RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Covid Sacloco wrote: It all depends on the brokerage you use, your account size, activity etc....sometimes they will limit the amount you short to ensure you don't get in over your head. Call your brokerage and discuss it with them...
Can I ask you something about shorting?
I know the riskiness and therefore I do not make use of it.
For me, it's like gambling, huge gains, but also huge losses.
So, my question is the following:
Let's assume CLAS runs again and reaches $1.20.
You then decide to short it with let’s say 50,000 shares (to do that you have to borrow them and later give them back). The price goes, after shorting it down, to $1.10, but you think it will go even further down, so you wait with covering. And indeed the price goes down to $1.00.
At this moment you have theoretically gained 50,000 X $0.20 = $10,000.
But you think it will still fall even further, probably will fall till $0.50 making your profit grow to 50,000 x $0.70 = $35,000, which is huge.
However, at the price of $1.00, there is, unfortunately, a halt, so you cannot cover.
Big news is announced and you see the price jumping to $3.00 before the halt is lifted. You decide to cover, as you think with this news the price will never fall back to $1.20. You unfortunately only have $50,000 and start covering, before the price goes even higher, but after the halt is lifted the ASK is at $3.50. So you manage to buy $50,000 / $3.50 = 14,285 shares. You don’t have any more money to cover the rest of the shares you borrowed, that is 50,000-14,285= 35,714 shares; at SP of $3,50, we’re talking about $125,000.
And if you do not cover then, and the price moves even higher the amount you need to cover increases significantly.
My question is about this last scenario when you do not have the means to cover.
What happens then? Is your broker covering for you? Do you have to call them to cover for you or do they see it themself and start covering?
And what would that mean for you? Do you have to pay everything back to the broker with interest?
I am just curious and I think you have the knowledge otherwise you would not make use of shorting. I think this information is also useful to people who never have shorted stocks and think about doing it. Thanks in advance for your info