Quote: (06-29-2013 08:21 AM)_DC_ Wrote:
Yes, selling short theoretically you can have loses of infinity and can only gain the present price of the stock (if it goes to zero).
Selling short goes like this: You "borrow" the shares you want from a broker or other investor and instantly sell them at the current price; now you have an IOU for the shares you borrowed and sold; if its a "naked" short, there is no particular timeframe to repay the shares.
So you say your stock is selling for $100 a pop and you think its gonna plunge. You borrow 100 shares from a broker and instantly sell them, you now have $10,000. Problem is youre legally obligated to replace the shares (and in fact your broker will have margin requirements so you are forced to pay back). Two months later if the stock is at $50, and you can buy the 100 shares at this price ($5,000) to pay back the broker.
In this situation you would have made $5,000 on the short sell. Imagine shit gets outta control though and the company is at $300 per share. You owe $30,000 (20k loss)! I believe the broker has the right to liquidate any stock you have to pay the amt if you owe more than you can pay.
Id highly suggest some basic reading before selling short. At the very least know how to put in a buy to cover stop loss.
Thanks for the info. This seems more than I want to risk. I think my best option might be to buy more at a low price during a bad market period and hope the stock picks up when the market rises. That way I can cut my losses at least.