people into buying stocks at or bvelow a dollar , with the sales pitch that from 1 to 5 is a 400% gain and from 5 to 10 it is only a 100% gain, problem is mosty stocks that trade at a buck are junk..Once I started to concentrate on targeting Junks tocks, it just became easier to target them consistently , for me

To: HairBall who wrote (47311)	12/5/1999 6:24:00 PM
From: lifeisgood	Read Replies (2) \| Respond to of 122088

LG, If you buy $20K at $1 you get 20K shares and if you sell those 20K shares at 10 you now have $200K before commissions and taxes. I'm afraid your logic is flawed. If you go long 1 share of a stock that moves from 20 to 100, you make 80. If you short a stock from 100 and cover at 20 you make 80. The $80 spends the same whether it was aquired from a long or short position. Talking about percentage gains is irrelevant. best... LIG

To: HairBall who wrote (47311)	12/6/1999 4:04:00 PM
From: Fundamentls	Read Replies (2) \| Respond to of 122088

I think your math is a little off! Let's say you have 20K allocated for a trade in stock ABC. If you buy $20K at $1 you get 20K shares and if you sell those 20K shares at 10 you now have $200K before commissions and taxes. Now if you short $20K at $10 dollars you get 2K shares and you cover those 2K shares at 1 you now have $38K before commissions and taxes. Ah, but if you have $20K allocated for the trade, on the short side you simply keep adding to your position as the price drops, to keep your position at $20K. Conversely on the long side you should reduce your position as the price rises, or you will be overallocated. If you do make these adjustments, you discover that the return on risk capital is essentially identical long and short. You simply need to manage the risks a bit differently. Fund