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Selling Short

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Short Selling the How and Why

Selling short can make you money. What is short selling. How do you sell short?

What does short selling mean?

Selling short in finance refers to a transaction in which you place your bet on the proposition that a valued asset is going to decrease in value. You can sell stocks, commodities, even real estate short. You make money on the decline of prices in the market. Selling something short is sometimes referred to as shorting or a short sale
There are many ways to sell short The most significant ways are discussed in this lens.

We also offer techniques and technologies for profitable short selling. Please do not sell this lens short.

Selling Short Tell Us How

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  • bruceeisner Apr 19, 2012 @ 11:34 am | delete
    You can do it on online stock systems
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A Major Benefit of Selling Short

benifits of selling shortBenefits OF SELLING SHORT On the plus side of selling stock short is that stocks tends to fall about twice as fast as they climb.

As you know, negative news can bring down a stock very quickly - sometimes wiping out months' worth of gains in a single day or two. From this standpoint, if you do hit a short play correctly, your gains can sometimes be realized in a shorter time period than waiting for a stock to gain ground and move higher.

Short sellers can make money even when the market is going down.

Selling Stocks Short on Amazon

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Selling Short What is it.

short sellingHERE IS SHORT SELLING DEFINED: Borrowing a security or commodity futures contract from a broker and selling it, with the understanding that it must later be bought back (hopefully at a lower price) and returned to the broker.

Short selling (or "selling short" which is the way you often hear it) is a equity market technique used by investors who attempt to profit from the falling price of a stock.

For example a trader in a financial market wants to sell short 100 shares given company,, believing it is overpriced and will fall.

The trader's broker will borrow the shares from someone who owns them with the promise that the investor will return them later.

The trader immediately sells the borrowed shares at the current market price.

If the price of the shares drops, the trader then "covers the short position" by buying back the shares, and their broker returns them to the lender.

The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock.

If the price of the shares increase, the potential losses are unlimited. The company's shares may go up and up, but at some point the investor has to replace the 100 shares he/she sold. In that case, the losses can mount without limit until the short position is covered.

Important to figure into the transaction:: when shorting 100 shares of Company XYZ stock, should those original shares suddenly be called upon by the original owner (for example, to be sold), they must immediately be returned or covered by the firm loaning out the shares (bottom line you are responsible) If replacement shares are not available, or a shortage in the shares occurs, you may be faced with having the stock "called away" from you.

When this happens, the only recourse you may have is to buy the stock [immediately] in the open market - regardless of price. In this regard,, shorting is a lot different than buying stocks.

The Uptick Rule

selling short opportunityTHE UPTICK RULE Should you attempt to sell borrowed stock, you may find that you have to wait for what is called an "uptick" in some cases. On the NYSE exchange, this means that a short sale may only be done on an uptick or a zero plus tick - a price that is the same price as the last trade, but higher in price than the previous different trade. On the Nasdaq exchange, you cannot short on the bid side of the market when the current inside bid is lower than the previous inside bid (a down tick). If you are shorting stocks on other exchanges, you'll need to review the rules associated with that exchange or ask your broker to explain what is required for each individual situation. But, in general, you can only short into a rising or stable market. Once the market does up tick, you can then sell your stock at the current bid price offered in the market. The profit resulting from the sale is then deposited into your account.

Note: Illustration by Paul Shororck

Selling Short Tutorials on the Web

Short Selling Tutorial Investopedia
Have you ever been absolutely sure that a stock was going to decline and wanted to profit from its regrettable demise? Wouldn't it be nice to see your portfolio increase in value during a bear market? Both scenarios are possible. Many investors make money on a decline in an individual stock or during a bear market, thanks to an advanced investing technique called short selling.
How to Do a Real Estate Short Sale on eHow
How to Do a Real Estate Short Sale. A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for. Short sales are a way for homeowners to avoid foreclosure . . .
Short selling vs. purchasing a put option: how do the payoffs differ?
Purchasing a put option and entering into a short sale transaction are the two most common ways for traders to profit when the price of an underlying asset decreases, but the payoffs are quite different. Even though both of these instruments appreciate in value when the price of the underlying asset decreases, the amount of loss and pain incurred by the holder of each position when the price of the underlying asset increases is drastically different
Ten Roadblocks to Profitable Short-Selling - TheStreet.com
Ten Roadblocks to Profitable Short-Selling Shorting is not the same as going long, so be aware of the problems one can encounter.

