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Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Blankity Blank
Date: August 03, 2018 10:02AM
I’ve tried to wrap my head around these concepts before, but it’s never entirely clicked. Anyone want to take a shot at giving me an Ah ha! moment?
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: cbelt3
Date: August 03, 2018 10:22AM
It's taking a bet on the future price of the stock.
"Long" bets the stock will go up in price.
"Short" bets the stock will go down in price.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Steve G.
Date: August 03, 2018 10:41AM
The best explanation, cbelt. Everything else is details.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: numbered
Date: August 03, 2018 10:43AM
cbelt3 has it right. When you 'short' a stock you use a brokerage to sell a stock you do not own. You are making a promise to buy the stock at some point. You are betting that the price will come down. Eventually you clear the position by buying the stock. The brokerage keeps track of the situation. Not every stock can easily be shorted. Some institution needs to make a market in the shorted stock.

For example, a few folks believe Tesla will crater in value. They have sold TSLA shares they do not own. They are betting Elon does not deliver, and they will get rich.

Of course, if the stock price rises you have to buy the shares at a higher price. That is happening to some of the TSLA short sellers right now...
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: billb
Date: August 03, 2018 10:48AM
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: freeradical
Date: August 03, 2018 10:49AM
Going short is unpatriotic.

devil smiley
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Carnos Jax
Date: August 03, 2018 11:08AM
I've heard folks like Warren Buffett, et. al., that people really shouldn't short as a way to make a lot of money. If you come out on the winning side of a short, you make at most 100%. Whereas, if you put all that time and energy researching a short, into find a stock to invest in that'll grow (i.e. a long position), there is potential to make several times your return.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Ammo
Date: August 03, 2018 11:11AM
Sounds risky to me, but whatta I know?



Be kind, for everyone you meet is fighting a battle you know nothing about. —Wendy Mass

Until you make your unconscious conscious, it will direct your life and you will call it fate. - Carl Jung
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: mikebw
Date: August 03, 2018 11:15AM
Quote
Ammo
Sounds risky to me, but whatta I know?

All investments involve some degree of risk. In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks.
[www.investor.gov]
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: 3d
Date: August 03, 2018 11:20AM
My wife had a hard time wrapping her head around the concept of shorting a stock. Yes, she understood that you will make money if the stock goes down. But the "how" part was the confusing part.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Mike Sellers
Date: August 03, 2018 11:34AM
I still don't get shorting.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Todd's keyboard
Date: August 03, 2018 11:38AM
Quote
Ammo
Sounds risky to me, but whatta I know?

A hypothetical situation. A stock currently sells for $10/share. You sell 1000 shares that you don't own. (Thinking the price will go down and you can buy those shares back for only $9/share.)

If your plan works, you will makes $1000 profit. (minus broker and transaction fees)

If the company goes bankrupt and no longer sells any stock, you never have to buy back the shares you sold, so you keep the $10,000 you made when you sold the shares you did not own.

Remember, though, whether the price of the stock goes down OR up, you are obligated to produce the shares you did not own to a future buyer. If the stock price rises to $20/share, you would need to buy back the 1000 shares, which would cost you $20,000. You only pocketed $10,000 when you shorted (sold the shares you did not own) the stock. You have potentially lost the $10k you made when you sold, plus an additionally $10k you will need to pay the new, higher price.

A friend kept shorting Amazon in the early days. He "knew" the stock was not worth the price it was trading at. Each time he had to buy back Amazon stock at the higher price to cover his short, he would short it again. Ultimately, he ended up selling his house to cover his losses.

Don't worry about the friend. He eventually made back his losses by flipping IPO stocks.

Todd's wary keyboard
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: dk62
Date: August 03, 2018 11:50AM
Quote
Carnos Jax
I've heard folks like Warren Buffett, et. al., that people really shouldn't short as a way to make a lot of money. If you come out on the winning side of a short, you make at most 100%.

