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> Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists Also, with shorting the best you can do
by tines 2y ago
> Shorting tends to be intrinsically harder because the market goes up over time and Americans are generally optimists
Also, with shorting the best you can do is double your money (if the stock goes to 0), while you can lose an unlimited amount (as there’s no cap on a rising stock); whereas with going long, you can only lose all your money (again, if it goes to 0), but you can gain an unlimited amount.
- ryandamm 2y agoExcept for leverage... but the general point remains that the upside is capped and the downside in theory is not.
- handfuloflight 2y agoSee put options.
- NickC25 2y agoThe song remains the same - the stock can only go to zero. The upside of a put is effectively capped at (strike price minus stock price) * 100. Going long via shares or calls is unlimited.
- twic 2y agoRight, but the price of the put is much less than the price of the stock, and the price of the put is the denominator. Right now, Walmart is at $91.34, and you can buy a put at $88 expiring on 24th January for $0.18 [1]. If you buy one, and the stock goes to zero by then, you spent $0.18 and gained $88, a 488x return. January 2026 at $86.67 is $5.35 - a mere 16x return. [1] https://www.nasdaq.com/market-activity/stocks/wmt/option-chain https://www.nasdaq.com/market-activity/stocks/wmt/option-cha...
- NickC25 2y agoYou'd spend $0.18 per share, yes, but the option's price is $18, not $0.18. So your return would be roughly 4.1x, not 488x. Remember options contracts are counted in hundreds, so $0.18 is the price per share, not per contract.
- twic 2y agoIf you're going to work it out per options contract, then you spend $18, and get to sell 100 shares at $88. 100 * $88 / $18 is still 488x. (This number is large because Walmart is not going to go bust in the next few days! It serves to illustrate the arithmetic, but maybe it's not the most realistic example.)
- dktp 2y agoThis is incorrect. The way shorting works is you borrow a stock (and keep paying premium for the duration) and sell it Premiums are usually small, so you can make many multiples of paid premium And since their business model is releasing the findings, which in turn makes the stock drop, they can time their short position very well and don't need to pay premiums for long
- tines 2y agoI think you misunderstood what I meant by "your money" in "double your money" (and I was unclear). You can only earn the value of the stocks you borrow. When trading long, the gain is unlimited. According to Investopedia, "the Federal Reserve Board requires all short sale accounts to have 150% of the value of the short sale at the time the sale is initiated" so it's the same principle as going long with margin. You can leverage yourself but there's a limit.
- dgacmu 2y agoYes, but borrowing short is fundamentally leveraged. As long as the stock doesn't increase in value, you don't need much of your own cash to secure it - because you're holding the cash from selling it. But, of course, that gets ugly when the stock goes up; that's when you have to start putting your own money in against the borrow.
- BeetleB 2y agoYou borrow 10 shares that are currently worth $10 each. You immediately sell and get $100. The price drops to $1 per share. You spend $10 to buy those shares and return your loan. So you spent $10 and made $90. That's a 9x gain. Yes you cannot make more than $100. But of course you can! Do the short on 1000 shares instead of 10. The more confident you are of the share price going down, the more shares you borrow. Unlimited upside.
- Dylan16807 2y agoYou need to put up a lot more than $10 to do that borrow. Quite limited upside.