Can you take us through a shorting of a stock? Any one would do such as your put selections. Also, how would you do this on line, or is it strictly by broker only? (March 21, 2001)
Lots of interest in puts as we saw last night, and rightfully so. We usually do not short stocks per se which is borrowing and then selling shares of a stock you do not own. You then buy it back at a lower price and pocket the difference with what you sold it for. We have done it, but the liability is unlimited if the stock starts to rise.
Buying puts is the same as buying calls. You can do it with a broker or you can do it online. It is the same principle: you are buying puts to open a position. We place limit orders to buy the put at a price we want to pay for the option (index options are very liquid so we usually try to shave the spread). We have been covering several of these in the Team Trades, but basically we play either a move down after a stock hits resistance or breaks support on high volume. These are the reverse scenarios of a bounce up off of support or a breakout above resistance when we are playing stocks to the upside.
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