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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Sherrie Holton who wrote (2277)	4/27/1999 2:41:00 PM
From: Dale Baker	Read Replies (2) \| Respond to of 2506

Shorting - you borrow 100 shares of XZXZ and sell them for $100. Whenever you like, you have to return them to the person who loaned them to you(unless he asks to get them back sooner). If you pay more than $100 to buy those shares you will return to Mr. Owner, you lose money because it cost you more to replace them than what you got for selling them. If the price drops and you can buy them for less, you make a profit. That said, it is all much more complicated in practice. I suggest you spend several days reading this thread, Bill Wexler's thread, Auric Goldfinger's thread and Roger Babb's thread. After all that you will start to get the idea. Don't short anything until you know exactly what "float" and "squeeze" mean for shorters.

To: Sherrie Holton who wrote (2277)	4/27/1999 8:26:00 PM
From: Moominoid	Respond to of 2506

Shorting is just selling a stock you don't own. Your broker borrows the stock and lends it to you. You sell it and receive the money. You can't spend that money on other stocks. At least until the value of the stock you shorted falls. The money is added to the value of your account and the value of the borrowed stock is taken away. This is real borrowing in that dividends etc on the stock go to the original owner not you. You don't need any dates unlike options. The advantage vs put options is you don't have to set an end point. You can just wait until the price goes down. With put options the value of the option erodes faster and faster as you approach the final date if your plan isn't working out. The leverage is much lower on shorting. This means it takes longer to get into trouble but the potential gains aren't as big. However, the disadvantage is there is no limit to the potential loss on shorting if the price rises. With options you can't lose more than the premium you pay for the option. In theory you can put in a stop loss option with your short so if the price rises above a level you set the shares are automatically bought back and your losss doesn't increase any more. This works well unless the stock gaps up strongly. The order still stops you out but at a bigger loss than you expected. David