We’re rewarding the question askers & reputations are being recalculated! Read more.
72

That would be the ultimate in insider trading. They made a stock transaction knowing in advance what was going to happen to the share price. They could easily expect to face jail time, plus the CEO would still face lawsuits from the board of directors, the stockholders and the employees.


67

The three normal ways profit on falling stock prices are: Short sale: Borrow someone else's shares. Sell at current price. Wait for price to fall. Buy back at lower price. Return shares to owner. Buy put options with a strike price lower than current price. When stock drops below strike price of put, either buy shares at new low price and exercise the ...


53

To expand on the comment made by @NateEldredge, you're looking to take a short position. A short position essentially functions as follows: Borrow a share owned by someone else Sell that share Wait for the price to fall Buy a share after the price falls Return the share to the owner from which you borrowed. Here's the rub: you have unlimited loss ...


38

In short (pun intended), the shareholder lending the shares does not believe that the shares will fall, even though the potential investor does. The shareholder believes that the shares will rise. Because the two individuals believe that a different outcome will occur, they are able to make a trade. By using the available data in the market, they have ...


31

If you short the stock on the record date, that is the date that the calculation eligibility for dividends is made, you'd be liable to pay the dividend to the original owner of the stock, so no you can't get sure profits that way.


23

Short sales have a lower direct cost (i.e., the price of the put option), and so also a higher potential profit, but a much higher risk. Unhedged short sales are incredibly risky, of course, but they're typically hedged in one fashion or another. Put options are fairly expensive, so they won't necessarily be profitable unless the stock depreciates ...


17

Purchasing an option to sell the stock is probably the safest bet. This gives you reasonable leverage, and your risk is limited to the cost of the option. Say the stock currently sells for $100 per share. You think it will drop to $80 per share in the next two weeks and the market thinks the price will be stable. Now, consider an option to sell one share ...


16

The answer to this question is related to another question: How would I invest in Uber? Given that Uber is a privately-held company, the average investor cannot directly buy stock. However, there are some indirect methods that you can use to invest in Uber, and as a result, it is also possible to indirectly short Uber. One method is to invest in (or ...


14

why can't I just use the same trick with my own shares to make money on the way down? Because if you sell shares out of your own portfolio, by definition, you are not selling short at all. If you sell something you own (and deliver it) - then there is no short involved. A short is defined as a net negative position - i.e. you sell shares you do not have....


13

In order to short a stock, you have to borrow the number of shares that you're shorting from someone else who holds the shares, so that you can deliver the shares you're shorting if it becomes necessary to do so (usually; there's also naked short selling, where you don't have to do this, but it's banned in a number of jurisdictions including the US). If a ...


11

You can short sell shares, buy put options or write call options as noted above, but make sure you have stop loss orders in place if you are going long or short. Another method you could use to also profit from a falling market is to buy bear ETFs (Exchange Traded Funds), you can use these to trade the market as a whole or to profit from falling sectors or ...


10

In equilibrium, there is no money to be made on the large spreads that is not related to the risk of trading. When multiple traders begin to believe there is money to be made, competition between them can quickly lower the spread to a level where the profits are only compensating for the risk of trading. Let's see how this works with your example. Trades ...


10

When you short a stock and the stock goes ex-div. you have to pay out an amount equal to the dividend. So in your example, GG would short the stock at $10.00, buy back at $9.00 and be charged $1.00 for the dividend. Net effect $0.00.


10

mhoran_psprep has answered the question well about "shorting" e.g. making a profit if the stock price goes down. However a CEO can take out insurance (called hedging) against the stock price going down in relation to stocks they already own in some cases. But is must be disclosed in public filings etc. This may be done for example if most of the CEO’s ...


9

You don't actually know that prices of those shares will fall; you are essentially betting that they will fall. Not everyone agrees with you. Someone who believes that the prices will not fall will be willing to loan you shares.


9

Why would a shareholder lend the investor the shares? Some brokers like IB will pay you to lend your shares: http://ibkb.interactivebrokers.com/node/1838 If you buy shares on margin, you don't have much of a choice. Your broker is allowed to lend your shares to short-sellers.


