Comment Re:Bunch of us shorted the snot out of SCO stock (Score 4, Informative) 294
Correct me if I'm wrong, but the best you can make out of a short deal is to double your money? So that's a MASSIVE investment you made there!
For inquiring minds; the reason you can only double on a short is that technically you borrow and sell it.
You "pay" enough money to cover the shares to your broker, who keeps it as a security for the duration of the deal.
When you close the short deal, your broker buys enough new shares to cover your initial loan you get the difference between what they sold the shares (start of transaction) for and what they bought them for (end of transaction).
Thus if a stock is completely wiped out while you're shorting it, your gain will be;
Gain = (InitialPrice-FinalPrice)/InitialPrice = 100%
If the stock falls 50% you instead make;
Gain = (1-0.5)/1 = 50%
It's extremely risky to invest in short deals if you don't constantly keep on top of the investment. Say you shorted SCO way back when everyone thought it was going to die but instead it doubled or even trippled it's value, in that case you stand to loose far more than you initially invested.
Gain = (1-3)/1 = -200% (ouch)
But your broker will actually terminate part of or your entire short deal as you become unable to cover the re-purchase price.
Now if you change your mind and say it was a sell option that made you all that cash, your credibility might actually go up...
cheers,
m
For inquiring minds; the reason you can only double on a short is that technically you borrow and sell it.
You "pay" enough money to cover the shares to your broker, who keeps it as a security for the duration of the deal.
When you close the short deal, your broker buys enough new shares to cover your initial loan you get the difference between what they sold the shares (start of transaction) for and what they bought them for (end of transaction).
Thus if a stock is completely wiped out while you're shorting it, your gain will be;
Gain = (InitialPrice-FinalPrice)/InitialPrice = 100%
If the stock falls 50% you instead make;
Gain = (1-0.5)/1 = 50%
It's extremely risky to invest in short deals if you don't constantly keep on top of the investment. Say you shorted SCO way back when everyone thought it was going to die but instead it doubled or even trippled it's value, in that case you stand to loose far more than you initially invested.
Gain = (1-3)/1 = -200% (ouch)
But your broker will actually terminate part of or your entire short deal as you become unable to cover the re-purchase price.
Now if you change your mind and say it was a sell option that made you all that cash, your credibility might actually go up...
cheers,
m
