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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: JimsJeeps who wrote (8510)	9/10/1998 9:38:00 PM
From: Joe Waynick	Read Replies (1) \| Respond to of 14162

Hi Jim! I'll try to answer your question. To short a stock you are actually selling stock that belongs to someone else. Your broker is holding another investor's shares that he lends you so you can sell them and (hopefully) buy them back at a lower price, thereby allowing you to earn a profit. You call your broker and put in an order to "sell short 100 shares of XYZ stock." Your broker checks to see if the shares are available in his/her inventory. If so, the broker will lend you the shares so you can sell them. If the price of the stock goes down, you put in another order with your broker to "buy to cover 100 shares of XYZ stock." The stock is purchased at the lower price, and the difference between your sale price and purchase price is your profit. Keep in mind, there is considerable risk in short selling a stock. The price could gap up and you will incur major losses. Be prepared to either pull the trigger or implement repairs with call options or averaging up if it goes against you! Read McMillan to learn about synthetic puts to repair. I hope this helps.