??? I would think you can make anywhere from infinity percentage (company goes bust) to a large loss. If you sell a stock for $10 and then buy it for $1, you have made 900%. Same as when you first buy it and then sell it, if the price goes up instead of down.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: J Marston
Date: August 03, 2018 11:54AM
He who sell what isn't his'n
Buys it back or goes to prison.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Todd's keyboard
Date: August 03, 2018 11:58AM
Quote
dk62
Quote
Carnos Jax
I've heard folks like Warren Buffett, et. al., that people really shouldn't short as a way to make a lot of money. If you come out on the winning side of a short, you make at most 100%.

??? I would think you can make anywhere from infinity percentage (company goes bust) to a large loss. If you sell a stock for $10 and then buy it for $1, you have made 900%. Same as when you first buy it and then sell it, if the price goes up instead of down.

Interesting way to look at it. Other people would say you made 90% (of the original $10 investment). It looks like you see it as having invested $1, instead of $10. Another way to look at a short is to say that at the beginning one has not invested anything.

Another interesting question is, "How do you handle the tax situation for shorting a stock that stops trading (company goes bankrupt)? Typically, one reports taxes on profits (or losses) when one buys and then sells a stock. I've never figured out how to report a stock I sold, then never bought back. (Well, I've never been in that situation.)
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Speedy
Date: August 03, 2018 01:40PM
Let the big boys' shorts show you how to lose large.

[cleantechnica.com]

"Not clear what a short seller is? Curious now? Curious how it relates to Tesla? See these pieces:

How I Learned To Stop Worrying About My Tesla Shares & Love The Short Sellers (Part 1)
How I Learned To Stop Worrying About My Tesla Shares & Love The Short Sellers (Part 2)
The Fascinating Tesla Short Story
Stormy Weather In Shortville Will Soon Look Like A Day On The Beach — Epic TSLA Tsunami Coming
Coming Tesla Short Squeeze? Will Stock Go “Supernova” In 3 Weeks? Elon Implies It Will
A Sinister Cellar Of The TSLA Short Story?
Jim Chanos’s Anti-Tesla Short Seller Arguments Debunked (Video)
Is The Possibility Of Perception Perversion The Real Reason Jim Chanos Is Short Tesla?
Elon Musk vs TSLA Shorts Is Personal, Not Business
Tesla [TSLA] Short Sellers Have Lost $1 Billion In 2018"



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: space-time
Date: August 03, 2018 02:35PM
If you have to ask...

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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: ztirffritz
Date: August 03, 2018 02:40PM
That time that VW was briefly the most valuable company in the world because of shorts:

[www.washingtonpost.com]

As a result of the gambit described in the article above, Porsche eventually was forced into near bankruptcy. V A G (Volkswagen AG) eventually purchased Porsche as a result. It was like a little fish, that swallowed a big fish, then the big fished turned inside out and ate the little fish. Confusing to say the least.

[www.telegraph.co.uk]



**************************************
MacResource User Map: [www.zeemaps.com]#



Edited 1 time(s). Last edit at 08/03/2018 02:40PM by ztirffritz.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: NewtonMP2100
Date: August 03, 2018 04:07PM
....not short....vertically challenged......



_____________________________________

I reject your reality and substitute my own!
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: AllGold
Date: August 03, 2018 04:30PM
I was taught to never short a stock.

The reason is with a long position your potential loss is limited to what you paid. With a short, your potential loss is unlimited (you can actually lose MORE than what you paid).

For example, you buy 1000 shares of stock XYZ at $20/share for $20,000. You can only lose at most $20,000 if the company goes kaput.

On the other hand, you short the stock at $20/share. A couple days later the company announces the greatest thing since sliced bread and the shares jump to $100. You now owe $80,000.

