About Short Selling.....

[Equity Trader]

Short selling is the selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short selling is a legitimate trading strategy.

Typically, a short sale involves the sale of a security at the current price which is settled with shares lent to the short seller by a third party. The seller makes the short sale on the assumption that the price of the security will go down. If this occurs, the short seller will purchase shares to lock in a profit, extinguish the short position and replace the shares previously borrowed.

Of course, if the stock rises in price, the short seller may elect to close out the position through a purchase, and absorb the resulting loss.


Have a good day
ET

 

[Sportsaholic]

On selling short, is there any limit on how long you can own the shares, or how low it can go before you dump the shares.

If only I had shorted the shares I'm long on, I could retire :firing:

 

[Equity Trader]

Short Selling

Short Selling

The problem isn't how low it can go before you must cover the transaction,but rather the fluctuation of the price in the time factor when you must cover with your broker....Usually it is in 3-5 days from the initial execution.....Also, the rules prevent investors from selling short unless the last trade of the stock is at the same or higher price?in other words, investors can?t sell short in a declining market. These restrictions aim to stop continuous short selling that would exacerbate a falling stock price. The SEC also has a rule that prohibits short-sellers from manipulating a securities offering.


Have a good day

ET

 

[Sportsaholic]

So in a volitile market like were in, if we had a 3 day up tick and I shorted stock X during that up period,I'd need to cover with in a 3-5 day period that my broker determines?
Also is there a period of time you need to wait in order to short the same stock once you've covered?

I find this interesting, so I see why all the bashing on various boards.

Thanks for the info.

 

[Equity Trader]

Short selling

Short selling

I'm not certain on the rule to short the same stock thereafter,but the important rule to keep in mind is the "Wash Rule". This is when you can't take the tax loss if you repurchase the same stock within 30 days.....This rule is generally viewed by the IRS as an illegal purchase or repurchase of an asset within 30 days of the sale date of a basically identical asset and was sold in order to take the tax loss.

Have a good day....

ET

 

[Way out West]

Short selling rules.

Basically with short selling you have to maintain margins on account. Depending on the price of the stock and market capitalization you have to put up additional money on top of what you received from the sale of the short sale.

On stocks over 5.00 and are option eligible (for example Intel), you have to maintain a margin of 30% on top of what you received from the short sale.

Also, the firm that you are shorting the stock through has to be holding the stock and be able to "lend" it to you to be able to sell considering you don't own the stock yet.

Example:
Short 1000 shares of XYX at 10.00= you receive $10000.00
30% margin required = you need to add $3000.00
Total $13000.00


Stock goes up to 11.00 a share= value now worth 11000.00
30% margin required = 3300.00
11000.00+3300.00=14300.00 total money required.
14300-13000= 1300 needed to deposit in account to meet margin requirements.

Stock then drops to 9.00 a share = 9000.00
30% margin required = 2700.00
9000 + 2700 = 11700.00
14300.00 (in account from previous margin call)
-11700.00 (new margin requirement)
2600.00 is what is available for you to take out of account.

For stocks less than 5.00, the margin requirements go up to anywhere to 100% because the moves they can make and the higher risk that they are.

 

[Equity Trader]

Way out West

Way out West

You have brought up excellent working examples....I see you're from Canada where I understand you can short pennystocks....Now that I find amazing....The squeezes that the MMs apply to the manipulation of pennystocks.makes shorting a real risk.....


Thanks again for your examples.

Have a good day..
ET