Questions About Shorting Stocks...

[consumer515]

I have a few questions about shorting stocks.

1)How easy is it to short stocks above $5 with mid to large daily trade volumes.

2)how easy it is to aquire short stock shares? are some firms better at aquiring short stock shares for their customers? I am talking about a few $1000s worth of stocks at a time.

Also, Let's say for example, you already own 100 shares of X-corp and you want to aquire 50 short shares of X-corp, will your transaction go thru faster?

3)Besides the standard trade fee, is their any other fee to short a stock?

4)I know it's possible for your short shares to be called in at any time. How often does that happen?

also, how long do people usually hold onto shorted shares?

5)If you have some cash left after you buy some shorted stocks, do you still have to pay a margin fee?

6)If a stock that you have shorted and it pays dividends, who pays the dividends to the original owners of those shorted shares? You(the person who shorted) or the company of the stock?

7) Shorted shares vs Options. Which is better?

 

[Hook N. Sinker]

1)How easy is it to short stocks above $5 with mid to large daily trade volumes.

I find short selling as easy as buying. With an internet web site trading interface I click on "sell short" instead of buy and enter the order.

2)how easy it is to acquire short stock shares? are some firms better at acquiring short stock shares for their customers? I am talking about a few $1000s worth of stocks at a time.

Not always easy. Sometimes the broker tells me that they are not able to find stock to sell short. If I pay full commission then broker can contact other brokers and find stock for me to sell.

3)Besides the standard trade fee, is their any other fee to short a stock?

I recall paying the same fee for both long and short trades.

4)I know it's possible for your short shares to be called in at any time. How often does that happen?

I recall it happened to me once in about twenty years.

also, how long do people usually hold onto shorted shares?

Depends on your trading rules.

6)If a stock that you have shorted and it pays dividends, who pays the dividends to the original owners of those shorted shares? You(the person who shorted) or the company of the stock?

You do. When you sell short you are actually borrowing stock from another person. If you sell someone else's stock then you must pay them the dividends.

7) Shorted shares vs Options. Which is better?

Depends on your trading rules. If you buy put options then you can not lose more than your investment. If you execute a short sale and do not stop a loss then there is theoretically no limit to the size of the loss. In reality I expect you will get a margin call or your broker might cover the short position for you without your permission.

I recall since I began trading stocks (year 1980) overall I lost a little money by selling short. I am not able to develop a method for selling stock short because I do not know if execution is possible. I remember attempting to sell stock short and the broker reports "stock is not available". I recall when we had uptick rules slippage was great. I recall not being able to estimate execution prices. Probably not a problem now.

 

[gaj]

1)How easy is it to short stocks above $5 with mid to large daily trade volumes.

all depends on the brokerage, your definition of mid/large, and the float / amount of shares already short. for example, MAMA is nearly impossible to short now. OSTK has been a difficult short for a long time.

if you're looking for GE/CSCO/DELL/MSFT/IBM/etc no problem. but look into the uptick rule (see below). and on other stocks, it's easier to short a naz stock than an nyse stock, because of the variance in the exchange's rules on when you can short.

2)how easy it is to aquire short stock shares? are some firms better at aquiring short stock shares for their customers? I am talking about a few $1000s worth of stocks at a time.

there is a significant amount of variance among the firms - both which stocks they can get and the number of shares - if you're not looking for the easiest stocks, like those i mentioned above.

Let's say for example, you already own 100 shares of X-corp and you want to aquire 50 short shares of X-corp, will your transaction go thru faster?

some firms will just subtract the 50 short shares off your account, so you'll wind up with 50 total long. some won't allow. some will. it should have no effect on speed...

EXCEPT that you should look into what the uptick rule is on the SEC website. that rule doesn't matter to stocks in the naz 100, or stocks on the regulation SHO pilot program.

3)Besides the standard trade fee, is their any other fee to short a stock?

on difficult-to-borrow stocks, a firm may say "we can't get shares", then say "hey, guess what? we can get shares, but you'll need to pay X interest rate on those shares".

4)I know it's possible for your short shares to be called in at any time. How often does that happen?

not very often.

also, how long do people usually hold onto shorted shares?

varies depending on an individual's trading style. a great short can get squeezed to the moon if everyone knows it's a great short, but there's a trendy story behind it.

7) Shorted shares vs Options. Which is better?
assuming you're familiar with options already, it depends on your timeframe and your risks.

if you buy puts, that's your total risk.

but...if you buy puts, and the stock was a high flyer, you won't make as much on a collapse, because you paid a time premium / volatility premium, both of which fell on the collapse.

selling calls (naked) - some firms allow it, some don't.

 

[consumer515]

Let's say for example, you already own 100 shares of X-corp and you want to aquire 50 short shares of X-corp, will your transaction go thru faster?

some firms will just subtract the 50 short shares off your account, so you'll wind up with 50 total long. some won't allow. some will. it should have no effect on speed...
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Hello, Thank you for both of your very helpful and informative replies. I have one more question to the quote above.

If my broker subtracts 50 short shares off my account, I will still have 100 long shares in my account and 50 short shares, correct?

And since I borrowed shorted shares from my long shares in the same account, what about
the dividend?

let's say you buy 2 long shares and 1 short shares as a hedge play. Does this make any sense?

If I sound clueless, please excuse my ignorance.. I'm just starting out and learning the basics..

 

[spreadgod]

there is no benefit to being short vs the box as you are trying to do since the tax rules changed back in the 80's and you are net long/short the same according to the IRS. why are you thinking of boxing? this seems rather intricate for a "newbie"

Hello, Thank you for both of your very helpful and informative replies. I have one more question to the quote above.

If my broker subtracts 50 short shares off my account, I will still have 100 long shares in my account and 50 short shares, correct?

And since I borrowed shorted shares from my long shares in the same account, what about
the dividend?

let's say you buy 2 long shares and 1 short shares as a hedge play. Does this make any sense?

If I sound clueless, please excuse my ignorance.. I'm just starting out and learning the basics..

 

[consumer515]

Quote from spreadgod:

there is no benefit to being short vs the box as you are trying to do since the tax rules changed back in the 80's and you are net long/short the same according to the IRS. why are you thinking of boxing? this seems rather intricate for a "newbie"

what?

 

[a529612]

7) Shorted shares vs Options. Which is better? [/B]

I like put options better. Apart from the capped risk, you don't have to worry about borrowing shares, paying dividend and all the other nonsense associated with shorting the stock.

 

[walter4]

you could hedge your position by shorting a similar stock.

 

[giggollo]

Quote from gaj:

1)How easy is it to short stocks above $5 with mid to large daily trade volumes.

all depends on the brokerage, your definition of mid/large, and the float / amount of shares already short. for example, MAMA is nearly impossible to short now. OSTK has been a difficult short for a long time.

Here's something I don't understand about shorting...MAMA has gone up so much on such huge volume in the last couple of weeks, so that means that a lot of people have bought the stock and are holding it...now why isn't there so many more shares available to borrow now that brokerages have so many more shares in customer accounts? why is it so hard to short right now?

 

[spreadgod]

Quote from giggollo:

Here's something I don't understand about shorting...MAMA has gone up so much on such huge volume in the last couple of weeks, so that means that a lot of people have bought the stock and are holding it...now why isn't there so many more shares available to borrow now that brokerages have so many more shares in customer accounts? why is it so hard to short right now?

just because the volume is higher doesn't mean there's more shares outstanding now. it's not like open interest on options that can increase and decrease. mama is very volatile so a lot of firms make it non-marginable...hence it can't be loaned out either.