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Short Shares

Analyzing the risk profile of a short share position
You sold short shares at $50 per share. Which of these scenarios is best for your position?
The share price goes to $100
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The share price goes to $55
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The share price goes to $45
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The share price goes to $1
Correct! This would be an amazing scenario. Your short shares profit when their price declines. $1 per share would be an almost maximum profit
You want to short shares that are HTB. What should you be most wary of?
Nothing, this is an ideal situation
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Decreasing share prices
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High interest rates
Correct! HTB means "Hard to Borrow". The difficulty of obtaining these shares is likely to drive interest rates up quite a bit, which would drag your probability of profit down.
Low option volume
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First you sell 10 shares at $50. Then you sell 10 more at $45, and 10 at $42. What is happening to your break even?
It is worsening
Correct! Your position is profiting as the share price declines, however by selling more shares at lower and lower prices, you are dragging your break-even down and increasing your total risk.
It is improving
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It is not affected
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It is getting larger
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Which position has the better break even price: 10 short shares for a total credit of $500, or 100 short shares for a total credit of $5000?
10 short shares
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100 short shares
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Neither position
Correct! The average cost basis for both positions is $50 (total credit divided by number of shares). They have the same break even price.
Not enough information to determine
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How would you close a short share position if you're short 100 shares at $30? The current share price is $25.
Sell your shares for a total credit of $3000
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Buy 100 shares for a total debit of $3000
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Sell your shares for a total credit of $2500
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Buy 100 shares for a total debit of $2500
Correct! You are short shares, so you must buy them back to close them. The current market value is $25 per share, so you can buy your 100 shares back for a total debit of $2500 – a $500 profit!

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