If you think the stock will go down, a much better play (for all the but "big boys") would be to use options. The majority of options trades (unless you're totally nuts or one of the "big boys") also limit your potential loss to the amount you paid, and have the added advantage that it only costs a fraction of the amount of the total share value to control those shares, i.e. an option that would control $20,000 of XYZ (1000 shares at $20/share) might cost $2,000 or $3,000.



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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: 3d
Date: August 03, 2018 06:14PM
Rough analogy on concept of shorting a stock.

Let's go with gasoline because it's something everyday that goes up and down in price.

Gas is currently $3 a gallon. My friend's mower is out of gas. I borrow a gallon of gas from a neighbor promising to replace the gallon of gas at a later date. I bring the gallon of gas to my friend and he gives me $3.

In one week.
Gallon of gas drops 50cents to $2.50. I buy a gallon of gas and give it back to my neighbor.
Yeah baby. I just made 50cents!

OR

In one week.
Gallon of gas goes up 50cents to $3.50. I buy a gallon of gas and give it back to my neighbor.
Dang. I just lost 50cents.

OR

In one week. Gallon of gas goes up 50cents to $3.50. Thinks to self, maybe I should wait another week before returning the gas to neighbor. The price will go back down by then. In two weeks. Gallon of gas goes up another 50cents to $4. Thinks to self. Dang, I should've returned the gas last week. The price is so high now, it most likely will go down in another week. Right? In three weeks. HUGE HURRICANE hits the oil refineries and gas skyrockets to $6.50 a gallon. The neighbor comes knocking and says, "Listen, i really need that gallon of gas back now." Pay $6.50 for that gallon of gas and return it to my neighbor. Ughhh... i just lost $3.50 on that $3 gallon of gas.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: dk62
Date: August 03, 2018 09:00PM
Watch Trading Places

Near impossible to understand the movie without understanding shorting, but great fun regardless. And not only because of Jaime Lee Curtis. Although the trading is actually in futures and works a bit differently, but similar concept.



Edited 1 time(s). Last edit at 08/03/2018 09:04PM by dk62.
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Re: Explain it to me in small words. Going “long” or “short” on a stock
Posted by: Carnos Jax
Date: August 04, 2018 02:14PM
Quote
Todd's keyboard
Quote
dk62
Quote
Carnos Jax
I've heard folks like Warren Buffett, et. al., that people really shouldn't short as a way to make a lot of money. If you come out on the winning side of a short, you make at most 100%.

??? I would think you can make anywhere from infinity percentage (company goes bust) to a large loss. If you sell a stock for $10 and then buy it for $1, you have made 900%. Same as when you first buy it and then sell it, if the price goes up instead of down.

Interesting way to look at it. Other people would say you made 90% (of the original $10 investment). It looks like you see it as having invested $1, instead of $10. Another way to look at a short is to say that at the beginning one has not invested anything.

Another interesting question is, "How do you handle the tax situation for shorting a stock that stops trading (company goes bankrupt)? Typically, one reports taxes on profits (or losses) when one buys and then sells a stock. I've never figured out how to report a stock I sold, then never bought back. (Well, I've never been in that situation.)

Quote
AllGold
I was taught to never short a stock.

The reason is with a long position your potential loss is limited to what you paid. With a short, your potential loss is unlimited (you can actually lose MORE than what you paid).

For example, you buy 1000 shares of stock XYZ at $20/share for $20,000. You can only lose at most $20,000 if the company goes kaput.

On the other hand, you short the stock at $20/share. A couple days later the company announces the greatest thing since sliced bread and the shares jump to $100. You now owe $80,000.

If you think the stock will go down, a much better play (for all the but "big boys") would be to use options. The majority of options trades (unless you're totally nuts or one of the "big boys") also limit your potential loss to the amount you paid, and have the added advantage that it only costs a fraction of the amount of the total share value to control those shares, i.e. an option that would control $20,000 of XYZ (1000 shares at $20/share) might cost $2,000 or $3,000.

Correct.....very little upside, HUGE DOWNSIDE. Btw, spot on regarding the options advice.
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