Posted on 12/06/2023 4:19:36 PM PST by Angelino97
A quote, often attributed to Keynes. "The market can often remain irrational longer than you can remain solvent".
Something Soros would do.
You borrow an asset from someone else, say 100 shares of Tesla. You sell what you just borrowed, say for $250 a share, and get a $25,000 cash loan. You're broker arranges all this, and you pay interest on the loan to your broker until you buy the stock back to return it.
If Tesla has a bad news day, and it's stock goes down to $200, you buy it back for $20,000 and return it to the former owner. Again, your broker arranges it all. From the $5000 difference, you pay your broker his interest and pocket the rest, it's yours to keep.
But, if Tesla has a great news day, and its stock goes up to $300, you now are liable for $30,000 to re-aquire the asset you borrowed and sold (100 shares of Tesla stock). If your broker only grants you a $31,000 line of credit, he closes your loan: He uses your account to buy the now high price stock and also collects the interest owed to him.
You're out $30,000 to buy back the stock and another $1,000 or so in interest for the privilege to gamble in your broker's casino, a net loss of $6,000.
He was my first thought.
Thanks.
Makes sense except terminology, for example: “ You sell what you just borrowed, say for $250 a share, and get a $25,000 cash loan.”
If you sold it why is it a loan? Why isn’t it just that you get $25,000 on the sale?
“Probably the same people who took out massive short positions just prior to 9/11.”
Names and details, please.
The lender can’t lose, only gets interest, right? That’s why he does it?
The lender makes some money on the shares they lend, but of course there is always the risk that their price could go down, which is what the borrower is betting on. It creates a healthy market.
Dozens of embedded journalists knew in advance. Egypt knew in advance.
Egypt? This this is the first I heard anyone accuse Egypt. Has Israel accused Egypt?
Egypt intelligence official says Israel ignored repeated warnings of ‘something big’
You borrow stock, sell it, hoping to buy it back later at a cheaper price and returning it to the lender.
The brokerages handle the borrowing/returning part.
Short sellers are mercilessly vilified by economic illiterates. They serve a function of investigating/uncovering fraud.
a Munich-2 candidate
Thanks.
That it is loaned is key.
It’s still sell higher than bought.
Sell high, buy low.
On most stocks, they do not charge interest.
Brokerages are only supposed to allow short sales if shares are available to be borrowed. Problems arise when they allow the short sale w/o having the stock to lend.
On certain bankruptcies like Countrywide Financial borrow fees hit 140%apr.
They are very slimy w borrow fees of heavily shorted stocks. The apr changes daily based on the availability of shares to be lent.
Lastly, the sale obv generates cash. Shorting can also be an inexpensive way to borrow money. Instead of paying a cc 24%, one can short a utility and pay their dividend to the lender, saving quite a bit.
It's actually the broker who sold someone else's stock. That was in order to loan the "short seller" the proceeds from the sale. The "short seller" then has money he didn't have before - a loan. But it's the broker who's on the hook to replace the other guy's stock at some point, whether it's then worth more or less, so besides loaning the proceeds, the broker makes it the "short seller's" obligation to replace the stock at some point whether it costs more or less.
The broker keeps track of all this. The "short seller" has a negative number of shares of the stock he made a "bet" on recorded in his account, and also a loan of the money from those shares having been sold.
If the stock falls in value, the "short seller" at some point buys it back on the cheap, closing the loan on his own, whereupon the broker returns it to the original owner and collects any remaining interest owed on the monetary loan. The original owner never knows his stock has been written up in the margin as on-loan, that's the broker's prerogative for the pool of traders that have signed up for margin trading (meaning they can borrow from the broker).
If the stock rises in value, it may start to appear that the "short seller" won't have enough money for the broker to make the original stock owner whole. The broker then calls in the loan (the original proceeds) and also takes enough cash or other assets that the "short seller" owns to buy back the stock at it's higher price. The broker also takes enough for his just compensation (interest he hasn't already collected and any fees) and closes the loan.
Sell high, buy low.
Exactly, usually when the market is setting records, the amount shorted sets records too.
I find it much more likely that members of Hamas, who obviously had pre knowledge of the attack, traded on the Israel Stock Exchange and made profits. The palestinians are evil, but they are not necessarily stupid.
Columbia Law School professor? Wouldn’t trust any Ivy League law professor today ( there must be a few honorable exceptions but I don’t know who they are).
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