Selling Short Using a Margin Account

Selling short is the flip side of the traditional stock purchasing. Before you can sell short, you have to borrow the stock to sell.
  1. Set up a margin account at a brokerage house. You need to put up collateral, such as cash or stocks, and the brokerage house will lend you up to 50 percent of their value.
  2. Use the margin account to borrow shares of stocks from other accounts with your broker's help. You then sell them. If the price of the shares goes down, you buy the shares again at the lower price, return them to the accounts you borrowed from, and keep the difference. That's the practical definition of "shorting a stock."

A Beginner's Guide to Short Selling with Toni Turner DVD

selling short DVDA Beginner's Guide to Short Selling with Toni Turner DVDFear short selling no more. Toni Turner will take you step by step through the process of selling short. Her systematic top down approach shows you how to pick the right stocks for selling short and it will prove to you that selling short is not as difficult or as scary as you may think. Additional topics covered include; how to use candlesticks to identify short selling candidates, how the convergence of signals can shift the odds in your favor, why it is important to look at different time periods and what it takes to "Make your shorts fall".

In today's volatile market you need techniques to trade both the long and the short side of the market. Free online companion manual with all the support materials you need to master short selling techniques/

Web Encyclopedia definitions

long vs shortHere is an excerpt from the WIKI definition of selling short.

In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. It is a form of reverse trading. Mathematically, it is equivalent to buying a "negative" amount of the assets. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than the seller received on selling them. Conversely, the short seller will incur a loss if the price of the assets rises.

Selling Short Using a Put Optiion

A put option contract is a contract to "put," or force someone to buy, a stock at a fixed price sometime in the future. A put option contract has a limited duration and expires or the buyer can exercise the contract at any time during the life of the option.

Puts are used by investors going short who do not want to borrow the stock or want more leverage -- a rapidly appreciating put generates a better-percentage return than a traditional short position.
  1. purchase of a put option allows an investor to benefit from a decrease in the price of the underlying asset, while also limiting the amount of loss he/she may sustain. The purchaser of a put option will pay a premium to have the right, but not the obligation, to sell a specific number of shares at an agreed upon strike price.
  2. Opening such a long position in your brokerage account involves "buying to open" a put position. Brokers use this confusing terminology because when you buy puts, you can be buying them either to open a position or to close a position. Opening a position is self-explanatory; however, closing a position simply means that you are buying back puts that you had sold earlier

Short Selling Tips on the Web

When To Short A Stock
Most investors by nature will "go long" when they buy stocks. Few investors naturally will short stocks (or bet on their decline) because they really don't know what to look for. Some investors see the shorting process as somewhat counter-intuitive to the traditional investing process since many stocks do appreciate over time. That said, there is a lot of money to be made by shorting, and in this article, we'll give you a list of signs that show when a stock might be ripe for a fall.

Harness the Power of Neural Networks at Trading Solutions


TradingSolutions is an advanced technical analysis trading software package. It has the ability to learn patterns from historical data, allowing you to create highly accurate trading systems that inform you when to buy and sell. This trading software effectively performs market timing for all types of financial markets, including stocks, futures and currencies (FOREX).

Give Us Your Ideas

  • optionzone Feb 15, 2009 @ 11:08 am | delete
    Nice lens, Bruce. Thanks for the info. The Borat thumbs-up pic is hilarious!
  • The_Big_Gamble Oct 26, 2008 @ 11:12 am | delete
    Nice lens! You've got a great collection of resources and information here. We'd love for you to drop by our lens and say hi when you have the chance.
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Short selling vs. purchasing a put option: how do the payoffs differ?

Purchasing a put option and entering into a short sale transaction are the two most common ways for traders to profit when the price of an underlying asset decreases, but the payoffs are quite different. Even though both of these instruments appreciate in value when the price of the underlying asset decreases, the amount of loss and pain incurred by the holder of each position when the price of the underlying asset increases is drastically different.
  • A short sale transaction consists of borrowing shares from a broker and selling them on the market in the hope that the share price will decrease and you'll be able to buy them back at a lower price.

