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I am trying to understand "short". Every one talks about it, but I never found a concrete example of how we can "short" . Can some one explain . I do some equity trading and just ride the surf.
I'm not sure my explanation is correct, but its how I think of it.
Buying a stock without the intention of holding on to it for a long time. Buy it when it drops with plans to sell it when it goes up.
I'm thinking of doing that Monday with Apple. I've made quick money doing that. However, I usually hold on to stocks I believe in. But you can make some quick money if you know what you're doing.
An example would be you sell 100 shares of XYZ stock that you do not own at $10 per share. You get the $1000 and have the obligation to in the future return the shares that you borrowed to sell. If the stock falls to say $8 you can buy the shares for $800, return the shares and keep the $200. Of course, that doesn't take into consideration any additional costs (commissions, interest, dividends, etc) you may have incurred in the transactions.
If the stock price rises while you are short, you may decide to cover the short position before it goes any higher. Say it goes to $12 and you think that it may go even higher. You cover at that price and pay $1200 for 100 shares, return the shares and have lost $200 plus additional costs.
Ok thanks. I do some cash buying, ride the wave and sell. But regarding selling those " I do not own" , which specific product I should choose?? Is that options?? Or just margin buy?
Ok thanks. I do some cash buying, ride the wave and sell. But regarding selling those " I do not own" , which specific product I should choose?? Is that options?? Or just margin buy?
I am trying to understand "short". Every one talks about it, but I never found a concrete example of how we can "short" . Can some one explain . I do some equity trading and just ride the surf.
If you feel a stock is over-valued and is ripe to go down instead of selling short where the possibility of you getting your clock cleaned if the stock goes up and continues up instead of going down like you thought.... you instead could purchase 1 or more PUT options on that same stock...and if you are correct and the stock declines your PUT option will increase in value and you can sell to close out your put option position and take profit as you do not have to hold it until expiration date...
And if you are wrong and the stock goes up instead of down and continues to go up your PUT option will lose value more and more and may even expire worthless...but the beauty of buying a put option is you can never lose more than what you paid for the option ....
I have been involved in the stock market all my life...since a teen and I strongly advise you to forget about selling short as it is truly for seasoned stock professonals who have the coin to cover huge losses if their short position goes against them..... and instead educate yourself on simply CALLS and PUT options and play that way if your looking for something new to learn..and to take a shot on profiting from a stocks decline.
Thanks for the inputs. Another funny question, can I short on the stocks I own?? Because the last 1 week its steadily going down.
Shorting against the box, or shorting positions you already own will not be of any advantage. Most B/D's won't allow you to do it, and some make it so cumbersome that it's not worth it.
Shorting against the box is really just a net, net neutral overall position, but affects the margin buying power significantly such that it's a negative against your day trade and/or margin buying power.
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