Stock Mkt.- Anatomy of a Short Sale
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Stock Mkt.- Anatomy of a Short Sale
by Recyclersteve » Wed Feb 01, 2023 10:36 pm
I’m taking indications of interest from anyone who wants to hear a real story about a stock I sold short, betting it would go down, not up. I will give details about why I felt it was overvalued and specifics about the trade. Don’t want to waste a bunch of time unless at least a couple people are interested in hearing details. Anyone interested?
Former stock broker w/ ~20 yrs. at one company. Spoke with 100k+ people and traded a lot (long, short, options, margin, extended hours, etc.).
NOTE: ANY stocks I discuss, no matter how compelling, carry risk- often
substantial. If not prepared to buy it multiple times in modest amounts without going overboard (assuming nothing really wrong with the company), you need to learn more about the market and managing risk. Also, please research covered calls (options) and selling short as well.
NOTE: ANY stocks I discuss, no matter how compelling, carry risk- often
substantial. If not prepared to buy it multiple times in modest amounts without going overboard (assuming nothing really wrong with the company), you need to learn more about the market and managing risk. Also, please research covered calls (options) and selling short as well.
- Recyclersteve
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Re: Stock Mkt.- Anatomy of a Short Sale
by Recyclersteve » Thu Feb 02, 2023 12:15 am
I got 4 quick responses in total (here and on another site), so here you go!
I've got lots of experience trading and don't mind doing some things that others avoid. In this case, I combined two of those things- an extended hours trade with a short sale (betting a stock would go down instead of up).
Monday night in after hours I saw the stock LION (Lionheart III Corp.) up sharply in after hours. It closed the regular session at $10.16 and traded as high as $15ish in after hours. What was the news? Well this company doesn't have significant operations of any kind, but hopes to someday effect some kind of merger or business combination with another company. Some people call these blank check companies and most would consider them highly speculative. Keep that in mind.
The stock almost always was within 10-20 cents of the $10.00 level for almost all of the past year.
So what was the news? Well they announced LAST JULY that they were combining operations with an Australian company called Security Matters. Ok, that was LAST JULY. All they said Monday was that shareholders formally approved the merger. So what! That would likely cause a normal stock to move perhaps 10-20 cents a share, not up so sharply like this one way.
By the time I saw this it was already coming down in price pretty quickly. I was able to sell short 500 shares at $13.66 a share. To be safe, in case this became one of those meme stocks (a la AMC Theaters or Gamestop) I placed 3 separate orders to short 300 shares each in addition to the 500 I wanted to trade right away. Those orders were at much higher prices and I wanted to be sure to reserve the shares by making it a Good Til Cancelled short sale. That way, hopefully I wouldn't have anyone tell me they ran out of shares for me to sell short. These other orders were all at much higher prices (just under $20 and around $25ish or so).
My goal was to make $1,000 profit in one business day. Since I sold short at $13.66, if I could buy back at exactly $11.66, that would be a profit of $2 a share or $1,000.
Fast forward to Tuesday morning. The stock was trading in the $12's in the pre-market session Tuesday, so I felt pretty comfortable the plan was working. Early in the regular session on Tuesday, the stock was at $13.60, but I felt strongly that wouldn't last more than a few hours. And it didn't. At 12:27pm EST I bought to cover my short at $11.64. The total net profit was actually $1,009.84 (17.4%). Not bad for a hold time of 1 day.
This isn't something I could duplicate every day, but I keep an eye out for those obvious trades (like this one) which come along from time to time. This happened so quickly that I didn't have time to post it on this site for others to do as well. And now the stock closed Tuesday back down at $10.44 a share. So I certainly wouldn't trade it (long or short) at this level.
For what it is worth, if I held til the end of the day and got out at the close I'd have made an extra $600 ($1.20 a share times 500 shares). But, I was busy with other stuff and didn't have the ability to watch this one real closely. Secondly, I don't want to be a greedy trader. When possible I'd like to leave a little bit on the table for the next person to also profit. Being too greedy in the stock market can get you clobbered.
So that was it. You will see times when things are obvious buys (for instance, many stocks at their COVID lows were tremendous buys) and obvious sells (a story about nothing has Joe Sixpack getting super excited). This was an obvious sell the moment I saw it.
P.S. To sell short you must use a margin account, not a retirement account. Even if you only have a retirement account, I thought you might want to know what other traders are thinking when they do trades.
I've got lots of experience trading and don't mind doing some things that others avoid. In this case, I combined two of those things- an extended hours trade with a short sale (betting a stock would go down instead of up).
Monday night in after hours I saw the stock LION (Lionheart III Corp.) up sharply in after hours. It closed the regular session at $10.16 and traded as high as $15ish in after hours. What was the news? Well this company doesn't have significant operations of any kind, but hopes to someday effect some kind of merger or business combination with another company. Some people call these blank check companies and most would consider them highly speculative. Keep that in mind.
