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In your example the bet is between A and B. If the price in a year is say $80 then yes A makes a $10 profit. But in that situation B loses the same amount: they
by seoaeu 5y ago
In your example the bet is between A and B. If the price in a year is say $80 then yes A makes a $10 profit. But in that situation B loses the same amount: they started with $100 of stock, and a year later ended with $10 cash and $80 of stock. Conversely, B makes a profit if the stock goes down by anything less than 10%. This is a really good deal for B!
- ArtTimeInvestor 5y agoIn your example the bet is between A and B But that bet is not symmetrical. If B is of the opinion that the price will stay flat, it still makes sense for them to lend the share because they make a profit of $10. So we have two participants: A thinks the price will go down. B thinks the price will stay flat. Looks asymmetrical to me.
- seoaeu 5y agoThe bet is symmetric, but not around the current price: A thinks the price will be under $90 in one year B thinks the price will be over $90 in one year Of course that doesn't explain why they chose $90. If A really wasn't able to find anyone willing to bet that the price would be above $95 or $99 or whatever (despite C wanting to buy the stock for $100!), that would be a signal
- ArtTimeInvestor 5y agothat would be a signal That is the point. The statement I made which sparked our discussion was "I can imagine a structure where shorts do signal an imbalance".