180
votes
Accepted
Can someone explain the GME short squeeze situation to a non-stock trader?
You're a non-trader. So you maybe don't even 'get' what short-selling is intuitively yet. Let alone options. I'll try to make this as simple as possible.
Stocks first, options later:
Let's pretend we'...
- 2,489
79
votes
Accepted
Why can't GameStop split their stocks?
The split wouldn't change a thing.
All the contracts, options, and the like would be adjusted to account for the stock split. Whenever a stock splits the total value of the company remains the same.
...
- 140k
68
votes
Accepted
How to profit off a stock price falling
The three normal ways to profit from 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....
53
votes
Can I profit from anticipating a drop in value?
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 ...
- 49k
47
votes
Accepted
How does the WallStreetBets community benefit from buying poorly performing stocks?
The idea is that WSB members will buy up a bunch of the stock, which will raise the price of the stock. Short sellers will then buy up stock to cover their positions, and they'll have to buy those ...
- 10.3k
42
votes
Accepted
Deep in the money put options
It costs you $584.9 x 100 = $58,490 to buy the put option.
You would instantly make $80,000 - $22500 - $58,490 = -$990
- 10.4k
39
votes
Accepted
If I short cryptocurrencies, why don't I get the money immediately?
The key concept is margin requirement.
Conceptually, when shorting, you are indeed credited with $60k and negative 1 bitcoin. However, first of all, you cannot simply create such a position from an ...
- 29.7k
38
votes
Accepted
Why do shareholders participate in shorting stocks?
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. ...
- 42.6k
38
votes
Accepted
Would I be able to avoid the wash sale rule if I buy back the security on January 1st after selling it on December 31st?
No, that's the whole point of the wash sale rule, to keep people from realizing a loss at the end of the year for tax purposes without significantly changing their position.
This assumes that you sold ...
- 135k
35
votes
Why would collateral be required to make a stock purchase?
However, if I give a broker cash money and ask for a share of a stock in return, why would this need anyone to have collateral?
The seller's broker needs to get paid by the buyer's broker. Because ...
- 10.4k
34
votes
Why aren't there automated systems already in place to recognize potential short squeezes and capitalise on them?
I think this question makes false assumptions that are prevalent at the moment in the WSB rhetoric and echoed in the media. The claim that short squeeze "allows you to blackmail large hedge ...
- 566
32
votes
Shorting a stock after dividend
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 ...
- 5,085
26
votes
Accepted
Why do speculators short-sell a stock when they wish to go short, rather than purchase put options?
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'...
- 35.8k
26
votes
Accepted
Why aren't there automated systems already in place to recognize potential short squeezes and capitalise on them?
The reason this doesn't work is because of the real world: a failing company can declare bankruptcy, which they would declare to protect themselves from creditors, the creditors would be bondholders ...
- 20.2k
26
votes
Why can't GameStop split their stocks?
A stock split does not change the value of the long or the short positions in a stock.
If I own 100 shares of company XYZ that is currently trading at $50 (worth $5k) and it splits two for one, I then ...
- 76.4k
20
votes
Would I be able to avoid the wash sale rule if I buy back the security on January 1st after selling it on December 31st?
A wash sale violation occurs if you acquire a 'substantially identical' security within 60 days (30 before or 30 after) of realizing a loss. It doesn't matter whether it's in the same year or in two ...
- 76.4k
17
votes
Can I profit from anticipating a drop in value?
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 ...
- 10.4k
17
votes
Accepted
Why is "Short interest" not the interest of short to pay, but the volume of short shares?
"Interest" is a heavily overloaded word in English. Merriam Webster has 5 broad meanings. You are thinking of number 3 of those:
3a : a charge for borrowed money generally a percentage of ...
- 3,982
16
votes
Accepted
Why does short selling require borrowing?
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 ...
- 11.5k
16
votes
How can one go short in Uber?
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 ...
- 116k
15
votes
Accepted
Can a single share of stock be shorted multiple times?
Yes, a share can be lent and shorted more than once:
If a short-seller borrows shares from one brokerage and sells to another brokerage, the second brokerage could then lend those shares to another ...
- 29.7k
15
votes
Can someone explain the GME short squeeze situation to a non-stock trader?
Short sellers borrow shares that they believe will drop in price in order to buy them back after they fall. If they're wrong, they're forced to buy at a higher price, incurring a loss.
More than 100% ...
- 76.4k
15
votes
How does the WallStreetBets community benefit from buying poorly performing stocks?
how does this benefit the members of the /r/wallstreetbets/ ?
To simplify:
Institutional investors short stock A
Massive purchase from WSB of stock A
WSB members (on average) profit during the ...
- 11.3k
14
votes
Why isn't "everyone" short VXX?
Here's a PSA, and a short answer.
PSA: Please don't trade things that you don't understand. That's rule #1. Not that you're doing that. You're trying to educate yourself, I can see that clearly. ...
- 1,259
14
votes
Accepted
How does stock split work in practice with short sellers?
The split pay date is August 28, and the split execution date is August 31.
On the split execution date, short sellers owe 5 shares instead of 1 share.
could short-sellers in theory, borrow one share ...
- 17k
13
votes
Accepted
Sellers won't sell back shares in a short sale?
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 ...
- 4,996
13
votes
Why would collateral be required to make a stock purchase?
This was explained on a very recent NPR Planet Money podcast: https://www.npr.org/transcripts/963466346
Here's a brief summary:
There is a two day window between when a stock transaction executed and ...
- 1,343
13
votes
If I short cryptocurrencies, why don't I get the money immediately?
Think of it this way: when you short Bitcoin you are betting that Bitcoin will fall, and you are taking the risk that it won't (you will still be liable to "return what you borrowed" even if ...
- 24k
13
votes
Accepted
Does shorting stock cause your account value to go up?
Shorting a stock increases the amount of cash in your account but it does not increase the value of your account because there is an offsetting short position whose value is negative (you must buy it ...
- 76.4k
13
votes
Accepted
Does the wash sale rule apply in reverse?
Yes, you will owe tax on the realized gain. But your newly-purchased shares will have a higher cost basis, potentially reducing the taxable gain of future sales (or increasing the deductible loss).
...
- 9,514
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