I understand how short sellers make money when shorting, but I need to know the motivation behind the people they beg against, and what they get out of it. A simple scenario is written below. Mr A is a short seller, and Mr B is a stockholder who engages with Mr A. I want to know what Mr B gets out of the short.
Mr A is a short seller. He wants to short Company X stock. He enters a short position with Mr B, who owns lots of the stock. Mr A borrows 200,000 shares, it is currently trading @ $340/share. Mr A thinks the stock will tank to $2/share in time for reasons. Mr A sells off the borrowed shares for $68 mil (200,000 shares * $340) in proceeds.
Time passes, the stock price doesn’t go down. Mr A is panicking, his short assumption backfired. The stock is double @ $640/share. Mr A now has to exit his short and re-buy the 200,000 shares to give back to Mr B. He ends up paying $128 mil (200,000 * $640), and Mr A is taking a loss of $60 mil ($68 mil - $128 mil)
Mr B gets his 200,000 shares of stock back. But what did he gain from this? He lent out his shares, he gets his shares back. His shares are worth more now. But what advantages are there for people like Mr B to engage in these short bets?
Submitted November 24, 2021 at 12:37PM by ploobadoof https://ift.tt/3FHnlig
