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> there are de facto more shares in existence. > because there are de facto 20% more shares in existence Sorry, what? Am I misunderstanding you? How does shor

> there are de facto more shares in existence. > because there are de facto 20% more shares in existence Sorry, what? Am I misunderstanding you? How does short selling increase outstanding shares? It's hard to parse the rest of this given what seems like a grave oversight. Once you borrow the shares from firm A and sell them to person B, person B is the holder of record for those shares now. Firm A doesn't own them anymore - that's why you have to pay out company dividends to firm A from your own pocket while you're borrowing them. Regardless of how they track their positions, the only thing firm A owns is an obligation from you to give them shares back at some point. There's no change in the number of outstanding shares. Or are you talking about naked shorting? Because that's been illegal since 2008 (regardless of whether it still occurs). > People are worried about volatility as an indicator, not because it's a good in its own right that society benefits from creating artificially. Well, for one: People are worried that volatility has become a good in its own right - hence the famous "Volatility has become a player on the field" quote and why the $XIV delisting was such a big deal. For two: You said that short selling increased volatility. I said volatility is really low, to the point that some people are concerned it's too low. Clearly, short selling hasn't had a major impact on volatility.

AnthonyMouse 8y ago
> Sorry, what? Am I misunderstanding you? How does short selling increase outstanding shares? Selling short requires borrowing shares. It's the same way that banks create money. There were 1000 shares, then 200 more were borrowed and resold. The buyer of the 200 shares have shares, so in practice does the original lender who is owed a share by the short seller. The IOU isn't technically a share but for most practical purposes it is. If you want to sell it, it's worth a share. If the share price goes up or down, so does the IOU price. If the share price gains $1, the owner and the lender make $1 each. If it falls $1, they each lose $1. > Firm A doesn't own them anymore - that's why you have to pay out company dividends to firm A from your own pocket while you're borrowing them. Right, which is why it acts like another share again -- the original dividend is paid to the person the short seller sold the share to but the lender still gets it too. There are de facto two dividends because there are de facto two shares. There are actual differences of course (e.g. IOUs can't vote), but for questions of exposure to price fluctuations and that sort of thing, it's effectively creating a new share.
- Lazare 8y ago
  > the original dividend is paid to the person the short seller sold the share to It is not. Whatever side bets people may have with each other may result in money changing hands, but it's not the "original dividend". There are still 1000 shares, 1000 votes, 1000 dividends paid, 1000 dividends collected, 1000 ownership claims on residual assets. The bookkeeping can be confusing, but there's no shares being generated. > for questions of exposure to price fluctuations and that sort of thing, it's effectively creating a share. If you and I agree that if Apple goes up at least 10% by this time next week, I'll pay you $500, otherwise you'll pay me $300, then we both now have exposure to price fluctuations. How many shares, exactly, do you think we've created? I'd love to see your math. :) Just because you have exposure to X doesn't mean you own X, and it certainly doesn't mean you've created X out of thin air.
  - toast0 8y ago
    The company only has 1000 shares, but because the lender effectively has a share and may not even know it was lent, investors hold 1001 shares. If a dividend is paid, the company pays 1000 dividends, and investors receive 1001 dividends. If the company goes bust, all 1001 shares have lost their value. If there's a shareholder lawsuit with a payout, there will be 1001 claims , although the company will only be willing to pay 1000, which can be a big mess for a court to figure out -- see some earlier articles from the same author as this. In your case, we've jointly made a wager. I wouldn't be an investor in Apple, like I would be if I held shares, and would still be, if my shares were lent out.
    - gamblor956 8y ago
      A shareholder who lends their share to a short seller is not entitled to a claim for dividends from the company. They must get the dividends from the short seller.
      - toast0 8y ago
        Yes, that's what I said: the company pays out 1000 dividends, and 1001 shareholders receive a dividend.

AnthonyMouse 8y ago

> Sorry, what? Am I misunderstanding you? How does short selling increase outstanding shares? Selling short requires borrowing shares. It's the same way that banks create money. There were 1000 shares, then 200 more were borrowed and resold. The buyer of the 200 shares have shares, so in practice does the original lender who is owed a share by the short seller. The IOU isn't technically a share but for most practical purposes it is. If you want to sell it, it's worth a share. If the share price goes up or down, so does the IOU price. If the share price gains $1, the owner and the lender make $1 each. If it falls $1, they each lose $1. > Firm A doesn't own them anymore - that's why you have to pay out company dividends to firm A from your own pocket while you're borrowing them. Right, which is why it acts like another share again -- the original dividend is paid to the person the short seller sold the share to but the lender still gets it too. There are de facto two dividends because there are de facto two shares. There are actual differences of course (e.g. IOUs can't vote), but for questions of exposure to price fluctuations and that sort of thing, it's effectively creating a new share.

Lazare 8y ago
> the original dividend is paid to the person the short seller sold the share to It is not. Whatever side bets people may have with each other may result in money changing hands, but it's not the "original dividend". There are still 1000 shares, 1000 votes, 1000 dividends paid, 1000 dividends collected, 1000 ownership claims on residual assets. The bookkeeping can be confusing, but there's no shares being generated. > for questions of exposure to price fluctuations and that sort of thing, it's effectively creating a share. If you and I agree that if Apple goes up at least 10% by this time next week, I'll pay you $500, otherwise you'll pay me $300, then we both now have exposure to price fluctuations. How many shares, exactly, do you think we've created? I'd love to see your math. :) Just because you have exposure to X doesn't mean you own X, and it certainly doesn't mean you've created X out of thin air.
- toast0 8y ago
  The company only has 1000 shares, but because the lender effectively has a share and may not even know it was lent, investors hold 1001 shares. If a dividend is paid, the company pays 1000 dividends, and investors receive 1001 dividends. If the company goes bust, all 1001 shares have lost their value. If there's a shareholder lawsuit with a payout, there will be 1001 claims , although the company will only be willing to pay 1000, which can be a big mess for a court to figure out -- see some earlier articles from the same author as this. In your case, we've jointly made a wager. I wouldn't be an investor in Apple, like I would be if I held shares, and would still be, if my shares were lent out.
  - gamblor956 8y ago
    A shareholder who lends their share to a short seller is not entitled to a claim for dividends from the company. They must get the dividends from the short seller.
    - toast0 8y ago
      Yes, that's what I said: the company pays out 1000 dividends, and 1001 shareholders receive a dividend.