Friday, December 22, 2006 11:19:48 AM
Ok I made a mistake in the presentation of the prior example. I f#$% up. There, I admit my mistakes.
So here is the correction:
Long Investor
buys stock one at $0.01 sells at 1.00 - 9,900% return
buys stock two at $100 sells at $1 - 99% loss
Your Short example:
sells stock at $1.00 buys stock at $0.01 (99% loss in value of the security, but as a short investor I made a 9,900% return, the same return as a long because of where I bought and sold).
sells stock at $1.00 buys at $100. (9,900% gain in value of the security, but as an investor I make the same return as the long because of where I bought and sold).
The whole point is that your assumption of what a short makes is based on the fact where his selling point is. That is incorrect. A short trades in reverse, which is he sells first and buys second, but when calculating his return you still based on the spread between his buy and sell.
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