Posted on 01/28/2021 2:02:21 PM PST by Kid Shelleen
Recent events have thrust the practice of selling a stock short into the spotlight. With companies like GameStop (NYSE: GME) and AMC Entertainment Holdings seeing their shares soar as the result of short squeezes, everyone's getting an education about the dynamics of short-selling and how it actually works.
In this latest short-selling controversy, many investors have been confused by the sheer level of exposure that short-sellers have to certain stocks. For instance, GameStop recently had short interest that exceeded 100% of its available shares. That left many investors completely gobsmacked -- but there's a simple explanation for how situations like the one we're currently in can come about.
(Excerpt) Read more at msn.com ...
The MSM trying to do some ‘splaining for their buddies.
Can you short-sell stocks that you actually own?
No, unless on another account.
Although it makes zero practical sense.
Government deficits.
Deficit spending.
That’s called short against the box. Completely legitimate and should be the only lawful short sale.
The big guys are allowed to cheat.
The real reason.
How is it different from selling an option on a stock you own?
"The investor who loans you the shares has the right to get them back at any time with little notice."
"Annie owns shares of GameStop, and Annie and her broker have an agreement that allows the broker to lend Annie's shares to short-sellers. It lends them to Bob, who subsequently sells those borrowed shares short in hopes that GameStop's share price will fall.
An investor named Chris ends up buying those borrowed shares from Bob. However, Chris has no way of knowing that those shares have been borrowed from Annie. To Chris, they're just like any other shares."
Is this true for anyone? When you or your 401k manager buy(s) a stock, it can be sucked away from you by "Annie" because you didn't know it was "on loan"?
Since the stock in question went up so high, why doesn't "Annie" just take them back? Then they'd have all the profit yes?
When "Annie" takes it back, do "Bob" and "Chris" transactions just disappear as if they never happened and no money changes hands?
The word is “rehypothecation.” transferring collateral from one party to the next in a long daisy-chain
This is a big problem in China (and now the USA) Someone takes a deed on a building, or a truckload of copper, or oil - and uses it as collateral on a loan. That holder then takes that same deed, and also uses it as collateral on a loan - and so on down the line.
When the actual owner then goes looking for it - they find that its been passed along and transferred away, and the whole scheme collapses.
How is it different from selling an option on a stock you own?
When you sell the option, you still own the stock, you are selling the right to buy it from you at a set price.
There was a time when short selling what you owned was allowed as a tax strategy. “A short sell against the box is the act of short selling securities that you already own, but without closing out the existing long position. This results in a neutral position where all gains in a stock are equal to the losses and net to zero. The purpose is to avoid realizing capital gains from a sale to close, and so it has been restricted by regulators in practice.”
Thanks. I used to know this stuff, but since I just buy indexed funds now I am out of practice.
the ONLY reason the criminals get away with this is:
1. they paid of the corrupt GOP and DNC, and
2. Peter Strzok’s wife is in charge of SEC “investigations”.
they are untrustable since before the Titanic was
burnt by his grandfather.
I just read a tutorial on short selling and think I understand it. I will say this: a novice investor, I invested very low five figures early last year for my sons starting right before the crash but only for very little money to start. I bought many diversified issues when the market was at bottom,
Dumping all the money I could I to it. one son made 137% over the last year, the other 80. While small investors should avoid jumping in an out, this overheated market and the ruinous incoming policies of the administration have me judiciously, gradually but consistently, pulling back into cash, and both are around 50% cash now.
We bought AMC when it was very low, and sold almost everything when we were up about 250%. Sold the last shares yesterday at 700% above our purchase price. Thanks short sellers! Sorry about you getting crushed and all.
No... a short sell by definition is borrowing a share from the brokerage (who takes it from another account or holds a certain amount in a central account) and selling it at the current market price. Then when you close you have to buy a share to give back to the brokerage.
If you own the share you can sell it out right expecting it to drop and then buy back in - same idea, just a different method.
An option is the right to execute at a specific price on a certain date. You aren’t required to exercise the option and your risk is only what you paid for the right to own the option. Call expecting price to go up, Put expecting price to go down.
A short sell you sell a borrowed share of stock at current market price. When you close - you MUST purchase the stock to close the position - independent of the cost - shorts have potentially infinite price exposure.
You can’t just swap in your own stock. That makes sense. Thanks.
The article is horse hockey. They are saying that borrowed shares can be borrowed and relended multiple times, and they can’t.
The FACT is Citadel sold 140% of GME all by themselves without owning the shares. That’s a naked short, and it’s illegal. Now the press is trying to cover up the illegality. The Motley Fool of all places.
Citadel clears 65% of Robin Hood’s trades for them. They are forcing Robin Hood to involuntarily close down individual shareholders positions in GME today.
This stinks so bad it makes synthetic CDO’s look pedestrian by comparison.
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