The stock almost always was within 10-20 cents of the $10.00 level for almost all of the past year.
So what was the news? Well they announced LAST JULY that they were combining operations with an Australian company called Security Matters. Ok, that was LAST JULY. All they said Monday was that shareholders formally approved the merger. So what! That would likely cause a normal stock to move perhaps 10-20 cents a share, not up so sharply like this one way.
By the time I saw this it was already coming down in price pretty quickly. I was able to sell short 500 shares at $13.66 a share. To be safe, in case this became one of those meme stocks (a la AMC Theaters or Gamestop) I placed 3 separate orders to short 300 shares each in addition to the 500 I wanted to trade right away. Those orders were at much higher prices and I wanted to be sure to reserve the shares by making it a Good Til Cancelled short sale. That way, hopefully I wouldn't have anyone tell me they ran out of shares for me to sell short. These other orders were all at much higher prices (just under $20 and around $25ish or so).
My goal was to make $1,000 profit in one business day. Since I sold short at $13.66, if I could buy back at exactly $11.66, that would be a profit of $2 a share or $1,000.
Fast forward to Tuesday morning. The stock was trading in the $12's in the pre-market session Tuesday, so I felt pretty comfortable the plan was working. Early in the regular session on Tuesday, the stock was at $13.60, but I felt strongly that wouldn't last more than a few hours. And it didn't. At 12:27pm EST I bought to cover my short at $11.64. The total net profit was actually $1,009.84 (17.4%). Not bad for a hold time of 1 day.
This isn't something I could duplicate every day, but I keep an eye out for those obvious trades (like this one) which come along from time to time. This happened so quickly that I didn't have time to post it on this site for others to do as well. And now the stock closed Tuesday back down at $10.44 a share. So I certainly wouldn't trade it (long or short) at this level.
For what it is worth, if I held til the end of the day and got out at the close I'd have made an extra $600 ($1.20 a share times 500 shares). But, I was busy with other stuff and didn't have the ability to watch this one real closely. Secondly, I don't want to be a greedy trader. When possible I'd like to leave a little bit on the table for the next person to also profit. Being too greedy in the stock market can get you clobbered.
So that was it. You will see times when things are obvious buys (for instance, many stocks at their COVID lows were tremendous buys) and obvious sells (a story about nothing has Joe Sixpack getting super excited). This was an obvious sell the moment I saw it.
P.S. To sell short you must use a margin account, not a retirement account. Even if you only have a retirement account, I thought you might want to know what other traders are thinking when they do trades.
Former stock broker w/ ~20 yrs. at one company. Spoke with 100k+ people and traded a lot (long, short, options, margin, extended hours, etc.).
NOTE: ANY stocks I discuss, no matter how compelling, carry risk- often
substantial. If not prepared to buy it multiple times in modest amounts without going overboard (assuming nothing really wrong with the company), you need to learn more about the market and managing risk. Also, please research covered calls (options) and selling short as well.
NOTE: ANY stocks I discuss, no matter how compelling, carry risk- often
substantial. If not prepared to buy it multiple times in modest amounts without going overboard (assuming nothing really wrong with the company), you need to learn more about the market and managing risk. Also, please research covered calls (options) and selling short as well.
- Recyclersteve
- Too Busy Posting to Hoard Anything Else
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- Joined: Sun Jan 20, 2013 5:59 am
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Re: Stock Mkt.- Anatomy of a Short Sale
by Recyclersteve » Fri Feb 03, 2023 2:44 am
Just for grins, tried to place another order to short LION. Got an error saying shares were no longer available to sell short. Not at all surprised.
Former stock broker w/ ~20 yrs. at one company. Spoke with 100k+ people and traded a lot (long, short, options, margin, extended hours, etc.).
NOTE: ANY stocks I discuss, no matter how compelling, carry risk- often
substantial. If not prepared to buy it multiple times in modest amounts without going overboard (assuming nothing really wrong with the company), you need to learn more about the market and managing risk. Also, please research covered calls (options) and selling short as well.
NOTE: ANY stocks I discuss, no matter how compelling, carry risk- often
substantial. If not prepared to buy it multiple times in modest amounts without going overboard (assuming nothing really wrong with the company), you need to learn more about the market and managing risk. Also, please research covered calls (options) and selling short as well.
- Recyclersteve
- Too Busy Posting to Hoard Anything Else
- Posts: 4584
- Joined: Sun Jan 20, 2013 5:59 am
- Location: Where I Want To Be
Re: Stock Mkt.- Anatomy of a Short Sale
by Saabman » Fri Feb 03, 2023 6:01 am
Great work! Thanks for sharing the story!
Cerca Trova!!!
Happiness does not depend on what you have or who you are. It solely relies on what you think.
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Happiness does not depend on what you have or who you are. It solely relies on what you think.
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