[duit's] - simple explanation of short selling
[duit's] - simple explanation of short selling in KLSE (pic example)
duitKWSPkita
Publish date: Thu, 28 Jul 2016, 11:34 PM
duitKWSPkita
0 69
Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed.
Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.
Short Selling Definition | Investopedia
www.investopedia.com/terms/s/shortselling.asp
Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.
Short Selling Definition | Investopedia
www.investopedia.com/terms/s/shortselling.asp
All Pictures shown are for illustration purpose only.Actual counter may vary due to educational purpose.
Netherlandssssssssssssssssssssssssssssssssssssssssssssssssssssssssss$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
I receive some requests to explain about short selling. Hence, I take up opportunity to show you with picture.
Definition:
http://www.investopedia.com/terms/s/shortselling.asp
Short selling often occur in stock market due to the benefit below:
- Short seller and lender make money in certain ratio (negotiable)
- Lender believes the counter he holds will enevtually show good figure and enjoy share price appreciation
- Stimulate the trading volume to garner market attention
Figure 1: A common counter in KLSE
Figure 1 presented one of the common counter in KLSE. I am only using the figure for short selling explanation but nothing to comment this counter related to short selling. Do you see suspicious from the price chart? See carefully.
Figure 2: Activities involved in the short selling
Let say Lender owns 368,500 shares of unknown counter at RM3.310. Total is RM1.22 million.
One day a short seller approached Lender and proposed to him the short-selling with 15% profit sharing of 368,500 shares. The proposal was mutually agreed and signed by both parties.
Activity 1: short seller take the 368,500 shares then disposed it at RM3.850. He received the sum of RM1.42 million
Activity 2: short seller bought back 68,000 shares at RM3.650. Total cost RM248k
Activity 3: short seller bought last batch of 300,500 (368,500-168,000) at RM3.580. Total cost RM1.08k
Total cost = activity 2 + activity 3 = RM1.328mil (similar 368,500 shares) ; Earning = RM1.42 mil – RM1.32 mil = RM100k
Post short selling:
Lender got back 368,500 shares average of RM3.593 and profit sharing 15% at around RM15k (15% X RM100k)
Short seller got RM85k within 3 days without fork out any capital
Bear in mind that lender not only maintain 368,500 shares but also have paper value of RM1.32 mil (compare to cost RM1.22 mil) plus 3 days profit sharing of RM15k. This is just an exmple of short selling with small quantity. Imagine when the voulme is 10 times of that amount in FGV or Tenaga/CIMB how much can the short seller earn?
Figure 3: 15minute chart zoom in
Figure 3 with zoomed in 15 minute chart imply that each time after short selling there will be 2-3 days uptrend. Are you looking for new uptrend for the next 3 days? If you believe it please place your order.
Happy trading
Discussions
3 people like this. Showing 50 of 69 comments
Short sell can be through Borrow tickets from major shareholders. (The lender)
Usually, after selling for cashing out , the share will bounce back to the level it deserved.
A dump for pump is totally different scenario, after jiaow cho will disappear and the share price will sleep straight straight like salted fish ; eg. Sgb & etc.
2016-07-29 00:36
News.
By regulation yes. Only those with indicator in profile.
However, we have many creative way to perform short covering .... Still will make gain
2016-07-29 00:38
Me too. Nice to discuss with you. I learn a lot from u too bro....
Lets grow together
2016-07-29 00:43
钱大哥..
Can teach me smtg..?
If the price up & short seller not enough money to buy back the shares, then lender hv to "makan sendiri"..?
:)
2016-07-29 07:39
No.
They will buy then they will lose money.
That's why 江湖上有弱和强的庄家，一定要跟有力的庄家
2016-07-29 07:57
duit idea of financial utopia ? This is the kind of logic that lead to 1MDB mess
2016-07-29 08:08
MuttonCurry
U treat me Apam coconut milk and ButuMayam I Baru answer u... Heheheh
2016-07-29 08:11
Hi Duit, based on your explanation above,
He has 368,500 shares which when share price at RM 3.85, the total value of the shares is RM 1,418,725
After whole short sell process, the same 368,500 shares now at RM 3.58, the total total value is RM 1,319,230
RM 1,319,230 - RM 1,418,725 = - RM 99,495 + RM 15,000 (profit sharing) = loss RM 84,495
Looks like the lender become "elder son".
2016-07-29 08:41
YiStock, surprise to see u dont see the final expectation plan result from this kind of activities.
2016-07-29 08:47
Short down, they earn, share back to fairly traded level another gaun.
Usually, lender rely on a surely happening catalyst to help re- stimulate the share price.Unless some time there are string challenger show up, who manage to share the cake then lender loss.
2016-07-29 08:52
YiStock...
Thank for reply. You are very right.
I mentioned in the article Point No.2
"Short selling often occur in stock market due to the benefit below:
1)Short seller and lender make money in certain ratio (negotiable)
2)Lender believes the counter he holds will enevtually show good figure and enjoy share price appreciation
3)Stimulate the trading volume to garner market attention"
That is why Lender will only sign the agreement "if" and "only" if the counter is has potential to uptrend AND his initial buying cost is way below post short selling activity.
