Quote:
Originally Posted by Badger52
It is interesting to track the David v. Goliath aspect of it (I wonder if someone on reddit did a CARVER analysis).
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'Investopedia' lays it out pretty clearly (paraphrasing) short selling is basically gambling that the stock you are buying is going to loose value right after you sell it. Then you can turn around and buy it back at a lower price. The "short" part comes into play because you dont own the stock - you are BORROWING the stock....
I own 100 shares of stock.
You own ZERO.
That stock is selling at 50 bucks a share.
I let you "borrow" my 100 shares against your margin account
You are now "short" the cost of those 100 shares.
You sell those shares at 50 bucks a piece - and wait
The cost drops to 40 bucks a share, and you buy back all 100 shares at 40 bucks a share.
-Margin call - you return my shares to me and I charge you a fee for using my stock - we both win.
OR...
I own 100 shares of stock.
You own ZERO.
That stock is selling at 50 bucks a share.
I let you "borrow" my 100 shares against your margin account
You are now "short" the cost of those 100 shares.
You sell those shares at 50 bucks a piece - and wait
The cost shoots up to 60 bucks a share, you take a loss and are forced to pay 60 bucks a share to get back my 100 shares of stock.
-Margin call - you return my shares to me.
I charge you a fee for using my stock - I win - you loose.
OR...
I own 100 shares of stock.
You own ZERO.
That stock is selling at 50 bucks a share.
I let you "borrow" my 100 shares against your margin account
You are now "short" the cost of those 100 shares.
You sell those shares at 50 bucks a piece - and wait
The cost shoots up to 100 bucks a share; suddenly you cannot afford to buy back my 100 shares of stock because you don't have enough money.
-Margin call - you can't return my shares to me. I loose 100 shares of stock that are now worth twice what I paid for them.
I still charge you a fee for using my stock - but now, I'm making a call to Knuckles McGee and Punchy Bigfist, and they are going to come and fuck you up.
They are going to come and fuck you up real bad.
Go back and watch "Trading Places"
Winthorpe and Valentine bankrupted the Duke Brothers by short-selling Frozen Orange Juice commodities.