Stock Short Sales

					XIII. SHORT SALES
     A. DEFINITIONS
     1. Short Sale – The sale of a stock without
        actually owning the shares
     2. Covered Short – Borrowing shares from a
        brokerage firm before selling
     3. Naked Short – Selling stock without actually
        owning or borrowing the shares
     4. Covering the Short – Buying the shares back
        that were previously sold
     5. Hypothecation – allowing shares to be
        borrowed by other customers for purchases
        and sales
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     A. DEFINITIONS
      6. Margin Account – A type of stock account,
         set up with a brokerage firm, that allows
         you to borrow money against the
         securities in the account – allows
         brokerage firms to charge interest to short
         sellers on borrowed stock
      7. Called Away – Where borrowed shares
         must be returned so that they can be sold
         by the owner, occurs when sales of a
         security greatly exceed purchases
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 A. DEFINITIONS

     8. Short Interest – The volume of shares of
        stock in a security that have been sold short
        (uncovered shorts)
     9. Short Ratio:

                     Short Interest
                    --------------------
     Average Daily Trading Volume of the Security



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A. DEFINITIONS
10.Short as a Percentage of Float

                    Shares Sold Short
             --------------------------------------
     Total Number of Shares Available to the Public
                         for Trading




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B. THE MECHANICS OF SHORT SALES
1. Stock is borrowed from another stockholder
   through a brokerage firm
   a. Short sales generally require additional capital
       as security for the sale
      i. Initial Margin – the dollar value of cash or
          securities that the brokerage firm requires
          the investor to deposit in his or her account
          before executing a short sale
      ii. Maintenance Margin – the dollar value of
          cash or securities that the brokerage firm
          requires the investor to hold in his or her
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          account while the short sale remains open
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B. THE MECHANICS OF SHORT SALES
2. The proceeds from the sale are credited to the
   seller’s account and frozen until the short position
   is closed
3. The seller must pay any dividends that the stock
   pays to the actual stock owner until the short
   position is closed
4. The short position is closed when the short seller
   purchases stock on the market to return to the
   actual stock owner
5. Short sales are profitable when the stock declines
   in price, otherwise the short seller looses money
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C. EXAMPLES OF SHORT SALES
     Assets      Liabilities and Account Holder’s Equity




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posted:11/14/2010
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