shorting ado, page-30

Kent DOES NOT CARE IF THE PRICE goes UP or DOWN... His Strategy ONLY works for heavily discounted Oppies, he wants a 10-20% profit ONLY...

...Took me a while b4 it clicked in my brain also...

1) Buy Oppies @ say 3.8c.

2) Short Sell heads say 6c. (Means u bet on price going down)

His plan is to convert the Oppies as they are heavily discounted compared to the Heads. He is hedging his bet during this period buy shorting the Heads.

If Heads go down he wins by shorting Heads. Yet losses when converting Oppies. As he has managed to buy the Oppies at 3.8 to exercise equals 1.2...total 5c.

Now he can never make much more or lose much more than ~20%. As he is only shorting the Heads during the time of converting the Oppies.

He will need to pay his broker a fee in and out to short the stock. He will need 3 times the cash with the broker to allow a small spec short.

In fact Kent does not care if the SP goes up or down. Even when the chances are UP, say 8c. He will close out his stort on the Heads when and pay an extra 2c ps. At the same time his Oppies are converted costing a total of 5c.

Up or Down Kent makes 1c from a 6c Heads. Therefore he makes ~20% on his money no matter what happens IF he performed the Shorting of Heads and Buying of Oppies at the same time. Then sold the converted Oppies and closed the shorted Heads at the same time.

Confusing at first yet simple when it clicks in ur brain.

It is not as simple as naked short selling. As that is a bet that the SP will go down.

Kent is only using the leverage and discounted Oppies to make a quick 20%. It is a fine strategy that if executed correctly will work whether the SP goes up or down.

Only IF you can get the Oppies at a heavily discounted price. The gap is starting to close.