If you make money shorting a stock, who do you make money from?
Exactly the same people you'd make money from if you sold the stock high and bought it low (ending up with the same amount of the stock)
Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
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Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#32Earlier quoted context omitted.
That’s almost always prohibited.
Given the current administration’s recent market behavior I would not be shocked if people got away with exactly what OP described.
It's often prohibited by contract, not just law, so what the administration thinks is only part of the story.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#33Earlier quoted context omitted.
Keep in mind that unlike purchasing a stock where the most amount of money you can lose is the amount of money you spend buying the stock (assuming you didn't buy it on margin), if you directly short a stock, there's technically no limit to the amount of money you could lose. If a stock goes up 1000% after you short it, then you could lose far more money than you put into it.
You can always hedge your shorts and limit your downside. It’s not a huge issue unless you have absolutely no idea what you are doing.
Spoken like someone who's never actually done it. Hedging to limit max loss is extremely expensive.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#34Earlier quoted context omitted.
The market just redistributes wealth from less informed players to more sophisticated/informed ones.
I wouldn't quite go that far. The fact that markets can remain irrational longer than participants can remain solvent means that participants with deeper pockets have an inherent advantage, even if they have less information. How quickly a random walk will take you to zero depends on how far above the baseline you start.
> participants with deeper pockets have an inherent advantage
I do think they have deeper pockets because they are more informed/sophisticated players, so the whole argument is kind of circular.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#35Interesting as some very prominent short sellers had publicly indicated they were not going to attempt this given the stock's "meme" potential and the "cult of Elon". Seems to have happened anyway. Good for those short sellers that committed. It's easy to speculate. Actually risking the bet when the market has a history of being highly irrational when it comes to Elon is another thing entirely. And the insiders haven't even been allowed to offload yet...
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#36Insiders who have locked up stocks but still want to sell could presumably just short the stock and take out a loan secured on the stock to get the financial effects of selling, without actually selling... I wonder if that's what's happening with ~$1T of stocks currently locked up...
You don't "short the stock" by taking a loan secured by it.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#37Earlier quoted context omitted.
Given the current administration’s recent market behavior I would not be shocked if people got away with exactly what OP described.
It's often prohibited by contract, not just law, so what the administration thinks is only part of the story.
Of course whether or not a contract is or is not enforceable as such is also a matter of law. As I understand, this IPO was unique for a variety of reasons. The fact unique terms are promulgated in a contract does not mean (at least in saner times) that they are automatically immune to regulatory scrutiny.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#38If you make money shorting a stock, who do you make money from?
You essentially purchase a share into the stock from a random person and sell it immediately on the market at the current price with a promise to sell it future value in the future.
You don't actually take the money right away but a broker holds it for you.
Say Acme is worth 100$ today and you think it'll go down to 80$ in a week. You give the broker a small betting fee. So you give him 101$, he makes the purchase and holds the "position" for you.
During that week the price could do 2 things.
The Good Scenario: Price goes down to 80$. Broker buys the stock at 80$ and pockets a nice shiny 1$. You pocket 20$.
The Bad Scenario: Price goes up to 120$. Broker buys the stock at 120$ and pockets a nice shiny 1$. You owe broker 21$.
I say 1$ but it's actually more complicated than that. Some brokers allow you to do short positions only if you have other stock with them as collateral which they would sell to pay for whatever loss you might have. Shorting is a risky business because shares could go up to infinity and you could lose everything with these positions.
When people say they're "long on this stock" means they think it'll go up in price. "short on this stock" means they think it'll godown in price. It's lingo they love to use.
So the people you make it from are from people betting the opposite as you. Another person could make the opposite bet as you and end up losing their money that you pocket.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#39Earlier quoted context omitted.
I wouldn't quite go that far. The fact that markets can remain irrational longer than participants can remain solvent means that participants with deeper pockets have an inherent advantage, even if they have less information. How quickly a random walk will take you to zero depends on how far above the baseline you start.
> participants with deeper pockets have an inherent advantage I do think they have deeper pockets because they are more informed/sophisticated players, so the whole argument is kind of circular.
Not sure if you've seen the price of silver, but those spoons are going for a pretty penny these days.
Re: Short sellers notch $8.7B profit as SpaceX shares dip to IPO price
#40Earlier quoted context omitted.
I wouldn't quite go that far. The fact that markets can remain irrational longer than participants can remain solvent means that participants with deeper pockets have an inherent advantage, even if they have less information. How quickly a random walk will take you to zero depends on how far above the baseline you start.
> participants with deeper pockets have an inherent advantage I do think they have deeper pockets because they are more informed/sophisticated players, so the whole argument is kind of circular.
If I inherit a billion dollars tomorrow, I will have zero additional information and be no more sophisticated than I am today. But I will have deeper pockets than any retail investor and will be able to withstand market irrationality longer than them.