4 ms·

I agree that if you have a short position the size of 5% of your portfolio, and the stock then triples in value, the size of the short position would grow to 15

by whack 7y ago

I agree that if you have a short position the size of 5% of your portfolio, and the stock then triples in value, the size of the short position would grow to 15% of your portfolio. What's your point? 15% is still nowhere close to insolvency or forced liquidation. If you're right about Tesla's long-term prospects being abysmal, you would still come out ahead.

kgwgk 7y ago
The point is that 15%>>5%. If being 15% short is a not-so-good idea, that’s the situation now for people who entered a 5% nothing-to-worry-about short a few months ago. Should it triple again in the near future, the short would be 45% of the long position (and they would be sitting on a huge unrealized loss). Being right in the long term is not necessarily enough for a short to be a good investment.
- whack 7y ago
  The 5% number isn't an ironclad rule, it's an arbitrary example. There's nothing bad that suddenly happens if your 5% position later becomes larger. If you short a company valued at $50B, with 5% of your portfolio, it would have to become a trillion dollar company before you go insolvent. If that's still too scary for you, you can short it with 1% of your portfolio. Now the company needs to become a $5T company, before you go insolvent. If you honestly think that Tesla will surge into a $5T company, before crashing back down to <<$50B, then you're the one living in a reality distortion field. If you claim to be extremely confident about Tesla's stock crashing, but aren't willing to take even a 1% short position, then your actions don't match up to your words.
  - kgwgk 7y ago
    Note as well that the long term may never come. A company can be acquired at an "irrational" price before reality imposes itself. Did you short Monsanto in 2015 because you expected Roundup lawsuits to hit the stock? Well, you were kind of right but that's Bayer's problem now. Monsanto (the stock MON) is no more and you position was closed at a loss.

by whack 7y ago

kgwgk 7y ago

The point is that 15%>>5%. If being 15% short is a not-so-good idea, that’s the situation now for people who entered a 5% nothing-to-worry-about short a few months ago. Should it triple again in the near future, the short would be 45% of the long position (and they would be sitting on a huge unrealized loss). Being right in the long term is not necessarily enough for a short to be a good investment.

whack 7y ago
The 5% number isn't an ironclad rule, it's an arbitrary example. There's nothing bad that suddenly happens if your 5% position later becomes larger. If you short a company valued at $50B, with 5% of your portfolio, it would have to become a trillion dollar company before you go insolvent. If that's still too scary for you, you can short it with 1% of your portfolio. Now the company needs to become a $5T company, before you go insolvent. If you honestly think that Tesla will surge into a $5T company, before crashing back down to <<$50B, then you're the one living in a reality distortion field. If you claim to be extremely confident about Tesla's stock crashing, but aren't willing to take even a 1% short position, then your actions don't match up to your words.
- kgwgk 7y ago
  Note as well that the long term may never come. A company can be acquired at an "irrational" price before reality imposes itself. Did you short Monsanto in 2015 because you expected Roundup lawsuits to hit the stock? Well, you were kind of right but that's Bayer's problem now. Monsanto (the stock MON) is no more and you position was closed at a loss.