Wednesday, February 4, 2009

selling short

There are a lot of so called experienced brokers who say selling short or short against the box is a waste of time.

I beg to differ.

If you have tracked a stock for a long time and have a good sence of its trading pattern, selling short can save you a loss.

Recently I bought stock symbol RGR as its a bread and butter stock I own.

I bought at 6.85 and realized that the stock had hit a resistance at 6.90.

Within 10 minutes it was selling for 6.78. so I short sold rather then straight selling and taking a loss.

I did this as my experience with this stock told me that I was looking at a minimum 50-70 cent pullback from the high at 6.90.

3 days later I bought another 1000 shares at 6.42 and directed my broker to make it a verse my short sale at 6.78.

I now have a 360 gross profit and 2 days later the stock has already gone back up to 6.60.

If I had taken the loss by straight selling, the wash rules would have stopped me from rebuying the stock for 30 days.

if I did buy it then the wash rules state I no longer can claim the loss between 6.85 buy and 6.78 sale.

But by short selling i was able to make a profit and still hold my original position.

Now all I have to do is wait for RGR to go up to a point I can sell my original 1000 shares at profit.

Finally if rgr had turned up before it went down I could have simply released my original 1000 shares to cover the short and taken my 100 buck loss.

Ie I had very little risk.

hope this hells you

Good luck

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