It's is common and involve risk. For those without share appreciation ability we could only see pump and dump......
2016-07-29 08:54
They plan for the results with some strong wild card on hand.
Sometime, its like Art or movie. Enjoy.... :)
2016-07-29 08:55
Duit, if point 2 is the key, if lender believe the counter will eventually show good figures, the share price will likely surplus RM 4 right? the paper value will be greater if not forcing (by short sell) the share price to dive. It is burn own pocket.
2016-07-29 08:57
Yistock...
This counter will deliver upbeat expectation result. PBIT will see windfall rise in next 2 quarters.....so they rilek lo..
Still remember how FGV short from high to very low. Why activity keep going on because next 2 consecutive QR is amazing result........
For value investment point of view it's not logic to realize it. I agree also.... that is why market has several streams of players.....
2016-07-29 08:59
By theory YES.
However, when there is very obvious SELL ON NEWS themed play and LENDER knew if he did not sell other will sell. Might as well don't sit idle but do something. This is my thinking.
Posted by YiStock > Jul 29, 2016 08:57 AM | Report Abuse
Duit, if point 2 is the key, if lender believe the counter will eventually show good figures, the share price will likely surplus RM 4 right? the paper value will be greater if not forcing (by short sell) the share price to dive. It is burn own pocket.
2016-07-29 09:02
YiStock...
Cannot mention 2 counters I meet up their Major shareholder (owner) frequently......... both also billion Revenue company with perfect CAGR for last 10 years.
Let give U clear historical example.
One stock use 1.5 year to climb from RM3.5 to RM4.5
on news they sell on news and owner press down to RM3.98 with small money but retailers panicking dispose and make it landslide to RM3.60.
Owner bought back big sum and the share price rise back to RM4.50 after 5 months.
Key points here: Last time use 1.5 yr to earn RM1... Now use 5 months gain bigger money (because shares unit become BIGGER). This is not the example of short selling but to share why "owner" wan to burn his own pocket money. In fact, what we see is because we never factor in timeline concept.
2016-07-29 09:08
YiStock...
yup.. I still believe in value investment. short term and mid term is for fun only..... I am very FA based........ but discuss more short term in i3 (to suit major appetite)..........
I never see short term or mid term investors enter Forbes Top 100 Richest Billionaire.... Forever will not believe it.
2016-07-29 09:15
YiStock bro..
Thanks for valuable discussion.. I benefit a lot from ur article..... Like ssoojinhau , your, kc chong and RicheHo type article......
appreciate it.... hope I can learn more from U...
cheers
2016-07-29 09:17
alamakkkkkkkkkkkkkkkkkkkkkkkkkkkk
only eyeing my tulips only ar???? never aim my small canal meh???
scare die me
2016-07-29 09:59
That's why PAS so against gambling whether in casino or Bursa. For someone to gain(short sellers) someone else must lose. If you are losing party will you be happy? Hence under BN a lot of shooting cases or commit suicides recently. It could be gambling related although unspecified.
2016-07-29 10:04
Duit, thinking back, your above article maybe more relevant to your below scenario.
"taking advantage of retailer fearful mindset..人丢我丢。。自己吓死自己"
Initially i thought short sell = buy "short"
duitKWSPkita: YiStock...
Cannot mention 2 counters I meet up their Major shareholder (owner) frequently......... both also billion Revenue company with perfect CAGR for last 10 years.
Let give U clear historical example.
One stock use 1.5 year to climb from RM3.5 to RM4.5
on news they sell on news and owner press down to RM3.98 with small money but retailers panicking dispose and make it landslide to RM3.60.
Owner bought back big sum and the share price rise back to RM4.50 after 5 months.
Key points here: Last time use 1.5 yr to earn RM1... Now use 5 months gain bigger money (because shares unit become BIGGER). This is not the example of short selling but to share why "owner" wan to burn his own pocket money. In fact, what we see is because we never factor in timeline concept.
2016-07-29 10:06
demi kesejahteraan hidup
I sokong dan undi PAS
Posted by Undi_PAS > Jul 29, 2016 10:04 AM | Report Abuse
That's why PAS so against gambling whether in casino or Bursa. For someone to gain(short sellers) someone else must lose. If you are losing party will you be happy? Hence under BN a lot of shooting cases or commit suicides recently. It could be gambling related although unspecified.
2016-07-29 10:08
Thanks duit very informative. I think if going for long haul that wouldn't affect much ; only kena contra kakis that glued on the screen. BTW I dun vote PAS regressive party which shed no light on advancement or development.
2016-07-30 08:33
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duitKWSPkita
不是每个人都有开窍的慧根。。。。
很多时候都是环境逼人。。。我从小就经历很煎熬的生活，所以生活技能和适应能力都强一些。。
2016-07-29 00:36