this post was submitted on 07 Jan 2024
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It’s a bet that a stock will go down. If you’ve heard people say a hedge fund is “shorting” a stock it means they’re making a bet, a short put, that the stock they are shorting will go down in value in the near term.
For pedantry, because everyone loves it, there's actually a difference between a short sale and a put.
A short sale is when you "borrow" the stock, and sell it at the current price, and then later you buy them back. Instead of "buy low sell high", you "sell high buy low".
A put is when you buy the right to sell something at a given price at a given date.
Both are ways of predicting that the price will go down, along with selling a call, which means you might be obligated to sell at a certain price later.
Shorting gives you cash today, and then you pay interest on the borrowed stock.
Buying a put costs a fixed amount today, and might be profitable later if the cost decreased.
Selling a call yields a fixed amount of money today, and might cost money later.