Shorting a Stock - Calgarypuck Forums - The Unofficial Calgary Flames Fan Community

Kavvy · 06-12-2011, 07:59 PM

Good evening you investment gruru's.

I would like to learn about shorting stocks, and what I need to do it. I am currently with RBC Direct Investing, although I don't have a margin account (I believe that would be step 1). It is my understanding the process works like this:

I sell a stock I don't own at price "A"
I wait, and buy the stock for the 3rd party I bought it from, at current market price "B"
I get a gain or a loss depending on the difference of A-B (B>A = a gain)
During this process, RBC Direct investing charges me intreset on the money they paid me to sell the stock at price A

A family friend who trades commodities for a oil company in-town, mentioned that in his line of business, if the stock price was higher then I sold it at, I would have to make payments on the margin until the term was due, and vice verse if the stock price was lower.

It is my understanding I would need my own cash to back this up, about 150% of the "margin" according to the link below. Would anyone mind telling me if what I just said was correct, and mention if I am missing anything and a few more question I have.

Also, would you all stick with Direct Investing, I don't have the $100,000 to make there sweet rates.

https://www6.royalbank.com/education...ption-faq.html

and the rates you need for cash to back your margin account are here

http://www.rbcdirectinvesting.com/RB...t-account.html

Greatly appreciated,

Kavy

Slava · 06-12-2011, 08:09 PM

Quote:

Originally Posted by fotze

Short this one.

NYSE:SEMG

Dare I ask....how much now?

Slava · 06-12-2011, 08:14 PM

You've got the gist of it there. I'm not sure what kinds of questions you have or what kind of advice you're after?

Bertuzzied · 06-12-2011, 09:07 PM

Buy puts. It's a lot safer and you don't have to put up as much money.

Short these stocks

PCLN. I don't care how cool the Shat is!
NFLX. $8/month ummm yeah....
OPEN. No one in the US can afford to eat out now.

Also too is if you are with a Cdn brokerage you are limited to the number of stocks you can short depending if they have it in inventory. Also they will not allow you to short any stock under $5.

Bertuzzied · 06-12-2011, 09:12 PM

Quote:

Originally Posted by fotze

Holy fata, had no idea priceline had $493 stock. Thats a $25 billion company?

I've been on and off it since it was at $190 about a year ago. If i shorted it instead of buying puts i would have lost close to $300k! hehe. well i(or my brokerage) would have closed out my position earlier but still...

Kavvy · 06-12-2011, 09:37 PM

Quote:

Originally Posted by Slava

You've got the gist of it there. I'm not sure what kinds of questions you have or what kind of advice you're after?

Thank you.

I don't know what I am doing. How do the terms work on these things usually, do you usually have monthly payments/expenses to cover the margin?

I may have to open a margin account and seeing what I can actually buy may answer some questions.

As for "Puts", thanks Bertuzzied, I will have to do some research into them!

Slava · 06-12-2011, 09:48 PM

Well the margin call is basically due the same day as it's created, usually by noon IIRC. That's one of the reasons you see some swings in the market during the financial crisis...people were selling "good quality" stocks to make the margin calls.

henry07 · 06-12-2011, 11:48 PM

from the questions you are asking, you sound very new to the trading world. I would suggest you paper trade and find which strategy will work for you. Taking on margin or leverage when you dont know what your doing, will take you out quick. if a stock should gap up for some reason, you will shat your pants. im not suggesting this but instead of shorting, you can buy the inverse etfs which go up when the market is falling. some inverse etfs are: sdp, srs, euo,zsl, dxd, smn, scc, sds, szk, faz, dug, eev, dog, ssg, qid, rew, skf. again these are not suggestions for you but just info on what some inverse etfs are out there

Kavvy · 06-13-2011, 07:58 AM

Quote:

Originally Posted by henry07

from the questions you are asking, you sound very new to the trading world. I would suggest you paper trade and find which strategy will work for you. Taking on margin or leverage when you dont know what your doing, will take you out quick. if a stock should gap up for some reason, you will shat your pants. im not suggesting this but instead of shorting, you can buy the inverse etfs which go up when the market is falling. some inverse etfs are: sdp, srs, euo,zsl, dxd, smn, scc, sds, szk, faz, dug, eev, dog, ssg, qid, rew, skf. again these are not suggestions for you but just info on what some inverse etfs are out there

Thank you, will research!

