Author Topic: what is "short"?  (Read 4976 times)

Offline junn yun

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what is "short"?
« on: May 22, 2006, 08:14:20 PM »
i've just started playing cashflow 202 and i came across this term "short" and i kinda understand it is something to do with selling "borrowed share" but i still don't understand the fundamental of this investment technique and why investor opt for it... anyone familiar with this technique pls enlighten. thank you!

Offline itoslemma

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Re: what is "short"?
« Reply #1 on: May 23, 2006, 08:09:30 AM »
from the looks of it, i believe you're talking about short selling. here is how it works, you would short sell when you are anticipating a designated stock price to fall sometime in the future. so what you'll do is borrow the stock from someone else now and sell it at the current price with an obligation of buying it back in the future when its due (to return it back to the owner).

expected payoff for the transaction would be;

E(Payoff)=S0-S1

whether this results in a gain or loss will depend on the path of the future stock price.

make sense?

Offline julez.lim

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Re: what is "short"?
« Reply #2 on: May 23, 2006, 08:56:11 AM »
Great explaination gang!

Instead of the usual stock trading in Malaysia whereby you hope to buy low sell high, short selling is just the opposite. Pre 1997 recession, if not mistaken, we can short sell in Malaysia. One thing about this is that short selling will cause a country's stock market to go down faster from my point of view..

Assuming like the scenario of current KLCI.. Everyone would love to short sell... Coz the odds are more stocks will go down that up. Hence, by forcing the stock prices to tumble more for people to gain more, KLCI will drop even more drastically if there is short selling. Luckily there isn't in Malaysia. So, with short selling, you can earn in a bear market too

Offline itoslemma

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Re: what is "short"?
« Reply #3 on: May 23, 2006, 09:12:56 AM »
1 more fact i would like to add is that short selling is only allowed in an uptick market, this makes short selling a whole lot less attractive :)

Offline jeybon

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Re: what is "short"?
« Reply #4 on: May 23, 2006, 11:27:10 PM »
Fyi, Bank Negara allowed short-selling beginning of this year after banning it to protect the market like explained by Julez.  I got a felling that there's a few Guru in stocks here.  As I'm quite new to stocks, shall have lots to enquire later.
Regards,
Jeybon

Offline junn yun

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Re: what is "short"?
« Reply #5 on: May 24, 2006, 10:55:30 PM »
thank you so much for all the guru here.... ermm... seems like short selling is very risky to me.. what do you guys think?

Offline julez.lim

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Re: what is "short"?
« Reply #6 on: May 25, 2006, 07:26:24 PM »
junn yun,
Let me make a guess... You don't invest in stocks before. right?

Coz I see the risk level of short selling equal to stock investment. For current stock investors, having able to short sell would be something great as it can be considered as a way to minimize risk as I can shift my investment strategy to short selling during bearish market to earn or cover my loses, from my point of view. Like in the current market, I would love to short sell since stocks are mainly going down..

Offline itoslemma

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Re: what is "short"?
« Reply #7 on: May 26, 2006, 08:34:41 AM »
julez, you are not allowed to short sell in a downtick market, whereby majority of stock prices are currently lower than their previous trades. this is the drawback of short selling. Even if do get the chance to short sell, you'll be subjected to collateral deposits and dividend payments to the owner if there are any.

Offline junn yun

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Re: what is "short"?
« Reply #8 on: May 26, 2006, 06:06:55 PM »
hey julez,

    yes you're right, i've not invest in stock market b4. i think is wise to educate myself 1st b4 i take higher risk investment... that's the reason i'm here too. =) thank you so much for sharing with me. i have another question, what is "put option" is that something like hoping the share price will drop , that i can make profit selling it at higher price when i purchase "put option" sounds to me something like insurace for the stock =) do i have to own the share of a company in order for me to buy "put"?

regards,
junn yun

Offline julez.lim

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Re: what is "short"?
« Reply #9 on: May 29, 2006, 07:37:13 AM »
No problem... My motto is 'sharing is learning'...
Bout the 'put option', I remember reading it somewhere and forgot the details bout it... Let me check and get back to u ya.
Anyone else can answer this? Will b bz for next few days...

Offline itoslemma

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Re: what is "short"?
« Reply #10 on: May 30, 2006, 08:23:00 AM »
a put option is a contract that allows you to sell a particular stock at a specific price and time. assumming you're the purchaser of a put option on stock A, you're taking a long position and you stand to gain when the price of stock A falls below the exercise price. the greater the price fall, the more valuable your option becomes. there is not point learning about put options in msia, our warrants are generally call options, so i'll keep the math and other positions out :)

Offline jeybon

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Re: what is "short"?
« Reply #11 on: May 30, 2006, 12:37:10 PM »
Thanks for clarifying, Itos.  Put option sounds like selling shorts of option rite?
Regards,
Jeybon

Offline Maxforce

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Re: what is "short"?
« Reply #12 on: July 26, 2006, 07:20:40 PM »
Shorting is very common in the futures market.
Risky? Maybe.
Long safer?
Maybe.
E.g. Israel attacked Lebanon. US market took a real plunge. I think it was about 200-300 pts.
What do you think would happen to our market?
Down right? Yeap. So how?
Short it.
Five points a day, keeps you out of harm's way.

Offline julez.lim

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Re: what is "short"?
« Reply #13 on: August 14, 2006, 06:48:35 PM »
Ya true... I would say it is easier to predict a plunge in stock market rather than a bull..
Our stock market from my observation is quite related to US market. If the morning u switch on Astro and see US market drop drastically, you can quite expect Malaysia to follow. It would also depend on reasons for the plunge.

But the bad thing about short is that, if the stock market were to fall, short may force it to drop even more and cause more ppl to jump of buildings.. :P

Offline Maxforce

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Re: what is "short"?
« Reply #14 on: August 14, 2006, 08:10:01 PM »
That is not relevant actually.
Invest what you can risk is the lesson.
Not blame on methods which are double edge - profit and loss can be sustained.
Five points a day, keeps you out of harm's way.

Offline julez.lim

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Bursa won’t rush short-selling
« Reply #15 on: October 07, 2006, 01:33:34 PM »
"Bursa is set to re-introduce SBL and short-selling after halting the practice during the height of the Asian financial crisis.

Short-selling is widely expected to be limited to 40 to 50 stocks during the initial stage but is expected to be rolled out to hundreds of other counters to allow hedging on the various futures and stock options" -biz.thestar.com.my

Seems tat they are going to reintroduce short selling... but seems that we need to wait