This is how shorting and naked shorting works.
Standard successful shorting example:
Imagine you have a pair of cool sunglasses. Your friend asks to borrow them and you oblige. Then someone asks your friend if they can buy those cool sunglasses and they sell them to that person for $50. Your friend now has to go out and buy the same pair of cool sunglasses so when you ask for them to be returned, you get them back. Your friend knows they can go out and buy these same sunglasses, finds them on sale for $40, returns them to you when you ask, and pockets $10.
Plug in shares of stock instead of sunglasses, and that is how a successful short position works.
Standard successful naked shorting example:
The same story as above with the sunglasses, but this time there are other people around that see your friend sell the cool sunglasses and suddenly lots of people are coming over to your friend that saw them sell the cool sunglasses and asking to buy a pair. So your friend decides, sure....$50, and I'll fed ex them to your home.
I'm this case, even though your friend knows they can go buy these sunglasses, they're actually representing a naked short position, because in essence, they're selling multiple numbers of these sunglasses that they don't actually have, and aren't 100% sure they can find enough pairs to cover the number they just sold. The friend did this because they got greedy and saw an opportunity to make some money. Again, your friend goes out, and luckily they find enough pairs to cover the number they sold, and as luck would have it, they were all on sale from multiple locations for $40 and they pocket $10 per pair of sunglasses they "naked short sold".
Plug in shares of stock again, and this is how a successful naked short position plays out.
That is the basic gist of how successful shorting and naked shorting works.
Now...this is how an unsuccessful short or naked short position can go terribly wrong:
Again, imagine the above story, but this time, as soon as your friend sells the sunglasses, some mega celebrity is seen wearing those cool sunglasses and that celebrity is tweeting about them to all their teen followers who now make a mad rush to go out and buy these awesome sunglasses. Ooops! Now your friend is competing with millions of spoiled little brats out there, rushing to buy these sunglasses. And as bad fortune would have it, all the department stores selling these sunglasses suddenly mark the price way up due to demand. Now your friend has to pay $75 per pair, and deal with the possibility that they may be sold out and they'll have to pay an even higher premium to get those sunglasses back to you, and or to everyone he "naked" sold a pair to for $50.
This is an unsuccessful short/naked position. Thus, the term "short squeeze" that you often times hear when a stock is moving higher in a very rapid succession in a brief period of time. When a short position has trouble buying stock due to supply and demand, yet they are required to return the stock they borrowed and then sold, in essence, they are forced to buy the stock at whatever price they have to, in order to return the borrowed stock they sold.
Hope this makes sense...and sorry for the long post.
As for AMFE, it's been state on the board here that there are violations on RegSho, marking short positions that have not been covered in a timely manner. Don't ask what RegSho is, lol...sigh....google this one. I'm tired now.
Go AMFE
Rec
