Quote:
Originally Posted by glassman
Greg, that is so funny you say that about Trading Places, i got my family to watch it last nite for the first time. I worked at the theatre's when it came out and its always been one of my favorites.....
But, can you put it to me in laymans terms what went on at the end, I get the "fixes" the Dukes where trying to do (get a peak at the orange crop, which i;m sure was altered by Valentine and Winthorp)
So Dukes instructed their buyer to "gobble" it all up in the a.m., buy low, hold for a minute or longer(much)...sell high...
But "HOW" did V and Winthorp make out? I saw at the end they were either buying or selling rather calmly and slowly...if they "shorted" the stock, how'd they do it....i'm missing something
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So with "FUTURES" --- you're buying the ABILITY to purchase "X" at "X" price... some time in the "future".... The Dukes had paid to see a sneak peek at the report... Winthrop and Valentine got the "peek" that should have been delivered to the Dukes --- and altered it and mislead the Duke boys. So they thought there was going to be a SHORTAGE of Oranges.... and were buying "ahead" of the actual news (illegal to say the least)... THEY ran the price to the moon trying to "corner" the market.... Winthrop and Valentine were SELLING at the PEAK of the market.... and then bought when the market crashed and went low ----- Very much like a short.... they sold delivery of the commodity at high prices (but they really didn't own the commodity) -- and in order to deliver at those high prices (the buyer at the high price MUST take the goods or resell or whatever) Valentine and Winthrop BOUGHT the futures at low prices -- therefore making the "spread" between the low and the high.
The Dukes BOUGHT all the way up ---- then they were unable to sell since the market was closed and therefore had to come up with the cash for their purchases.
So ---- In the STOCK MARKET --- if you SELL a naked short (meaning you borrowed the stock from the brokerage house and sold it) you get the cash in your account ------ say you shorted 100 shares of Apple for $550 a share. The brokerage would deposit $55,000 cash into your account --- but they'd also show a MINUS 100 shares of AAPLE in your account.... and at some point you must buy that 100 shares to clear up your short. Obviously you'd be trying to SELL HIGH and BUY LOW.... so you're hoping (betting/gambling) that APPLE was going to go LOWER than where you sold it short. And if successful - you'd pocket the difference.
COMMODITIES are like this ---- so let's say you're a huge user of PORK BELLIES.... you use 100,000 pounds per month... you might have a professional 'trader' buy pork belly futures for you so you could control - or try to control - your cost -- out 6 months or a year. Airlines buy FUEL this way etc. They "TRY" to hedge their costs by betting which way prices are going to go. Sometimes this is great - sometimes it's just like any other bet - it goes against you and you loose.
The key to much of this is that you don't ever actually have to take the commodity you're betting on. Much like they don't mail you a stock certificate... so you could "bet" fuel prices were going higher by this summer --- and buy fuel futures now at X price for June "delivery" --- but maybe they go even higher as June approaches -- and you resell your "contract" to someone else that actually wants that fuel --- or maybe it goes to another speculator....
Commodities are best left to the pros.... as this is a very specific "knowledge" base.
SHORTING is nothing but gambling --- and I never do it -- even though I THINK about "I should" do this because I "just know" (a gut feeling) that X company is going to suck. Well --- about the time you THINK you know this -- and short the hell out of X company -- some other company comes in and makes a huge order that bails them out - and the stock goes sky high ---- or some other company folds up and your company gets all the business ---- or some competitor offers to buy the whole thing for X (which is $10 a share higher than where you shorted it!!). It takes a huge amount of research to be a successful short seller. It's too much work -- and why bet that someone is going to suck --- I'd rather bet that "X" is going to do well -- and for me -- it's an easier "guess" than who is going sour.
There is also "shorting against the box" -- which is selling a stock short against stock you already own... at least that way if the bet goes against you - you know what you're cost is because you already bought the shares you shorted - so you can replace the shorted shares with the ones you have. I've done this a couple of times -- then I thought --- why bother --- I've added stress to my life and for what? If I think the company is going to suck - and I own the shares and need cash -- why don't I just sell now and move on. DONE.
So let's say you shorted TWITTER yesterday -- you sold 100 shares SHORT.. pick up 66,000 in your account --- and you replaced them today when you bought them at the end of the trading day for $56 -- you'd have made 10 a share for your effort. But what if you got greedy and didn't "cover" -- or you got busy and forgot to "cover" -- and monday they start back up and keep going up 3 and 4 bucks a day? When do you cover now? DO you wait for that magic misstep or do you just watch the shares shoot to 100... In other words "how much pain are you willing to accept"? UGH! Not for me -- no sir.
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