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>If their gambit succeeds (shorting), the value of your shares diminish. The causality here seems kinda confusing. People shorting an equity doesn't make it g
by jmcqk6 5y ago
>If their gambit succeeds (shorting), the value of your shares diminish.
The causality here seems kinda confusing. People shorting an equity doesn't make it go down automagically. They don't have control over that.
They might be right that the stock will go down, but more likely, the shares are going to be used by someone riding trends of some sort.
If you're a long term investor, you don't care about short term trends. If you're planning on holding the stock for _years_, regardless of the performance over the next few months, then it's a nice way to generate income, and with less risk than doing something like selling Covered Calls on them.
- jimmydorry 5y agoThe shorter borrows the stock to immediately sell (typically at the “buying” price of the spread). This creates immediate down pressure on the price, which is meant to be balanced by eventual up pressure when they have to buy shares to cover. If you add up the effect on the price lending all retail stocks has on the market, it won’t be insignificant. Looking at it the other way, if you can generate “less risk” income off it, you have to be aware that the people borrowing the stocks are earning more than they are parting with. There is no free lunch on the stock market.