4 ms·
Just so I have it straight, I borrow 1000 shares of KING from you and sell them all at $15 each. At some stage, I have to give you back those 1000 shares, so I
by flashman 11y ago
Just so I have it straight, I borrow 1000 shares of KING from you and sell them all at $15 each. At some stage, I have to give you back those 1000 shares, so I have to re-buy them. If the price of KING goes down to $12, I can get 1000 shares for $12000, and because I sold the original lot of shares for $15000, I've made $3000. But if KING goes up to $18, then when my loan comes due it costs me $3000 more than what I sold the shares for.
- jonknee 11y agoExactly. It's slightly more complicated since you pay to borrow the shares, but that's exactly it in concept. It's risky as there are theoretically unlimited losses (shares can keep going up, but they can only fall to $0). Another common, but less risky way to be short is through put options. You buy the right to sell shares at a given price. If you had a put for less $18 you have now lost all your money. Safe to say there will be a lot of money made and a lot of money lost tomorrow when options start trading.