Almost all peple saying the best of profit from shorting is just 100%

G

GloriaBrown

I don't really agree about this
Here is an example
A stock with $100 price and we short it with $100
let says it drops to $50 on first day
case A doesn't take profit
case B takes profit which means earning $50, then short again with the profit, which means shorting all with $150
On the second day, the stock drops to $0 (we don't care about the bankrupt case, just showing math here)
case A earning 100% of the initial investment $100, final money $200
case B $150 with 100% earning which is final money $300
 
Nice case, but what's the difference when things go wrong?
Also, can you say a loan is an investment?
 
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Simples said:
Nice case, but what's the difference when things go wrong?
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both cases short sell $100, day 1 stock with $100 go up to $150
case A don't do anything
case B take the lose, lose $50 get back the $50 then short again
day 2 go up to $200, case A take the lose and lose $100 total
case A take the total lose is: day 1 $50, day2 = ( $50 * (200-150)/150) = $16.6, lose $66.6 total
 
You will regret re-investing if the stock is volatile (like most stocks that eventually go to 0 !)
so instead of 100 -> 50- > 0 like you illustrated, try this: 100->50->80->40->20->35->0
come back and tell me your finding.
(I was being merciful with the dead-cat bounces :))
 
Factor in margin aswell 2:1, 1K account, becomes 2K selling at $50 then 4K position 100% profit gets you to 6K so a 500% increase.
 
Turveyd said:
Factor in margin aswell 2:1, 1K account, becomes 2K selling at $50 then 4K position 100% profit gets you to 6K so a 500% increase.
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Factor in short interest rates as well, can be huge for hard to borrow stocks, which most stocks on their way to zero happen to be.
 
Here is another thing to blow your mind about shorting: Let's say the stock goes from $100 to zero in an almost linear fashion over a period of months. Trader A shorts it at 100, trader B shorts it months later at $10 (with the same amount of capital) and they both hold it until zero.

Although trader A started way higher and much earlier in time than trader B, the difference in returns is zero!!! They both doubled their money....
 
neke said:
You will regret re-investing if the stock is volatile (like most stocks that eventually go to 0 !)
so instead of 100 -> 50- > 0 like you illustrated, try this: 100->50->80->40->20->35->0
come back and tell me your finding.
(I was being merciful with the dead-cat bounces :))
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I think it only make sense to "re-investing" after the stock has dropped a good amount of %, like at least 10% comparing to the price I short.
 
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