    As you can see from the diagram below, a trader who has a short position in a stock will be severely affected by a large price increase because the losses become larger as the price of the underlying asset increases. The reason why the short seller sustains such large losses is that he/she does have to return the borrowed shares to the lender at some point, and when that happens, the short seller is obligated to buy the asset at the market price, which is currently higher than where the short seller initially sold.
  • short selling put vs. margin
  • In contrast, the purchase of a put option allows an investor to benefit from a decrease in the price of the underlying asset, while also limiting the amount of loss he/she may sustain. The purchaser of a put option will pay a premium to have the right, but not the obligation, to sell a specific number of shares at an agreed upon strike price. If the price rises dramatically, the purchaser of the put option can choose to do nothing and just lose the premium that he/she invested. This limited amount of loss is the factor that can be very appealing to novice traders.

Options Made Easy: Your Guide to Profitable Trading

Options Made EasyOptions Made Easy: Your Guide to Profitable Trading
When you use a put option you essentially sell short minus a lot of the risks. This book is an easy, plain-English guide to making consistent profits with options!

It teaches all the essentials with real-life examples and crystal-clear explanations. There is no complicated math or confusing jargon: Learn visually with easy-to-understand pictures! You will learn to dentify high-probability trades, and design a Trading Plan that works. Also how to master practical, easy strategies for succeeding in any environment-even bear markets.

Here are some of the highlights of this book:
  • Options demystified so that you can get past the fear and start profiting!
  • Learn the safest ways to trade options
  • Identify high-probability trades that lead to consistent profits
  • Design a winning Trading Plan¿and stick to it
  • Understand your risk profile and discover exactly when to enter and exit your trades
  • Choose the right stocks for maximum profit
  • Screen for your best opportunities¿stocks that are moving¿or are about to move
  • Discover the optimum strategies for you
  • Match your trading strategies to your personal investment goals
  • No bull! The realities and myths of the markets
  • What you must know about fundamental and technical analysis

The Art of Short Selling

the art of short sellingThe Art of Short Selling
The Art of Short Selling by Kathryn Staley, an expert in the field, uses examples and instructions to show how it can be done successfully--while cautioning that it "is not for the faint of heart."
In this book you will learn:
1) Fundamentals drive market action...eventually

2) It is often a costly mistake to short a stock simply because it apepars overvalued. A catalyst of some sort is needed to encourage massive selling.

3) Markets can ignore negative fundamentals for significantly extended periods of time--giving the astute trader ample time to sell at a profit, or even turn and sell short. Positive fundamentals are more rapidly incorporated into stock prices, but significant inefficiencies still exist on both sides of the market--long and short.

How to Make Money Selling Stocks Short

how to make money selling stocks short How to Make Money Selling Stocks Short by William O'Neil
William O'Neil, publisher of Investor's Business Daily, as well as the author of a handful of highly readable, and very useful investing books, has updated his 1976 original treatise on short selling with the assistance of Gil Morales, Chief Market Strategist for his firm. The book briefly covers the mechanics and rationale for short selling.
Selling short is the opposite of buying long. However, many investors are afraid to short because they either think it is un-American or dangerous. Neither premise is correct. If you know what you are doing, have a game plan, have stop-loss rules and monitor the markets daily, the opportunity to make money is there.

Selling Short: Risks, Rewards, and Strategies for Short Selling Stocks, Options, and Futures (Wiley Finance) See larger image

selling short optionsSelling Short: Risks, Rewards, and Strategies for Short Selling Stocks, Options, and Futures
Selling Short: Risks, Rewards, and Strategies for Short Selling Stocks, Options, and Futures by Joseph A. Walker combines a history of short selling with current strategies and applications to present a complete guide to this increasingly popular investment tool.

Procedural and regulatory requirements are mixed with actual case studies and examples that readers can apply to specific situations. Risks and rewards of short selling are discussed in detail as are short selling as a tool for protecting other investments and for speculation.

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