North East Goon · 06-13-2011, 09:12 AM

You have to make sure your firm can cover the short position first, or else risk being bought in at an inflated price.

Kavvy · 06-13-2011, 09:15 AM

Quote:

Originally Posted by North East Goon

You have to make sure your firm can cover the short position first, or else risk being bought in at an inflated price.

aka having cash to back up the chance that the stock may rise?

Cowperson · 06-13-2011, 09:23 AM

Quote:

Originally Posted by Kavy

aka having cash to back up the chance that the stock may rise?

If you're a naked short, the theoretical possibility of loss is infinite and not limited to the amount of money in the account.

Your ideas may make perfect sense but the market isn't always efficient or as smart as you are.

There are stories from the late 1990's, as an example, of smart people losing everything because they thought the market was overvalued and due for a huge fall . . . . . . ultimately, they were right but were broke and forced off their positions too soon, at huge losses, because of "irrational exuberance" when the market kept climbing.

Have control of your potential downside.

Cowperson

Kavvy · 06-13-2011, 09:35 AM

Quote:

Originally Posted by Cowperson

If you're a naked short, the theoretical possibility of loss is infinite and not limited to the amount of money in the account.

Your ideas may make perfect sense but the market isn't always efficient or as smart as you are.

There are stories from the late 1990's, as an example, of smart people losing everything because they thought the market was overvalued and due for a huge fall . . . . . . ultimately, they were right but were broke and forced off their positions too soon, at huge losses, because of "irrational exuberance" when the market kept climbing.

Have control of your potential downside.

Cowperson

Thank you!

If I decide to be foolish and continue on this quest, for control of my potential downside - how liquid is this process (excuse the possibility of the incorrect term used there). Would I be able to pay back the margin and get out easily if I started loosing to much, or would there be a set term length?

Kavy

North East Goon · 06-13-2011, 09:55 AM

Quote:

Originally Posted by Kavy

aka having cash to back up the chance that the stock may rise?

No, the firm has to have stock in inventory to be able to match stock with the buyer of your said short sale.

Shazam · 06-13-2011, 10:02 AM

The easiest way to short is to buy bear ETFs.

Kavvy · 06-13-2011, 10:08 AM

Quote:

Originally Posted by Shazam

The easiest way to short is to buy bear ETFs.

Second comment regarding ETF's, I guess this is a must to look into!

Thank you.

SeoulFire · 06-13-2011, 10:09 AM

Research naked calls to give you a feel for what can happen if you are uncertain of what you are doing or hit some really unfortunate timing.

Margin accounts are not the best avenue for 1) rookies or 2) for those whose pockets are not deep enough to cover margin calls (or lose what may ultimately end up being a profitable outcome). The first I know is true from what you said. The second is only for you to decide.

Tron_fdc · 06-13-2011, 10:27 AM

Re: ETF's

If you like going to the Casino, you'll like these. In fact, I think I would rather take my oney to Vegas. If you don't know how to trade on them I wouldn't touch them.

Find a company that is in freefall right now, with little to no hope of recovery.

Yellow Freight and Petrobakken are 2 that come to mind......

Kavvy · 06-13-2011, 10:39 AM

Quote:

Originally Posted by Tron_fdc

Re: ETF's

If you like going to the Casino, you'll like these. In fact, I think I would rather take my oney to Vegas. If you don't know how to trade on them I wouldn't touch them.

Find a company that is in freefall right now, with little to no hope of recovery.

Yellow Freight and Petrobakken are 2 that come to mind......

Thank you.

About short selling, does have to be naked, is it much more expensive to actually borrow the stock, or am I not able to do that since I am not part of a firm?

This article implies it is close to illegal

http://www.macleans.ca/article.jsp?c..._117888&page=1

Does naked short selling have to occur in the 3 day window it takes to settle a stock, aka, not long term at all?

Slava · 06-13-2011, 11:29 AM

I don't short stocks, so let me say that as a disclaimer of sorts. To be honest though some people that I know who are short-sellers are probably some of the most fundamental that I know (as in concerned about business fundamentals, not as in fundamentalists). I just point that out to say that you might be in over your head a bit here?

I hope that doesn't come across as my bieng rude or ignorant because I really don't know you and have no idea about your investing experience. I just make that comment from reading through this thread and as a guy who talks to investors a lot...FWIW.