
Ask HN: How do I short a stock? - pilom
I'm ready and willing to put my money where my mouth is. LinkedIn wasn't worth $95 a share and Groupon wont be worth what it closes at the day of its IPO.<p>So, I want to start shorting tech stocks just after their IPO's. How do I do it? What trading programs/companies/services do you use that actually allow you to short stock and what are their rates?<p>Edit: Pandora isn't worth that much either in my humble opinion.
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exratione
well, first you should read the excellent "How to Make Money Selling Stocks
Short":

[http://www.amazon.com/Money-Selling-Stocks-Short-
Trading/dp/...](http://www.amazon.com/Money-Selling-Stocks-Short-
Trading/dp/0471710490)

If you don't get what the authors are saying, that's probably a sign that what
you're about to do is gambling. If you want to gamble, great, but it's
important to understand when you are gambling, and to understand whether your
grasp of the odds in any way correlates to reality - and that's the big
challenge in learning to trade.

Secondly, you should look at a good broker like Interactive Brokers: they
offer a paper trade account for free, and a wide range of information on their
website. Their software is excellent. If you find either their software or the
information for individual investors on their website tough going or
enormously intimidating (e.g. suddenly you realize that you're running an
application that quite literally runs on money...), then that is also a sign
that what you are about to do is gambling on unknown odds.

<http://www.interactivebrokers.com>

If looking at these things dissuades you, then you will have learned something
useful along the way - and hopefully it interests you enough to go look at
other resources that teach a much better way to interact with the market.

~~~
solutionyogi
+10 for Interactive Brokers.

I find their software to be average but you can't beat their prices. They
charge 0.005$ (half a cent) per share with minimum of 1$ commission. So if you
trade less than 200 shares, your commission is 1$. If you trade 1000 shares,
you pay 5$ in commission. Compare this to other brokers who charge you
9$/trade regardless of your trade size.

Also, they are one of the only brokers will EXCELLENT short borrows.

There are numerous trading software available in the market who integrate with
Interactive Brokers account.

I am not affiliated with them in any way, just a very happy customer.

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kwantam
In general, to short a stock, you need to be able to borrow shares of the
stock to sell. For that, you'll need a margin account with a broker such as
ETrade, TD Ameritrade, et al. (Not endorsing any of them, just listing names
that come to mind.)

Let's take a step back and discuss what you're doing, though. Shorting a stock
is _a_ way of betting that it will go down, but it's not the only or
necessarily the best way. Remember, taking a short position in a stock has
potentially unlimited downside, depending on your margin arrangement: the
stock price can always go up, and if your margin gets called, you could end up
losing a lot of money.

Two other relatively easy ways to bet against a stock are to buy-to-open put
options (limited downside) or sell-to-open call options (unlimited downside).

A put option is the right to sell a particular stock at a specific price
before the expiration date of the contract. So, if you own a put option, you
can sell stock for some amount, no matter what its present market price is.
So, if the price of a share is very high right now, and you think it will go
down, you can buy puts, wait for the price to go down, and either exercise or
(more commonly) turn around and sell the puts. The maximum amount of money you
can lose is your initial investment: the value of the puts can go to $0, but
no lower. On the other hand, you're highly leveraged: if you buy barely out-
of-the-money puts on a stock for $1, then the price of the stock drops by $10,
your puts will potentially go up in value by $10 or more (the price of options
is strongly influenced by the volatility of a stock and by its recent
history), so you could make 10x your money.

If you sell call contracts, you're selling someone else the right to buy stock
for a given price---and agreeing to be the counter party if the options get
exercised. If you think that a stock is going to go down, but everyone else
thinks it will go up, you can sell call options contracts. Then, if you prove
to be right, you pocket the money you made selling the contracts and you're
done. Of course, if the stock goes up a whole bunch and you don't have shares
to cover it, you could be forced to buy shares at a much higher price than the
contract, and you'll lose money. You can see how in this case the downside is
unlimited.

So: shorting gives unlimited downside and leveraged upside (you pay someone
interest to borrow shares that you sell and then later buy back and repay when
the stock has gone down). Buying puts gives limited downside and leveraged
upside. Selling calls gives unlimited downside and unleveraged upside (you
make what you sell the contracts for, and nothing more).

(These are rough approximations to the truth, and if you're going to engage in
short selling or writing naked calls, you'd better learn a hell of a lot more
than reading one post on the internet from some random guy who can't even
spell his username correctly.)

Buying puts is a far, far safer way of betting against a company, and you
don't need a margin account to do it. If I were you, I'd strongly consider
doing this.

(I regularly buy puts and calls as a way of making leveraged short-term
trades. In fact, pretty much all my short term trading is options, and my long
positions tend to be longer term. I do not regularly short or sell uncovered
calls, however, because these are frankly dangerous pastimes.)

~~~
solutionyogi
As someone who lost serious money on a short position, I completely agree that
you should buy PUTs even if you are sure about your bet.

Though not all securities [E.g. Penny Stocks] have liquid options, and in
those cases, you will have to borrow the stock to short it. As OP states, you
will need to have a margin account to be able to borrow and short a stock.

E.g. Let's look at LNKD options.

<http://www.marketwatch.com/investing/stock/lnkd/options>

<http://i.imgur.com/fFBBK.png>

If you think that LNKD will tank in July 2011, you can buy Jul 77.50 PUTS for
7.35$. Let's say you buy 100 PUTS. Your total outlay will be 7.35 x 100 =
735$. If it goes down, your option price will increase and you can sell them
and cash in your money. If for some reason, LNKD shoots up and goes to 100$
again, your option will be worthless and you would lose your 735$ which you
paid.

Let's compare this to actually shorting LNKD. First, to short 100 shares at
77.50, you will need at least 77.50 x 100 = 7750$ in margin. If LNKD goes to
100$, you are down by (100 - 77.50) * 100 = 2,250$.

As you can see, PUT option lets you make a bet with much less capital (735$ vs
7750$) if you think LNKD is not worth 77.50$.

Please be very careful before you enter the world of stock market. It's very
seductive and there is a high chance you will lose serious money if you don't
understand what you are doing.

~~~
actionbrandon
1 put = 100 shares

~~~
kwantam
No, puts are bought and sold in contracts of 100 options, but the price quoted
is for a single option. The contract costs 100x that price.

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bproper
Probably pretty tough right now -

[http://www.cnbc.com/id/43098403/Why_You_Cannot_Short_LinkedI...](http://www.cnbc.com/id/43098403/Why_You_Cannot_Short_LinkedIn)

~~~
mahmoudimus
There are ways to short LNKD, not immediately after IPO, but very shortly
after (i.e. one or two days later)

~~~
jranck
How does that work? I thought most investors who get access to an IPO are
usually obliged to hold on to their shares for at least 30 days. I'm guessing
there are ways around this but only at your own risk as it will probably be
the last IPO you're invited into.

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philco
Shorting stock isn't necesarily a trading software issue, it's a broker issue.
Brokers don't allow just anyone to short, they evaluate your account and
decide what ammount they'll let you short for. (This way you can't short more
than you own, and then leave them on the hook for the difference if the stock
rises past what you own).

I use Schwab, they have a great trading platform, easy to use, and easy
accounts to set up.

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johng
I have an eTrade account and I regularly short stocks, but I still can't short
LNKD. eTrade is still "unable to borrow shares".

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actionbrandon
use options. you can't lose more than your premium and can express whatever
market view you have--plus don't have to worry about borrowing (and paying to
borrow) shares.

you have to wait about a week after the IPO until the options start trading.

