Short-Selling Stocks West Lafayette IN

Short-selling stocks is the selling of stocks that the seller does not own in the hopes that the stock prices will fall and the seller will earn a profit. Find out what the risks and benefits or short-selling are.

Local Companies

Edward Jones
(765) 497-0110
451 Sagamore Pkwy W
West Lafayette, IN

Edward Jones
(765) 743-6484
211 E State St
West Lafayette, IN

Edward Jones
(812) 547-6446
615 Main St
Tell City, IN

Edward Jones
(812) 232-1101
1207 Lafayette Ave
Terre Haute, IN

Edward Jones
(317) 706-8539
1504 E 86th St
Indianapolis, IN

Edward Jones Invstmnts
(812) 254-0342
520 E Van Trees St
Washington, IN

Edward Jones
(219) 762-7322
3147 Willowcreek Rd
Portage, IN

Edward Jones
(317) 253-6417
7172 N Keystone Ave Ste E
Indianapolis, IN

Ralston Steve Invstmnts
(812) 723-4755
413 SW 1st St
Paoli, IN

David Mike
(812) 471-0578
4904 Bellemeade Ave
Evansville, IN

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"Short-Selling" Stocks

There are many factors to consider when searching for new growth stock ideas such as estimate revisions, PEG ratios, and earnings growth. However, it is also important to be on the look-out for potential red flags so you can avoid those big losers that can kill a portfolio’s return. One such pitfall is a high “short interest.” What is short interest and how can it be helpful to you?

SHORTING-DEFINED

First of all, it would help to define “selling short.” Essentially, short selling is the opposite of buying stocks - it's the selling of a security that the seller does not own, done so in the hope the price will fall. Basically, it is the reverse of “going long” or buying a stock with the hopes of selling it at a higher price for a profit. Quite simply, short sellers hope to profit from falling stock prices.

ARE SHORTERS ARE SMARTER?

Short interest is the total number of shares of a particular stock that have been sold short by investors but have not yet been covered or closed out. If a stock has a high short interest, many investors believe that the stock will fall.

One common perception is that short-sellers know something that the rest of investors don't. There is little actual evidence to prove whether this is true or if it is false. However, a high short interest ratio is a sign that you should do more research to make sure you fully understand the potential risks associated with the stock before you invest in it.

DON’T BE TEASED BY THE SQUEEZE

One reason many investors speculate in stocks with high short positions is the prospect of the “short squeeze.” A short squeeze occurs when short sellers are scrambling to replace their borrowed stock thereby increasing demand and decreasing supply, forcing prices up. Short squeezes tend to occur more often in smaller cap, aggressive growth stocks, which have a very small float (supply), but large caps are certainly not immune from this situation. Unfortunately, however, this is a very difficult phenomenon to predict. When it works out, you can make a ton of money as the stock explodes higher, but these occurrences are few and far between and usually not worth the risk.

WHY RISK IT?

A high short-interest stock should be approached for buying with extreme caution but not necessarily avoided at all cost. Short sellers (like all investors) aren't perfect and have been known to be wrong from time to time. However, there are over 10,000 stocks that are publicly traded in the United States, so there is bound to be one that meets your fundamental criteria, which does not have a bulging short interest. The logical question becomes, “why take the risk?”