How Selling Short Works

Shorting stock means selling shares you havent bought yet and delivering them in the future. To ensure you will have the shares available, you must borrow them from your broker. Suppose you short sell a stock at $75 per share. The stock price declines to $60, so you buy the shares you need to complete the short sale and return the borrowed shares to your broker. You are paid $75 per share, thereby making a $15 per share profit. Short selling stock has risks. If the shares increase in value, you must buy them anyway. If they rise too much, your broker issues a margin call, meaning you have to invest more money or the broker will close out the short sale at a loss.

Trading Put Options

References

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