Re: Shorting the Online Gaming Stocks
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What's the difference between shorting, and the put options? thx
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Shorting is the opposite of going long (buying), you are selling shares you don't own and must return them at a later date and hopefully at a lower price. The danger is that the shares skyrocket and you must pay back multiples of the share price. You must also have a margin account to short and run the risk of margin calls, i.e. having your brokerage forcably sell your positions to cover your loses.
A put is an option, it gives you the right but not the obligation to sell shares at a certain predetermined price on or before a predetermined date. You must pay a premium for this. For example let's say you bought a $50 put on company XYZ for $1. The company is trading at $50 at the time. It drops to $45 and you exercise the option, you net $4 [(50-45)-$1 premium]. If the price rises to $55 you would choose not to exercise the option and lose your $1 premium.
Put options are often used as a type of insurance to protect against a stock price falling.
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