TPW 0.39% $12.90 temple & webster group ltd

Options and warrants make it easier to trade on a negative...

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  1. 5,091 Posts.
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    Options and warrants make it easier to trade on a negative sentiment, but they don't constitute "shorting". To take a short position you borrow shares from a holder. You then sell those shares on the market. If you borrow enough of them and sell them quickly enough, that can sometimes get a good slide in the share price happening by itself. When the share price has dropped enough, you buy the shares back and return them to the lender (covering). You pocket the difference between the sell price and the buy price.

    You will usually have to pay the lender a cash deposit or provide security, and pay interest on the outstanding balance, and if the target company pays a dividend you will have to pay that dividend to the lender.

    And if the price of the shares you shorted go in the wrong direction, you'll eventually have to cover the shares at a loss.

    In theory there is no limit to how big your losses can be on a short position. If the target stock triples in price, you could be looking at a net loss of more than double the original value of the shares you borrowed.

 
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