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Active Investing short selling

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bm_
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Username: bm_

Post Number: 3
Registered: 12-2010

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Sunday, March 13, 2011 - 07:19 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi there,
Just a quick question that perhaps someone could field instead of the ActVest support team..
As the All Ords have dipped below the 30 EMA this week I thought I'd consider short selling. In the newsletter I thought Aed Oil looked like a good short.

Aed Oil - AED

However, as you can see the price action is around 30c. Does this mean that there is only a 30c range for this stock to continue its down trend and that its profit capacity is capped to within this 30c range?
Kind regards,
bm_


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starboard_tack
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Username: starboard_tack

Post Number: 409
Registered: 04-2003

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Sunday, March 13, 2011 - 09:45 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Brett,

Firstly, I would strongly recommend talking to the Actvest support team as I believe that their system has some strict rules on shorting.

It doesn't matter what the price of a stock is. It could just as well be $30. The potential profit, in dollars, depends on how many shares you deal with. For example, if you entered at 30 cents and you exited at say 15 cents, it would be equivalent to "buying" at 15c and "selling" at 30c. If your parcel was 1000 shares you would effectively "buy" $150 dollars worth, and "sell"for $300. For a $30 share you would only need 10 shares to get the same result.

So liquidity of the shares is important, and I think that that is part of Actvest's system.

Hope that helps.


"The pessimist complains about the wind;
The optimist expects it to change;
The realist adjusts the sails."

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ken
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Username: ken

Post Number: 737
Registered: 04-2003

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Monday, March 14, 2011 - 09:51 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hello BM,

Just think of it that every short can only make 100% if the stock goes to zero. Doesn't matter what the price is.

However long trades are not limited to 100%.

Ken







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lmt
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Username: lmt

Post Number: 6
Registered: 04-2011

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Friday, April 15, 2011 - 03:52 pm:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ken, your math is incorrect.

A short sale offers the same return potential as a long purchase, because they are the same thing.

If you short a stock at 100 and cover at 10, your return is 1000%, not 100%.

You sold 100 shares x $100 = $10,000 deposited into your account.

You covered at $10 x $100 shares = $1,000.

You bought for $1,000 and sold at $10,000. 10 fold on your money.

The mathematics do not change.

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