If anyone sees any mistakes with this explanation,
Post# of 41413
Posted On: 11/13/2015 6:49:30 PM
If anyone sees any mistakes with this explanation, post the correction.
What happens is the shorter "borrows" the stock from someone that owns that stock, sells the stock at current price, and replaces the borrowed stock at a later date and the shorter hopes that the price is below what they sold at, all the while the person that owns the shares does not know this happens. For example, let's say a shorter borrows 10 shares @ $10 and sells them. The shorter takes $100 in proceeds. Let's say the stock then trends down to a $1. The shorter now buys those shares to replace the shares they borrowed, so they buy 10 shares at $1. So, the shorter sold shares making $100 then replaced the shares for $10 making a $90 profit.
On the other side, let's say the stock takes off and goes to $20. Now the shorter has to still replace the shares he borrowed and pays $200. He now lost $100 on the short.
Does that make sense?
What happens is the shorter "borrows" the stock from someone that owns that stock, sells the stock at current price, and replaces the borrowed stock at a later date and the shorter hopes that the price is below what they sold at, all the while the person that owns the shares does not know this happens. For example, let's say a shorter borrows 10 shares @ $10 and sells them. The shorter takes $100 in proceeds. Let's say the stock then trends down to a $1. The shorter now buys those shares to replace the shares they borrowed, so they buy 10 shares at $1. So, the shorter sold shares making $100 then replaced the shares for $10 making a $90 profit.
On the other side, let's say the stock takes off and goes to $20. Now the shorter has to still replace the shares he borrowed and pays $200. He now lost $100 on the short.
Does that make sense?
(0)
(0)Baltia Air Lines Inc (BLTA) Stock Research Links
The fault-finder will find faults even in paradise. -Henry David Thoreau
Scroll down for more posts ▼