Short selling and long buying same share?

[Paul24]

I have just started reading up on the stock market and just read over short selling, and it made me think.
Do people ever short sell and long buy the same share at the same time to protect them self until they are sure what there stock is doing?

eg. Say I thought XYZ share was going to go up in price, pure speculation looking for a short term profit. If I long buy that share and something happened in the next week or so and the share dropped I would be at a loss.

But if I protected myself buy short selling the share as well, in the following week when the price dropped I could close my long shares and hold on to the short shares.

Of course the profit wont be as high but theres that margin of safety.

 

[James Austin]

I have just started reading up on the stock market and just read over short selling, and it made me think.
Do people ever short sell and long buy the same share at the same time to protect them self until they are sure what there stock is doing?

eg. Say I thought XYZ share was going to go up in price, pure speculation looking for a short term profit. If I long buy that share and something happened in the next week or so and the share dropped I would be at a loss.

But if I protected myself buy short selling the share as well, in the following week when the price dropped I could close my long shares and hold on to the short shares.

Of course the profit wont be as high but theres that margin of safety.

Paul

if you are capable of knowing when to close one of your simultaneously held short or long at a "point in time", then it makes sense not to open a short and long simultaneously, thereby avoid the broker fees, and just wait for that "point in time".

James

PS few providers will allow you to at the same time short and long the same stock

 

[nunthewiser]

Paul

if you are capable of knowing when to close one of your simultaneously held short or long at a "point in time", then it makes sense not to open a short and long simultaneously, thereby avoid the broker fees, and just wait for that "point in time".

James

disagrees when holding an investment . say MTS bought at a 1.50 for example and enjoying a fairly good yield which has paid for initial investment over the years WHY would you trade the st moves and not continue to enjoy a free ride with growth thrown in over the long term? i do however use CFD,s to hegde my position as in trading the st moves as well long and short .

 

[nunthewiser]

sorry james , re read your post and may have taken out of context . you aremeaning actual entering of a long and short trade at same time ? yeah no reasons why ya would in my view

 

[James Austin]

disagrees when holding an investment . say MTS bought at a 1.50 for example and enjoying a fairly good yield which has paid for initial investment over the years WHY would you trade the st moves and not continue to enjoy a free ride with growth thrown in over the long term? i do however use CFD,s to hegde my position as in trading the st moves as well long and short .

i understand this as a reasonable strategy,
but i dont think this is what paul was intending to do

 

[James Austin]

sorry james , re read your post and may have taken out of context . you aremeaning actual entering of a long and short trade at same time ? yeah no reasons why ya would in my view

i think we are talking over each other

 

[nunthewiser]

must be all them late nights cant hear a thing

 

[Paul24]

Arh yes, I realized this after I posted.
Ive only been reading up on the share market for 6 days now so still trying to get a grasp of some of the more basic concepts still.
Ignorance is no excuse!

 

[nunthewiser]

all cool paul , dont ask ya wont learn hey ........

 

[Wysiwyg]

Hi Paul24, my personal opinion is it is pointless trying to reduce losses on a trade with hedging.The loss made has then to be made up by the winning trade which as you noted reduces profitability.If i`m wrong i pull back, accept i was wrong and wait for a set up again or move on to another (potential) profitable trade.

However i see a niche in index trading at opening times when a short and long with stop losses in place is profitable.That is until the sharp open up closes the short trade and then reverses sharply and closes the long trade.Two birds dead with one stone.

 

[Page]

I have just started reading up on the stock market and just read over short selling, and it made me think.
Do people ever short sell and long buy the same share at the same time to protect them self until they are sure what there stock is doing?

eg. Say I thought XYZ share was going to go up in price, pure speculation looking for a short term profit. If I long buy that share and something happened in the next week or so and the share dropped I would be at a loss.

But if I protected myself buy short selling the share as well, in the following week when the price dropped I could close my long shares and hold on to the short shares.

Of course the profit wont be as high but theres that margin of safety.

use stop loss from preventing yourself from the possible loss.

 

[cuttlefish]

I have just started reading up on the stock market and just read over short selling, and it made me think.
Do people ever short sell and long buy the same share at the same time to protect them self until they are sure what there stock is doing?

eg. Say I thought XYZ share was going to go up in price, pure speculation looking for a short term profit. If I long buy that share and something happened in the next week or so and the share dropped I would be at a loss.

But if I protected myself buy short selling the share as well, in the following week when the price dropped I could close my long shares and hold on to the short shares.

Of course the profit wont be as high but theres that margin of safety.

An options trader could probably describe this strategy as delta, gamma, theta and vega neutral. Probably nothing wrong with it - but an easier way to achieve it is simply not to take an entry in the stock at all of any kind and thus save on brokerage! (i.e. taking a simultaneous short and long position is the synthetic equivalent of simply not entering at all).

e.g. stock price = $1, you take a long position and short position at $1.

