How Does Short Selling Work?

Short selling is a way to potentially make money in a bear market. When stocks go down, you can profit. Crazy concept huh? After all, as the saying goes, “buy low, sell high.” With short selling, the saying goes, “sell high, buy low.”

This is actually a strategy used by many, even in bull markets. There are always short selling opportunities. Do I short sell? Nope, never have. I do buy put options, which is kinda-sorta the same thing.

So what is short selling?

You borrow shares from your broker and sell them on the open market. Later on – if your analysis was correct and the share price drops – you buy the shares back at a cheaper price than you sold them for, and you keep the difference as profit.

Let’s say ABC is currently selling for $100 per share. You have done your research and proper analysis, and you think ABC is going down. So, you enter a “sell to open” order with your broker, for 100 shares. Your broker lends you those shares and they are automatically sold for $10,000 ($100 per share times 100 shares).

The $10,000 goes into your account, as that is what you sold them for. But DO NOT SPEND THIS MONEY, lol… the trade could go against you.

A week goes by and ABC is down $10 per share to $90. Woo hoo!! Fantastic analysis you did. You decide to close out your position by placing a “buy to close” order. The order is executed, and you just bought the shares back for $9,000 ($90 per share times 100 shares). The broker gets their 100 shares back, and you keep the difference of $1,000 ($10,000 you sold for minus the $9,000 you bought them back for).

Short selling was a bit confusing to me when I first learned of it. I thought, how in the world can you make money when a stock goes down. Well, if your broker is willing to lend you shares, that’s how. You do need a margin account to place short trades. And, of course, margin accounts can be very dangerous for a multitude of reasons.

If you are interested in short selling, contact your broker to find out what you need to do. Also, DO YOUR RESEARCH AND KNOW WHAT YOU ARE DOING FIRST!!

SPY KEEPS ON TRUCKIN’

On my Trading View account (JayC81 if you wanna look me up there), I just published this chart. Notice, I started my spiel off with “Unbelievable!” Know why? Because it is…

As I have said quite a few times recently, the technicals and fundamentals are mounting in favor of the bears. Yet, through it all, the market keeps moving up… like a freight train – you just can’t stop it.

So, my question is this: should we, as traders/investors, care if it goes up or down? I ask, because I have been focusing on when to short the market, while missing opportunities to long the market. In doing so, I have missed out on some pretty good gains. Any good trader can make money when markets move up, the same as they can when markets move down.

My point is this: don’t be shy! Always keep your eyes open for good opportunities. It’s always about the opportunity, more so than the direction… in my opinion. I am now playing the market both directions. That is the game it wants to play, so that’s the game I’ll bring.

I always say – LEARN TO PLAY THE GAME! If you can’t beat em’, join em’!