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Post by sophie on Sept 12, 2016 14:30:12 GMT -5
If the share price increases $1 in each scenario, which would you rather be holding short, 500 million shares or 5 million? Factor in liquidity and losses. I didn't miss your point. 500 million shares is far harder to cover than 5 would be as a catalyst would attract buyers, but not 500 million shares worth. Also, although each yields around $345million initially, if the share price goes up 1 dollar, you'd owe $500 million under the first scenario and only $5 million on the other. The scenario you've described applies only to going "long". Going "short" has a different set of rules. LOL, I understand the differences between being long and being short a stock. You are still missing my point. Ceteris paribus, how is a $1 increase in a 69 cent stock analogous to a $1 increase in a $69 stock?! Given all else being equal, if an event were to cause a 69 cent stock to go to $1.69, then that same $69 stock would go to $169. Under the first scenario, you would lose $1 for every share you held short, let's say 100,000 (2% of outstanding), so your loss would be $100,000 on an investment of $69,000. Again, all else being equal, in the second scenario you would lose $100 for every share you held short. And since all else is equal, that would be 10,000,000 shares, for a loss of $1 billion on an investment of $690 million. As an investor, I look at the rate of return on my investment, and in this case, the returns are identical. I'd rather owe $31,000 than $310 million, personally I got some concepts messed up in my head. You're right. Sorry for calling you out when I was wrong.
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Post by Deleted on Sept 12, 2016 14:44:52 GMT -5
I don't know if we longs can win. It doesn't make sense to short a stock when it sits at 0.69 cents. Especially when most shorts have made a lot of money by shorting this stock. The thing is, how do the shorts get out when there are 8I million shares shorted. The only way out for them is dilution, reverse split or bankruptcy. Does anyone else have ideas how the shorts can unwind their positions? Dilution certainly helps the shorts if they buy into the new offering since they can deliver those shares to close out their position. Reverse splits don't help because if somebody has shorted 100 shares and the reverse split ratio is 5:1, then they still owe 20 shares and those shares will be the same proportion of the total outstanding. Bankruptcy, if the existing shares are cancelled, is a home run because those shares never have to be repaid; you cannot repay something that no longer exists and that is the legal effect of a bankruptcy cancellation of a class of equity claims. Some people also take a position that since there is no offsetting transaction there is no need to pay tax on the theoretically open short until death when it has to be included on their final return.
The other way shorts can exit is via options. If a long sells calls against their position, the shorts can exercise in the money calls and deliver the shares to close the position, or they can use more complex portfolios of derivative securities to create a synthetic long position that economically neutralizes the short position and effectively leaves them with no exposure.
The more I learn about how complicated the market is, and how unfair an advantage I have against smart money the more I start to realize I may be better off doing other things with my money then buying stocks.
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Post by dadyfatstac on Sept 12, 2016 14:45:21 GMT -5
Missing the concept....
A long can only loose what he paid for the stock, say a dollar, time the number of shares. The short on the other hand losses potentially can be unlimited depending on when they decide to cover, if the stock on news goes hyper, lets jest say $100.00 a share, plus interest paid. The short's main goal would be for the shorted co. to go BK, then they also reap the tax benefit. I know nothing about investing and am only posting on the board, while I wait for MNKD to at least reach ten dollars a share. Matt P. had a great presentation today! If anyone cares.
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