Shorting a stock effects

[Silvestru]

Hello forum,

I was wondering, what happens to a companies stock if the majority are shorting this company? Would the stock go up?

[CharonY]

If a lot of people are shorting, they are betting on a decline, which may influence stock value perception. If the amount in short positions is large relative to the float, it can directly affect the price. Why do you think it would increase, though?

[tar]

Silvestru,

The market is a funny place.  There are no sure rules, because of the fact that everybody is making their best move, like is usual in game theory situations.  Usually (from a couple years of option market betting) somebody smarter than you, gets your money.  Sometimes the market panics, but usually smart people are around to arbitrage any imbalance between the market price of a stock and its value.  They say that the market is a voting machine in the short term and a weighing machine in the long term.  So the only rule there is, that I have heard, among smart investors is buy the rumor, sell the news.   This means short a stock if there is a rumor about an event that will hurt the market value of the stock, but by the time the actual event occurs, everybody has already priced the event in, and the stock is probably worth more than its price, and people will be buying it low.  So the people that shorted the stock on the rumor, need to buy the stock when it dips and once it starts rising, they buy it to cover the sales they made when they sold it short, which means they sold it, at a price without having the stock, having borrowed the shares (to sell) from somebody with a promise to return the shares.  The short sellers hope is that the price of the shares goes down and they can return the shares to the party they borrowed them from, by buying some at 15 dollars, after short selling them at 20 dollars a share, the day before.   As is obvious, once the price is actually 15 if you short sold it, you would have a hard time returning the share by buying them at a lower price than 15 because in half an hour the price is 15.50 and by the end of the day it has retraced to 17.50.

So basically, if everybody is shorting a stock, they all heard the same rumor.  What the price does from there depends on how long the rumor circulates and what the new is.  So chances are, unless you are a lot more savvy then the average Joe, if you see everybody getting on the same train, you already lost your chance.

Regards, TAR

[Roamer]

On 24-10-2017 at 8:53 PM, Silvestru said:

Would the stock go up?

generally, stocks both go up and down, (when they significantly move) : they get rectified after being overvalued/undervalued.

If you 're looking to make money you need to know what the real value of a stock is so you can buy when it's undervalued by the market.