Anyone care to explain the need for short selling? I’ve read that they are needed for efficient markets: why?
One shorts a stock for the same reason one longs a stock; valuation. The SEC should clamp down on these rumors, but banning short selling undermines free markets. Overvalued securities should decrease in price.
Well stocks will be like runaway trains now…they will rocket up but drop like rocks on any bad news.
ditchdigger: If you think a stock a overvalued just dont buy it, no? louisvillegrad: So shorting decreases volatiility? I’m not convinced of that after we see meny sotcks attacked by hedge funds shorting them.
You can’t write a put without the ability to hedge it.
Sims Wrote: ------------------------------------------------------- > ditchdigger: > If you think a stock a overvalued just dont buy > it, no? > If you were an analyst and did a ton of due diligence/research on a company only to find that it is overvalued, would it do the client any good to just not buy it? The analyst should put a heavy sell on the security which would allow the clients to make money by shorting it.
Sims Wrote: ------------------------------------------------------- > Anyone care to explain the need for short selling? > I’ve read that they are needed for efficient > markets: why? Hedge delta’s in option trades…
ditchdigger2CFA Wrote: ------------------------------------------------------- > Sims Wrote: > -------------------------------------------------- > ----- > > ditchdigger: > > If you think a stock a overvalued just dont buy > > it, no? > > > > If you were an analyst and did a ton of due > diligence/research on a company only to find that > it is overvalued, would it do the client any good > to just not buy it? The analyst should put a > heavy sell on the security which would allow the > clients to make money by shorting it. Makes sense, but you wont make money unless you can move the share price by massively shorting it (hedge funds) or if a lot of people realise its overvalued in the short term. You can’t short a stock for 4-5 years, then again maybe its my value investing thinking getting in the way here.
You go long without intending to move the market, why wouldn’t you go short without the same intention? You think the share price is too high so you short it and wait until you’re right. You don’t have to move the market, if you’re right and the price is too high the price will drop.
For how long can you short a stock ? If a stock is overvalued it can easily take years for the valuation to get back to where it should be, with a short (unless i’m wrong) you can only profit of short term fluctuations?
This is just temporary anyway. Yes short selling is needed but at the cost of an economy thats suffereing from its worse case of fear and rumors? Instead of making 300 million this year hedge fund managers will make 250.
Sims Wrote: ------------------------------------------------------- > For how long can you short a stock ? If a stock is > overvalued it can easily take years for the > valuation to get back to where it should be, with > a short (unless i’m wrong) you can only profit of > short term fluctuations? You can short a stock until the person you borrowed it from calls it back. Essentially, this only happens when the stock shoots up very quickly and the lender is worried about how much you lost in your position… Or if the SEC is worried about losing there jobs if McCain loses-whatever…
Sims Wrote: ------------------------------------------------------- > For how long can you short a stock ? If a stock is > overvalued it can easily take years for the > valuation to get back to where it should be, with > a short (unless i’m wrong) you can only profit of > short term fluctuations? We have acct’s w/ shorts that were executed 2+ years ago. Under old rules, unless a stock became “hard-to-borrow” and made the threshold list you could maintain your position (given you could meet whatever margin req’ts that came about). Otherwise you would get bought-in after 13days. There were already rules in place that limited a really large rush on shorting because the stocks would become “hard-to-borrow” and would need to be pre-borrowed and that would limit ppl’s ability to naked short.
Short Selling is necessary for liquidity. Someone on another page gave a great example. Home prices skyrocketed for years. If you could effectively short a home price, then skyrocketing prices MAY have been curbed. Also, true price discovery would take place relatively quickly. However, what we have no is a failure for home prices to fall to where they should be at. Liquidity is virtually at a stand still… i.e. no one can sell their damn house for even pennies!!! Shorting has also uncovered companies w/ bad accounting. SS’s just get a bad wrap b/c they seem so “Evil.” Thats all phooey and its all based on “feelings.” Dont confuse me w/ the facts as they say. Yes greed def. has a lot to do w/ a short… so does a long? so whats the problem? And the topic of greed… Greed is essential in our markets. Greed is a human trait and cannot be evaporated from existence so we might as well work w/ it. FREE MARKETS!!!