9

Brokers have the right to charge interest on any stock that they lend you. Since you borrowed the TSLA to short it, the owner of those shares can charge you interest until you return them. If you are not getting charged interest on some shares that you have borrowed to short, consider it generosity on the part of the lender.


9

You've got a number of misconceptions here. Let's make up some numbers. Alice and Dave both have 100 shares of XYZ that they bought for $10 each. Bob has $15. Carol has $1000. XYZ is trading at $10 today. Bob makes a deal with Alice: loan me 100 shares of XYZ today and I will give them back to you tomorrow, plus my fifteen bucks. (See below) Alice thinks "I ...


9

The margin requirement under Regulation T for shorting stock is 50% of the value of the shares. The minimum margin maintenance requirement is 125% of the current market value of the short sale. Some brokers have higher requirements. Yes, the next recession is inevitable but when it occurs can make or break your proposed strategy. The more the share ...


8

When you take on a short position you have "borrowed" those shares to sell on the market. To counter that position you would buy back those shares but if the company you shorted is no longer listed then those shares would be significantly devalued. (In many cases this means that the shares no longer have any value at all.) This essentially means you do not ...


8

Shorting penny stocks is very risky. For example, read this investopedia article, which explains some of the problems. In general: Illiquidity. Illiquidity from a small number of buyers/sellers means that you will have a hard time covering your short position, particularly if it's going the wrong way. Difficulty with the transaction. You won't ...


8

When I have stock at my brokerage account, the title is in street name - the brokerage's name and the quantity I own is on the books of the brokerage (insured by SIPC, etc). The brokerage loans "my" shares to a short seller and is happy to facilitate trades in both directions for commissions (it's a nice trick to get other parties to hold the inventory ...


8

If you can't find anyone to lend you the shares, then you can't short. You can attempt to raise the interest rate at which you will borrow at, in order to entice others to lend you their shares. In practice, broadcasting this information is pretty convoluted. If there aren't any stocks for you to buy back, then you have to buy back at a higher price. As in, ...


8

Sorry to sound snarky and harsh but this idea just isn't realistic. Why not buy currencies of democratic countries and short those of repressive regimes? Or buy companies that make toys and short those that make alcoholic beverages? Why? For the same reason that you don't "buy vegan companies and short companies that were found to be engaged in animal ...


8

Buying and shorting on margin requires 50% margin. If you short 100 shares at $100 the you have: $10,000 Market Value $ 5,000 Equity $15,000 Credit Margin is Equity/Market Value = 50% The Minimum Margin Maintenance Requirement for NASDAQ and NYSE stocks is 25% though brokers can require more (leveraged ETFs require more margin). The MMMR is ...


8

Your mother was not swindled. She was just the recipient of bad advice and bad money management. The broker made money from the commission or from an annual money management fee. He made nothing from the actual trade. Out of curiosity, was your mother informed about this potential trade and she gave assent to go short? As a managed account, did the ...


7

Selling short in brokerage accounts doesn't work that way for the regular client. Ask your broker what it will cost you to short the treasury if you remove the cash you think you'll get. You will probably wind up showing money borrowed and charged margin instead of the credit you expect. If your proposal worked, anyone can short in their brokerage ...


7

Market makers, traders, and value investors would be who I'd suspect for buying the stock that is declining. Some companies stocks can come down considerably which could make some speculators buy the stock at the lower price thinking it may bounce back soon. "Short sellers" are out to sell borrowed stocks that if the stock is in free fall, unless the person ...


7

In order to compare the two, you need to compare your entire portfolio, which is not just how much money you have, but how much stock. In both scenarios, you start with (at least, but let's assume) £20 and 0 stock. In your scenario, you buy 10 shares, leaving you with £0 and 10 shares. You then sell it at £1.50/share to cut your losses, leaving you with £15 ...


7

You will be charged a stock borrow fee, which is inversely related to the relative supply of the stock you are shorting. IB claims to pay a rebate on the short proceeds, which would offset part or all of that fee, but it doesn't appear relevant in your case because: Your short proceeds are less than $100k You spent the short proceeds already It is a bit ...


Only top voted, non community-wiki answers of a minimum length are eligible