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I am getting confused when calculating the percentage profit (or loss) of a short position and I don't know which version is the right one:

version 1:

// I enter a short position with entry price 8 and exit it with 10
// absolute loss = -2 (what is the value in percentage?)
enterShort=8, exit=10 => (8/10 - 1) = -0.2 = -20% loss

version 2:

// I enter a short position with entry price 8 and exit it with 10
// absolute loss = -2 (what is the value in percentage?)
enterShort=8, exit=10 => (10/8 - 1) = 0.25 = 25% loss

I guess, version 1 is correct and version 2 is wrong. Am I right?

If version 1 is correct, then the percentage calculation for short positions would be the same as for typical long positions. Am I right?

2 Answers 2

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If you sell 100 shares short at $8 then your liability is $800 which you owe. If share price drops to $6, you now owe $600 and you have a 25% gain. At $4, a 50% gain. If the stock goes kaput and is worth zero, you'll have a 100% gain.

If share price rises $2 to $10, you owe $1,000, a 25% loss. At $12, a 50% loss, etc.

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Ok, after thinking about it: version 2 is correct (version 1 is wrong!). So the percentage calculation is always the same - it does not matter if long or short position.

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