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 : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (15555)	12/12/2002 11:59:09 PM
From: eddieww	Respond to of 19219

"Have to disagree. I have seen many stocks greater than 50% short. Assume a company with 10 shares. I own all 10 shares. You want to short 10 shares. I loan them to you. You are short 10 shares, I am long 10 shares. 100% short. Whats the problem." You're forgetting that the person he sold short to is also now long 10 shares.

To: mishedlo who wrote (15555)	12/13/2002 12:26:33 AM
From: Joseph Silent	Read Replies (1) \| Respond to of 19219

Mish, the problem is that the terms "long" and "short" have not been defined precisely. Until that is done, you may both consider yourselves right, depending on what you have in mind. In your example, you make the implicit assumption that when you sell short, the market-maker buys -- hence there is no "new" long, besides the original 10 share owner. In reality, even if the buyer is only the market-maker, he/she now becomes long 10 shares, apart from the 10 you own. In this way there are 20 shares held long and 10 short.

To: mishedlo who wrote (15555)	12/13/2002 12:58:19 AM
From: Joseph Silent	Respond to of 19219

Just because I'm in the mood, let's do that a bit formally. :) Assumption: Each share can be loaned out at most once for the purpose of shorting. Claim: Under this assumption, the number of shares that can be held short is at most 1/2 the number of shares that can be held long. That is, the proportion of short shares to long shares is at most 0.5 Proof: Let the total number of shares be X, where X >= 1. Let s be the proportion of shares sold short, where 0 < s <= 1 Total number of shorted shares = sX Total number of shares held long = X Total number of shorted shares bought by some long = sX Proportion of shorted shares = sX / ( X + sX) If you divide the numerator and denominator by s you will see that: Limit (as s ->1 ) of this proportion is 0.5. This proportion reaches a maximum when s = 1. That is, when each long share is also sold short. Therefore, you cannot have a proportion greater than 50% unless each share is loaned out for shorting more than once. Do market rules allow that? I do not know, but I would have trouble believing it is allowed because it does not make sense to allow it, when I think about it.