Hey Maineman202:
You have the concept! I agree and I have shorted stocks for years/
Tp be down this close to zero and short is stupid...the shorter has to think it will go bankrupt and to zero ...simple as that and
very risky-and stupid.If we did go bankrupt--then 100% gain--but only one frickin penny per share.
Here is a great recent short scenario: Facebook had an IPO (initial public offering) and few weeks back at 38.00/share. it went to 40.00 and peeps thought it was overpriced for the revenue it could generate from ads etc. So investors "Borrowed" shares from brokerage houses -held in street name- and Sold them at 40.00
(has to be done in margin acct cause you gotta match the cash you get) Now you have borrowed and sold 1M shares of FB @ 40.00 You now have 40 M in your acct---you were right and all thought it was too high so they started selling (the longs) and the price plummetted (now down to around 21.00---you decide that is great I have made 20 dollars a share and your now BUY back the 1M shares
at 20. The street name stocks are returned to owner (who did not even know they were loaned out) and you have made 20 Million dollars!! The problem being if your guess wrong and sell at 40 and it goes to 60 you have to cover your short position by buying
back what you sold at 40 @60 and you lose 20 millions.
Short covering can blow the price thru the roof. If everyone is short at 40 and goes to 60 -EVERYONE is buying as fast as they can to comver the short position so they do not lose their ass.
Only want to short in anticipation of bad news, market trend, think it is over priced or anticipate bad earning stuff like that
Look how great a short position in Enrom would have been a few years back
Most people think you have to buy low and sell high. Shorting is
just the opposite---Sell high and buy back the borrowed shares at
a lower price and make the difference.
It is not a bad thing and is just the same as buying low and selling high---just opposite derivation. I am always sure I KNOW it is overvalued based on PEs , earning etc etc dah dah
But to short a stock at 0.0001 hoping for 0.000 is stupid. They make 1 cent a share is correct. In CGFIA s case if she shoots to
3-4-5 you have to cover the position fast of lose your ass really
That is what a short covering rally is about/ All the shorts were wrong and it starts up--they have to buy to cover the short
and that buying continues the rally and the $ continues up.
You can make as money short as your can long...just have to know
the parameters.
Hope this helps esp in regards to CGFIA---one would be a fool to
short something that is essentially worthless and has no downside
momentum IMO Some short could have to cover soon and that would
drive our share price up cause they all have to get in there and
rebuy at 2 or 3 what they sold for 1----200% loss
Maineman: The key is the brokerages let you "borrow" shares from you and me to loan to someother person to sell cauwe they are in "street name" and you do not have certificates in your pocession. Cash accts-the shares cant be borrowed but in a margin
acct they can do what they want
Hope this helps with out being too lenghty or ntolerable boring :)
I personally short sale as much as I make long purchases.
That being said, you can short currencies, short grains, short the dollar, short stocks , bonds anything if you think the price
will go down
Have a great reast of the week and if I can be of any further insight --dont hesitate to inquire within :)
Later
Grizzz
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