When is it appropriate to sell short a stock when you don't own it to buy it back at a lower price?

I am new to this market and to trading. It appears that with instantaneous news I am at a major disadvantage with regards to upswings that occur for moments at time and are gone until the next time that I don’t get the news fast enough to work with and most of the market declines on a daily basis as I see it. I think I am better and have better odds of picking losers than I do winners. So if I want to make money, it looks like I need to sell short which is actually buying it because I have to allocate money to sell it short because I borrow shares for a price from another investor, right …and then buy when the stock takes enough of a dip that I can make the money back on the way up. Is there a time limit on selling short that you have before you have to buy the shares back or is that indefinite? So for instance I think the shares will go lower than a certain dip, can I wait til I think the stock is at is lowest dip?

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5 Responses
  1. StockJock says:

    It is only appropriate to short a stock when you are VERY certain that a stock will fall in price. There is no technical time limit for how long you can be short a stock, but as mentiond above, if a stock continues to rise (rather than fall as you expected) you will have to pay margin calls to cover the increasing price and there is no limit to the amount of money you can lose. When you broker feels you have lost enough money, they may call you in before you are ready and you will have to replace the stock at the higher price before you are ready (and then the price may move down days later, but it will be too late). So, shorting a stock can be very profitable because it requires no up-front investment, but you better be right. Good luck!

  2. marcus says:

    It’s appropriate only when you have the resources to buy the shares at a higher price (potentially MUCH higher, if you are VERY wrong) and return them to their true owner.. in the event that the price goes up. Time limit? I don’t think so, unless the true owner decides to sell and calls you to return what you borrowed so that they can sell them normally. If they make that request and the share price is high… you HAVE to buy shares to return to him. (them.)

    I think this is where the term "put it to you" comes from. Puts and Calls.

    You borrow a $10 stock and sell it. You have $10.

    If: Stock stays at $10 and the lender wants his share back, you buy a share and return it to him.. you’re only out the transaction fees.

    If: Stock goes down to $7… you buy a shares in order to return them to the owner (at a time of your choosing) .You borrows $10 and return $7, making $3… and the lender "doesn’t care" because it was still his same property (a share) you borrowed and returned.

    If: Stock goes to $30…. Lender calls you and says "I want my shares back. I’m going to sell them" You have to buy shares to return… paying $30 for what you were paid $10. You lose $20 per share. He has "put it to you."

    Buying and Selling OPTIONS is similar, but does have a set expiration. If your option expires before you excercise it… it is gone forever.

  3. Santosh says:

    If one watches the market closely, then one gets hints on the same. Some ways on deciding are as follows;
    1. News of results which may lead to downgrades in the stock/sector,
    2. For oil companies news of fall in crude prices or disruptions in middle east,
    3. For consumer goods industries data on high employment, good monsoon or crop etc
    A similar list can be thought of specific to each industry one wishes to follow

  4. Frank Castle says:

    There is no time limit.

    You cannot wait forever because the interest rate will kill you.

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