I don't understand shorting, how is this legal?

[Tanquen]

Tesla Cuts Model 3 Orders From Core Supplier By 40%

Everything in there seems so over-the-top. Then there are the comments at the end by all the little lackeys that want Tesla to fail so they can make money on the short. ???

I'm so tired of hearing how Tesla is taking everyone's taxpayer money. GE has taken billions in recent years and now they're imploding. And oddly enough is cuz they can't control the death spiral of bad vibes.

 

[kort677]

I'm sorry to say it but your comment displays a complete emotional disconnect from reality

 

[Marsnaut]

There's a lot of debate if shorting is beneficial to the markets or not, but I personally feel that it is a necessary mechanism. The idea is that it allows for fairer valuations as people will short if they believe it is overvalued, and people will long if they believe it is undervalued.

At the end of the day, a short needs to cover their position. There are huge momentum swings (shorts feasting off of shorts, and the opposite short squeeze) that can result from it but that's the nature of financial markets.

One positive: if you are a long, a short brings down the stock price so you can buy at a lower price.

 

[Cosmacelf]

Personally, I don't like that shorting is allowed precisely because it causes huge momentum swings. But the shorting horse left the financial barn a loooong time ago. Not sure how easy it would be to outlaw it now.

 

[boaterva]

The person you borrow the shares from owns them, up to you to give them back at some point! It's up to one of you who wins the deal.

 

[Tanquen]

It's not just the idea of shorting in general but the fact that people are obviously lying and exaggerating to encourage their gamble to win.

Recommended don't buy or just don't buy the stock okay but to actively lobby for their failure so you can make a profit seems a little out there.

Like how they let companies buy life insurance policies on people. Just seems odd like it shouldn't be legal. Like I'm pretty sure it's illegal for me to sell a bunch of shares in my neighbor's house burning down and then you know, just kind of seeing what happens.

 

[Skotty]

Shorting feels dirtier because it's no longer investing in a company you believe in. It's just gambling. But then, many longs are probably mostly just in it for the gamble as well with no real belief in the merits of the companies. Gambling is one of the seedier sides of society, like heavy drinking, that is not so good and can drive people to do bad things, but not bad enough to be illegal.

 

[kort677]

It's not just the idea of shorting in general but the fact that people are obviously lying and exaggerating to encourage their gamble to win.

Recommended don't buy or just don't buy the stock okay but to actively lobby for their failure so you can make a profit seems a little out there.

Like how they let companies buy life insurance policies on people. Just seems odd like it shouldn't be legal. Like I'm pretty sure it's illegal for me to sell a bunch of shares in my neighbor's house burning down and then you know, just kind of seeing what happens.

Caveat emptor

 

[Emmies]

it's gambling. plenty win and plenty lose.

 

[HankLloydRight]

Recommended don't buy or just don't buy the stock okay but to actively lobby for their failure so you can make a profit seems a little out there.

How is that any different than pump and dump scams?

 

[Electroman]

Shorting as a concept brings the necessary checks and balances in the financial market. But the problem is, it spawns a whole cottage industry that is bent upon destroying the company by spreading lies, and also perhaps actively funding elements that will bring the company down.

 

[Tam]

...Tesla to fail so they can make money on the short..

There are countries that have banned short selling practice:

Still risks in Greek financial system: EU watchdog

I am not an expert, but I thought it's part of the Options Trading which can help investors against bigger loss.

For example, I bought TSLA at $300. I could make a profit now if I sell for $320. I want to hang on because I think it can go up higher. But what if it could go down and I only want to protect my price at $310? That's where options trading (including short sellers) comes in to fulfill my wish.

 

[augkuo]

There are countries that have banned short selling practice:

Still risks in Greek financial system: EU watchdog

I am not an expert, but I thought it's part of the Options Trading which can help investors against bigger loss.

For example, I bought TSLA at $300. I could make a profit now if I sell for $320. I want to hang on because I think it can go up higher. But what if it could go down and I only want to protect my price at $310? That's where options trading (including short sellers) comes in to fulfill my wish.

Or think of it another way, I buy insurance for my TSLA position in case it drops too far. In this case, the person selling me the insurance is actually selling the stock at current prices and betting that it'll fall to buy it back at lower prices and therefore covering the insured.

 

[kort677]

How is that any different than pump and dump scams?

that is an over simplistic comment. for example if I buy a stock, make comments pumping up it's value and then selling out it is one thing.
if I am the creator of the stock, make fictitious claims regarding profitabilities, fake orders and the like, and then sell that stock based on my false claims, then I've committed a crime.

 

[kort677]

Or think of it another way, I buy insurance for my TSLA position in case it drops too far. In this case, the person selling me the insurance is actually selling the stock at current prices and betting that it'll fall to buy it back at lower prices and therefore covering the insured.

otherwise known as options trading

 

[kort677]

There are countries that have banned short selling practice:

Still risks in Greek financial system: EU watchdog

and we all know how well the greek economy ranks

I am not an expert,

agreed

but I thought it's part of the Options Trading which can help investors against bigger loss.

short selling is not option trading, you can create a virtual short using options but that is far different than actually short selling the stock. the balance of the comment isn't a bad assessment. but your knowledge of the "game" has many holes in it.

 

[Tam]

...short selling is not option trading..

That clears up my confusion between the two.

Thanks for the explanation!

 

[Skidmark]

I see shorting as taking a loan to sell something that you don't own. If you're willing to take the risk that you can lose an infinite amount of money, go for it! Playing put options is much safer.

 

[kort677]

I see shorting as taking a loan to sell something that you don't own. If you're willing to take the risk that you can lose an infinite amount of money, go for it! Playing put options is much safer.

safer? I don't know about that, but it is far easier to create a short position and even hedge that position than it is to short a stock. when you short sell a stock, you need to compensate the owner of the stock that you are using to sell and you are also on the hook to pay out if there are any dividends declared or in the off chance that there was a severe run-up you might not be able to find stock to replace the stock that you sold short, known as a short squeeze.

 

[Skidmark]

I say playing put options is safer because your risk is limited to the amount you spend to buy the options. With a short sale, you exposed to infinite losses, but at maximum only 100% profit (the amount you gain from selling the stock short).