Stock price rises to $1.20, you make 20c profit on your long and lose 20c on your short = neutral outcome.

Stock price falls to $.80 you make 20c profit on your short and lose 20c on your long = neutral outcome.

Regardless of what the stock price does you will have a neutral outcome.


So instead of paying brokerage for a simultaneous short and long - simply do not take any position - long or short - until you know which direction you want to take a position on.

The question in my opinion is actually a good one - because it highlights very clearly that no position is a position. i.e. if trading - doing nothing and not taking any position is a position and taking no position at all should always be considered as one of the alternatives on the table. Being aware of this helps to reinforce the idea that not taking a position is an active decision and is as significant as the decision to take a position (long or short).

 

[ducati916]

I have just started reading up on the stock market and just read over short selling, and it made me think.
Do people ever short sell and long buy the same share at the same time to protect them self until they are sure what there stock is doing?

eg. Say I thought XYZ share was going to go up in price, pure speculation looking for a short term profit. If I long buy that share and something happened in the next week or so and the share dropped I would be at a loss.

But if I protected myself buy short selling the share as well, in the following week when the price dropped I could close my long shares and hold on to the short shares.

Of course the profit wont be as high but theres that margin of safety.

Paul,

The simple answer is yes you can.

Simply buy LONG your common stock XYZ assuming an attractive dividend.
Buy LONG a PUT of XYZ [the dividend income offsetting the cost of carry on the PUT purchase]

If your broker pays you "short interest" and XYZ has no dividend, it might behoove you to "sell short" XYZ and from the interest offset, buy an XYZ CALL, thus your cost of carry may be lower.

You are now hedged.

How tight you want the hedging to be is a function of "delta" which is calculated on the Option.

If you wish to trade "delta" actively, which you can, then you will need to calculate Implied Vols against Historical Vols to see if you can trade the delta profitably.

This post very quickly simply scratches the surface of hedging and delta neutral strategies, but there are many out there.

jog on
duc

 

[skyQuake]

Some big players will Short and Long the same stock. A while ago, Goldmans was holding a very large position of XYZ, but at the same time, short the same amount of stock through someone else. Net effect was delta neutral but they retained all the voting rights.

 

[Jimmyg]

New member here. Excuse me for bringing this back up to the top but it has relevance to something I was thinking of this morning. I think the real question being asked here is, can a person own a long position in a stock while at the same time sell a short position in the same stock?. I've come to this question myself as a short time trader watching some very volatile stocks move throughout the day. Two thoughts came to mind, sometimes it's very hard to tell from indicators which way a stock may move. It may be helpful in an uncertain time to own both position's and wait a small amount of time to see which move to make. If the stock moves up some percent you buy to cover and move on with your long position or vis versa. Then there is the case that occasionally a stock may begin an explosive move up at a rate that's unsustainable however unpredictable. A person looking at the stocks history might assume a resistance at which point you could tighten up your stop loss and sell an equal amount of stock short and take the ride down allowing the stop loss to do it's work allowing you to pay attention to the short sell. However, If the stock does continue to rise the person could then buy to cover and just allow for the gap in profit. My question, the one that that lead me here was, can you own both positions at the same time?

 

[shaunQ]

Actually I was just thinking similar to what Jimmyg just asked. If you had a volatile stock, couldn't you go short and long - both with fairly tight stops. It opens,

a - goes up 10% (your short cuts at 1-2% loss) so 8% profit.
b - goes down 10% (your long cuts at 1-2% loss) so 8% profit.

I assume thats sort of what your saying Jimmy?

 

[jackson8]

New member here. Excuse me for bringing this back up to the top but it has relevance to something I was thinking of this morning. I think the real question being asked here is, can a person own a long position in a stock while at the same time sell a short position in the same stock?.

as far as i know and i trade with comsec ...i cannot short a stock which i already own........its one of their rules and i am not sure how other brokers may handle this kind of situation

 

[Jimmyg]

as far as i know and i trade with comsec ...i cannot short a stock which i already own........its one of their rules and i am not sure how other brokers may handle this kind of situation

I also need to say that I'm a U.S. trader so our rules may vary somewhat. I need to ask my guys about what I can and can't do. You folks have such a cool site I just couldn't help but join.

 

[prawn_86]

You could simply do it with 2 different brokers if your current one doesnt allow it. Or you could use CFDs (not sure if they are legal in the USA though)

 

[lesm]

You could simply do it with 2 different brokers if your current one doesnt allow it. Or you could use CFDs (not sure if they are legal in the USA though)

As prawn has suggested, you can do it with either two brokers or two accounts with the same broker. To do it with a single broker/account you need the capability to hedge positions, which is not provided by all brokers.

Prawn...CFDs are not legal in the USA.

Cheers.