Tomorrow, you could begin doubling your account every single month starting with one letter.
The letter will come from a 20-year trading professional named Ian Cooper. He says, “In 2017, following my trades you would be doubling even tripling your account some months. Let me show you how.”
He will show you exactly what to do... and he’ll give you the blueprint for just $1.
In the world of finance, there is a transaction you can implement known as “selling short”. It is a way for profiting from falling prices. You can sell short stock, and you can even sell short options. Here is how it works:
Let’s say that you were looking at a company – some high flier called ABC Tech. You felt ABC Tech shares had gone up too far, too fast. You also noticed in the company’s annual report that there were some shenanigans going on that were unnoticed by others. You felt that the company’s shares, now priced at $80, were likely to fall sharply. You wanted to make money as the price of the stock fell.
What you do is “sell short”. To do that, you first borrow the shares, usually from your broker. You then sell the shares you borrowed in the open market, in this case at $80. Remember, whenever you sell something, you collect money. In this case, you collect $80.
At this point, we need to ask a simple question in order to understand how we make money. That question is what is our risk?
The answer is, if we’ve borrowed the shares, the person who loaned the shares to us may ask for them back. And that’s how we make or lose money.
Think of it this way: if the price of ABC Tech drops to $50 and the brokerage firm that loaned us the stock asks for it to be returned, we have to give it back to them. Since we already sold it at $80, then to return the stock, we’ve got to buy it in the open market. We buy it back for $50. But remember, we’ve already collected $80. So our net profit is $30!
It may help to visualize a checking account to better understand this.
First, you borrow the shares. This shows up as neither a debit or a credit.
Next, you sell the shares in the open market and collect the money. Whenever you sell anything, you receive money. Money given to you shows up as a credit on your checking account statement and your brokerage statement.
Later, you buy back the shares that you borrowed. Whenever you buy anything, money comes out of your pocket. This shows up as a debit to your account.
Finally, you return the shares to the person from whom you borrowed the stock.
Here’s how the arithmetic of a typical short sale transaction looks, using a round-lot of 100 shares:
Transaction
Result
Borrow 100 shares of ABC Tech (price 80)
0.00
Sell 100 shares of ABC Tech at 80
+8,000.00
Buy 100 shares of ABC Tech at 50
-5,000.00
Return the 100 shares of ABC Tech you borrowed
0.00
Net Profit or Loss
+3,000.00
That’s what it looks like if things go right and the stock drops. But, what if the stock price rises. Let’s say you borrowed the stock, sold it at $80, thus collecting $80, which shows up as a credit to your account. At some point, the person who loaned you the stock will call and say, “I want my stock back”. You then have to buy the shares in the open market, and return the stock to the person who loaned you the stock. IF the ABC Tech went up to $100, you will have to pay $100. The purchase shows up as a debit. So, your account has a credit of $80 and a debit of $100. The net result is that you have a total net debit of $20. In other words, the stock went up and you lost. Here’s how the arithmetic looks, using a round-lot of 100 shares:
Transaction
Result
Borrow 100 shares of ABC Tech (price 80)
0.00
Sell 100 shares of ABC Tech at 80
+8,000.00
Buy 100 shares of ABC Tech at 100
-10,000.00
Return the 100 shares of ABC Tech you borrowed
0.00
Net Profit or Loss
-2,000.00
We will look at one more example. Let’s airline L-M Air is experiencing some problems. There are safety concerns, their planes are old, they’re deep in debt, all of which is causing a public relations nightmare and near-empty planes. You think that the company is headed for bankruptcy, so you sell 500 shares short. L-M Air shares are trading for $10.
One evening, a few weeks later, Goliath Air announces that they want to buy L-M Air. Goliath needs the gate space desperately. Goliath has agreed to sell the older planes to an air-freight shipper once the purchase of L-M Air is finalized. Goliath doesn’t want any other airline to get in the way, and they don’t want L-M’s Board of Directors to reject the bid, so they offer an extremely high price: $30.
The next day, before the market opens for trading, Leviathan Air announces that they don’t want to see their arch-rival, Goliath, succeed in acquiring those gates. The market suspects that Leviathan will make a competing offer for L-M Air. Later that morning, L-M Air shares open for trading at $35. Your brokerage firm, the one from whom you borrowed the shares, calls you to tell you that they want the shares back (or more money). Can you figure out what just happened to your investment?
Here is the arithmetic:
Transaction
Result
Borrow 500 shares of L-M (price 10)
0.00
Sell 500 shares of L-M at 10
+5,000.00
Buy 500 shares of L-M at 35
-17,500.00
Return the 500 shares of L-M you borrowed
0.00
Net Profit or Loss
-12,500.00
You just lost $12,500 on an investment that had a maximum profit potential of $5,000. The fact that you can lose substantially more than you gain, that your loss potential is unlimited, is why short selling is best left to experienced traders.
One thing to note about short selling – the borrowing and returning of shares is “transparent”. That is, the person selling short doesn’t ever see the borrowing and selling aspects of the transaction on their statement, (although they will see the impact of it when they look at the margin interest section of their statement). All the short seller sees is that they sell something at the inception of the trade, and that they buy it back at a later date to close out the trade.
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