Sell Stock Short

A.K.A. Short Stock

investment

Opinion: Bearish to very bearish.

Example:
Short 200 Shares XYZ @ $60

Description: Not often used by bearish investors. Although mechanics of execution are not that complicated, most investors only think in terms of making money from a stock advancing, not by one declining.

Strategy Profile: see <Building Blocks– Long Put>

When to use: When bearish on XYZ and willing to accept the strategy’s risk/reward profile. Offers the greatest potential if opinion is correct. If wrong, has the highest potential risk.

Profit & Loss Characteristics: Profit increases as XYZ declines. Loss increases as XYZ rallies. The strategy’s P&L is based solely on the difference between the initial selling price and the eventual purchase price.

Break-even Point: Initial shorting price.

Time Decay: No effect.

Volatility: The more volatile the underlying stock becomes, the greater the potential for both larger profits and larger losses.

Note: Short-selling requires that the investor have a complete understanding of both how shares are borrowed and lent and the responsibilities and rights of both parties to the agreement.