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Will you be able to sell short Google?
or are people just blowing smoke?
loanuniverse




msg:1238917
 2:17 am on Aug 18, 2004 (gmt 0)

I have never sold short, but the way I understand the process your broker has to be able to borrow stock from other people in order to allow you to sell stock, which you do not own.

Will this borrowing be allowed at the opening? I would think that while the whole trading has become much more automated, there might still be a lag before the brokers can do this.

Am I wrong?

 

Chris_R




msg:1238918
 2:38 am on Aug 18, 2004 (gmt 0)

I have sold short a few times. I have never had any problems, but the issues I sold short were on the market for more than a day :)

It was always easy, but there a couple things to keep in mind:

1) You have to have a margin account. They will give this to almost anyone, but you have to apply/ask for it. It is basically a credit line from the broker based on the amount you have in cash and certain securities. It has nothing to do with actual credit - your credit will most likely never be checked for this. Your credit limit is equal to the amount you have on hand with the broker in cash and marginable securities (most stocks over $5.00).

2) You can't buy as the stock is going down. Here is a quote about this from etrade:

Before you can sell a stock short, your broker must first have access to the shares you want to borrow....

Also, you can't sell short while a stock's price is going down. Over-the-counter stocks (Nasdaq/OTCBB) can be sold short only on an uptick -- the price of the last trade must be higher than that of the previous trade. These rules are designed to keep investors from short-selling a stock that is already falling in price, thereby accelerating the stock's downward price movement.

3) The broker has to be able to borrow the shares. This is the part I don't fully get. I am not sure exactly how they do this. I think they actually either a) have the shares on hand from other people they do business with or b) buy these on the open market (or both), but I am not really sure.

Other than that - I suspect you will be able to short these.

You can always try. Just make sure you select "sell short" when you short and "buy to cover" when you buy back the shares to close out the trade. Other than that it is pretty much like buying and selling other stocks.

Of course - there is the standard warnings and stuff - you can lose more money shorting than you can holding a stock. If you own a stock - the worst thing that can happen is it goes to zero and you lose all your money. If you sell short a stock - you have to:

A) Pay margin interest during the time you hold it
B) Take the risk that the stock will grow to more than what you paid for it - be even more than 100%. A stock you short at $50.00 could go to $150.00 - once it past $100 - you lost all your money - over $100 and you owe money. By this time you most likely would have gotten a margin call anyway if you have most of this on margin.

bnhall




msg:1238919
 2:41 am on Aug 18, 2004 (gmt 0)

Sure. However:

You can only short on an uptick, ie someone must have just bought shares (creating an uptick) before you can (short) sell shares (creaing a downtick). There may be some temporary restriction at first (ie first couple hours or whatever) but by the 2nd day of trading you should be able to short. If everyone's selling though, there may not be an uptick. Of course if everyone's buying....

Also - someone has to be willing to lend you shares. Often it's institutions who lend out their long-term holdings (of millions of shares, of course), but in the case of GOOG, expect to see a lot of retail (ie you and me) holders and fewer institutional (ie mutual, pension or hedge funds and insurance companies etc) buyers.

If a lot of people buy with the (in my impression, mistaken) impression that they will earn a quick buck on a huge pop in price immediately, there may be a shortage of shares to borrow (and thus, short).

Good luck!

loanuniverse




msg:1238920
 2:46 am on Aug 18, 2004 (gmt 0)

The broker has to be able to borrow the shares. This is the part I don't fully get.

I think they borrow the shares from other customers who have margin accounts and the stock in their portfolios.

I have had margin accounts for about ten years and I remember reading something on my initial Schawb account that mentioned that they could actually borrow the shares in my account for this purpose. I just don't think that they will be available at the opening.

I forgot about the uptick rule {not being able to sell when people are selling}.

Maybe somebody has been able to short during an IPO day and can say if you can....

jbgilbert




msg:1238921
 3:31 am on Aug 18, 2004 (gmt 0)

NO.... shares cannot be borrowed new issues for a while, thus No SHORTING for a good period of time.

IITian




msg:1238922
 5:36 am on Aug 18, 2004 (gmt 0)

My rule of market price movements is:

Market moves in such a way so as to maximize transfer of wealth from novices to smart money.

Novices who are talking loudly about shorting the stock will most definitely lose money as well as the novices who are talking of going long. How is this seemingly contradictory scenario possible?

Consider GOOG (Did you mean Good?). Let's say it opened at $130. A, who is long is happy because he thinks stock is worth $300. B, who is short is happy because he knows that the stock will soon go to $10.

Stock price moves up to $150. A is still holding the stock but B really starts sweating. He decides to cover it at a loss of only $20 per share before he really loses his shirt (and pants). He covers at $150.

Now to his dismay GOOG will start moving down - touching $130 and then $110. B's wife will laugh at him. Now it is turn of A to get worried. Seems like GOOG is going down big time. He will sell his stock at $110 before it reaches $10 or lower. He is happy with loss of only $20 per share.

Now both A and B have no positions in GOOG. They will watch it go randomly up and down and to $10 and $300 sometime in future. But A and B have lost money and can just watch together GOOG having its own way.

Moral: Long or short, many new investors who are bragging about their positions would likely lose money.

blaze




msg:1238923
 12:07 pm on Aug 18, 2004 (gmt 0)

That's good, I think I'll steal that. ;)

loanuniverse




msg:1238924
 12:51 pm on Aug 18, 2004 (gmt 0)

NO.... shares cannot be borrowed new issues for a while, thus No SHORTING for a good period of time.

That is what I thought.....

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