Just want to comment that the fears of shorting are not really exagerated since short selling requires a large amount of maring and can lead to unlimited losses. Imagine the people who were holding onto RIMM the day it jumped $26.00. These occurrences are rare but when they do happen it can wipe you out. If you are shorting stock, I would recommend either putting in a limit order to close out the position if the stock moves higher. However gaps in the stock price will leap right over your short limit order. Therefore, another choice is to purchase a call option when you short stock to hedge your risk entirely. If the stock drops you make a profit and if the stock moves higher, your long call can be exercised at any time to close out the position. Shorting option is never recommended, even for beginners. You may remember that Barings Bank went bankrupt through selling naked options. I would caution against recommending naked option selling to anyone, especially beginners. If you are looking for a cheaper alternative to shorting stocks, you can purchase in the money puts which will profit from a stock moving lower with limited risk and no margin requirements. Phil
The fears are exagerrated as long as stop loss is in. You're much less likely to "hold you way out of trouble" on a short.
The real risk comes in when there is a large price gap higher which blows right through your stop loss. Also, the margin requirements are too high for beginner investors. Therefore a simple alternative to shorting stock is purchasing ITM puts. However many people are more comfortable with selling stock short and as long as you practice good risk management any strategy can be profitable. Phil
Shorting is definitely an advanced technique and not one for the weak of heart. The Coach has a valid point about the stop not being triggered. On a super sharp swing the stop may not get triggered. Could spell real trouble for a portfolio. But I'm no fan of options, I must say. Unless you can read the future like Cleo the Psychc, that is a form of gambling.
alfred i would tend to disagree on that ... i think since i have been starting to read about the option strategies i would say that options if well researched and well calculated with a notch of instinct can make u money in short run compared to stocks. for instance im going to trade on JUXSD a put tomorrow. my calculation says that the put its going to go up around 30 to 40 % tomorrow. im going to position myself at 1.1 and get out around 1.5 if i get in at that price. if not ill not trade it. well we will find out tomorrow. The only reason i like options because of the leverage which is high. i like taking risk since i don't have a large portfolio anyways. :wink: nothing to loose. also if some of u have time check out HBIO it dropped because of wallstreet over reaction in MHO. I think in the coming year or less even it will reach its original $10 to $11 value. analyze it and let me know. chahine
Short selling, buying long, buying ITM options, it doesn't really matter---if a stock moves 25% against you overnight, you're going to lose quite a bit. As a percentage, you'd lose less with a short sell than with a ITM put option, which would instantly become worthless, as RIMM puts did on the day mentioned above. With any trading vehicle, understanding your risk levels and exactly what you are risking/hoping to gain is the key to success. Buying options increases leverage and exposes you to time-premium depreciation (thus decreasing the chances that you will have a profitable trade--the stock has to "outrun" the premium). Short selling exposes you to the risk that you COULD lose more than you put in, if the stock moves more than 100% up before you get out. Buying long exposes you to the risk that Skilling is the CEO and the company is a house of cards. 8O
Ture you would lose more as a percentage with a put than short selling but percentages are meaningless, money counts. If I short RIMM at $55 or buy a $60 PUT for $5.50 and the stock jumps to $65 in one day at expiration of the long put, I lose 100% of my put investment. However, with the put I have no margin requirement and only lose $550 where is with the short stock I have a amrgin requirement and lose $1,000. Options do have higher percentage losses due to leverage but involve a lot less money. Therefore, you can open more trades with no margin. Now options are not for everybody so if you are more comfortable shorting stock then I always advocate stick with what you know. However, options are definitely not gambling any more than investing in stocks are. OPtions can be used to actually reduce risk and I have showed even the most conservative investors ways to use options which involve less risk and less capital than stocks. basically it is an investment tool like anytihng else and has its pros and cons and has to match your investment style. Options also trade with expirations up to 3 years so time decay can easily be removed from a position. Time decay is also fastest in the last 20 days or so of a position so a 3 month option will suffer very little time decay if the stock stays sideways. I would be happy to provide examples of how options can be used to replicate any stock strategy either conservative or aggressive. Tiem decay can actually be used to work in your favor as well as the use of implied volatility. Options are not for everybody as I said, but they are great tools for investing if you wish to use them. They are not any riskier than stocks if used properly. Good luck ;-) Phil
I don't mind the idea of shorting. I've tried it a few times and it didn't work out great for me. I don't feel it. I'd rather hold a company long and be enthusiastic then root for bad news. I think it all depends on your personality type.
I will short a real P.O.S when I find it.