What is it called in the stock market when you bet against a company. Like you bet that it is going to do bad. What is this called?
Can anyone tell me more about it
2007-08-01 10:07:02 · 9 answers · asked by Anonymous in Business & Finance ➔ Investing
Going short, or just shorting. You borrow shares, get cash put in your account for them, then buy them back to close the position. If your buyback price is lower, you've made money. If the stock price has gone up, you lose money. Most investors hate short sellers because they can drive the price of a stock down, and they're constantly accused of spreading lies to discredit the company they're shorting.
Another tactic is to use derivatives to make a leveraged bet on the stock's price. You can bet on the stock going up or down, or staying in a specified range. These derivatives are called stock options. Investors don't care about options traders because they rarely move the price of a stock. Investors just think they're fools for using so much leverage.
Since the stock market has gone up in more periods of any length than it's gone down, short sellers are swimming against the tide.
2007-08-01 10:22:45 · answer #1 · answered by Houyhnhnm 6 · 1⤊ 0⤋
Short selling does not limit your losses. Buying an option does. You know how much you will lose if you are wrong before you place the trade. Short selling does not give you the leverage options do.
For example:
Say you think HD will drop from $40 to $35 dollars in the next 3 months. You will buy a put option for $40 which would cost you say $1.50 for one option.
Your total outlay would be 100*$1.50= $1500 plus comissions. This is the maximum you could lose if you are wrong.
If HD drops to $35 within the time limit you have the right to sell your stock option for $40-$35=$5 per share. You have 100 shares so you make $500 plus comissions. You could also sell the option itself which would have increased in value as the stock price was dropping.
Now if you shorted the stock and the price went up from $40 to $45 you would owe whoever you shorted the stock from $45-$40= $5 per share.
If the price of the stock went up with the option you only lose the stake not unlimited amounts.
2007-08-01 12:16:37 · answer #2 · answered by ireland 2 · 1⤊ 0⤋
Try to avoid short selling. A stock can only go down to 0, but it can go up infinitely(in theory).
The safest way to bet against a stock is to buy a put option. A put option gives you the right, but not the obligation, to sell a stock.
2007-08-01 10:36:54 · answer #3 · answered by mmat 1 · 0⤊ 0⤋
It's called short selling.
What happens is that you borrow shares of the stock your betting against from your broker and sell them. Hopefully the stock then drops and you can buy back an equal number of shares and return them to your broker for less money, thus making a profit.
For the sake of an example say you think Apple is going to go down. You borrow 100 shares of Apple and sell them for $13,500. Hopefully the stock drops, say to $120, allowing you to buy 100 shares of Apple for $12,000 and return them to your broker, thus allowing you to pocket $1,500. However if it goes up to $150, you have to pay $1,500 more to buy enough Apple stock to settle your debt to your broker.
2007-08-01 10:17:57 · answer #4 · answered by Adam J 6 · 0⤊ 0⤋
It's called selling a stock "short" and refers to borrowing the shares at one price, waiting for the price to drop, and then giving them back at the lower price. The person you borrowed them from will pay you the difference between the orig price, and the lower price.
borrow 100s @ $20 ea. Price drops to $10. You give the shares back. Lender gives you $10 per sh diff times 100s.
However, if the price goes up? Then you owe HIM the difference.
2007-08-01 10:12:12 · answer #5 · answered by Anonymous · 1⤊ 0⤋
Selling short, or "shorting" a stock. You do this when you think the stock price might fall. In essence, you sell high and then buy back low.
2007-08-01 10:29:05 · answer #6 · answered by derobake 4 · 0⤊ 0⤋
A market participant who believes prices will move higher is called a "bull". Bull markets are generally characterized by high trading volume......where as If an investor is "bearish" they are referred to as a bear because they believe a particular company, industry, sector, or market in general is going to go down.
2016-04-01 08:39:17 · answer #7 · answered by Anonymous · 0⤊ 0⤋
shorting the stock. if you are very good at it, you can make some mad jack, but it is not for amateurs or people who are too much of risktakers. you can easily get your head taken off if you get greedy w/it.
2007-08-01 10:10:50 · answer #8 · answered by Tom's Mom 4 · 1⤊ 0⤋
Everyone that said "short selling" is right. Also, look up "put options," it is along the same lines:
http://investopedia.com/terms/p/putoption.asp
2007-08-01 18:01:58 · answer #9 · answered by Brad H 2 · 0⤊ 0⤋