this post was submitted on 24 Feb 2024
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It is true.
You buy a stock for $30. At worst it gets to $1 and you lose $29.
You short a stock for $30. There is no upper limit to how high it can go.
Yeah, if there's a "Superstonk" style event, the shares might jump to $1000 per share.
Say you shorted 100 shares. If you shorted it at $30, the absolute maximum you could make is just under $30 per share, or $3000. But, if it jumps to $1000 per share, you would lose $970 per share, and owe $97,000.
Maybe it's not technically possible for there to be "no upper limit" to what you could lose, but you could easily lose many multiples of the maximum possible gain.
No. There are lots of ways to short a stock which just means betting that a stock will fall. If you buy Puts you go short, you can only lose the money you spent on the Puts. What you are talking about is unhedged short selling but that is far from the only method to short a stock.
In theory that’s true but you’ll get liquidated at some point.