Shorting stocks

[Modee]

Shorting in this market can be used as one side of a two edged sword, but - no - the market is not all about "puts" any longer.

[Modee]

One shorts a stock, obviously, when one thinks that it will go down (as opposed to up). A short is never a long term position, in other words, a short is not a position that one enters and then tucks away for posterity, thinking that "this little short" will be a nice inheritance someday for one's children.

No, a short is a dangerous position entered into that runs counter to the general forces of time, and is exited with a buy to cover when the stock has dropped to the point where (1) (of course) it is lower than the entry point, and (2) the stock looks like it will come back around.

When I enter a short position I might maintain it for just a few hours, if not minutes. Rarely will I hold a short more than, say, overnight and even then only because I need to, because the stock somehow went the other direction and I am convinced that it will drop in value tomorrow, such as after a temporary run up.

Some of the most skillful shorts I have entered are near the top of quick runs, just before the timberrrrrr! drop of an equally quick sell off, but it takes practice to figure out exactly where the top is and even then sometimes one misjudges the top and has to sweat a bit before the inevitable sell off occurs (stocks don't move straight up or down, thet follow a sort of up down up down jagged course).

Just remember the cardinal rule for shorts - get in and out quickly, with a profit and do not expect to short and hold long term (as the name implies...it is a SHORT term position). Even if the company goes into bankruptcy (the stock goes to zero) or gets delisted (booted off the exchange because it drops too low) that may create a situation where no shares are available to buy to cover, so - with no exception - a short position is NOT a long term position. One never shorts a stock and forgets about it.

Longs, on the other hand, may be tucked away, as the name implies, long term. That is not to say that one should go long on a stock and just forget about it - a long, just like a short, may have an exit point after it goes high enough and it's time to cash out, but if one is okay with holding and holding and holding for years, over time all fundamentally sound, positive EPS (earnings per share) companies with a decent P/E (price to earnings ratio) go up in value.

With a short however there is theoretically an infinite level of risk and potential loss, if the stock keeps rising.

So, basic rule of thumb: if you short, keep an eye on what is happening, and get the hell out after the stock starts to come back, or (ulp) if you end up in a bad position and the stock moves too far up, against you (unless of course, you're willing to hang tough and wait for the stock to drop, which of course, it might, and...it might not).