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WAIT A SEC... this guy ain't got no lambo, and isn't telling me ill make £1,000,000 a month from 1k investment. He's obviously a chump and doesn't know ANYTHING. For real though, I came from coffeezilla. Its been super interesting seeing what trading is actually like and why nobody who has the brain power to pay Instagram gurus for shortcuts will ever make it. Keep up the good work!

Thanks Patrick, you are by far the most legit financial KZfaqr. Keep it up!

Easily the best finance content on youtube. You are very good at taking concepts which I have been trying to wrap my hobbyist investor mind around for years and making them crystal clear with the most succinct summary

Even if I've been shorting for years, I enjoy this video to simply recap the fundamental basics of the process. You're great!

Been trading since 1987. Never shorted a stock. It seems like one of the Top 5 riskiest ways to invest.

short-selling only really seems profitable if you have insider knowledge (not necessarily the company, just having extreme knowledge in a volatile field, like grapes for wine production) or if you are a multi billion hedge fund that manipulates the stock

I've never shorted a stock but i want to at least once just for the educational experience I have bought put options though with a similar effect

great explanation. thanks, patrick! keep up the amazing work.

Patrick makes so much sense and his easy to understand explanations and dialogue of his presentations are invaluable and totally engaging . Thanks Patrick and much appreciated

You are just fantastic Patrick. Although I'm new to stock market, and not always understand every word you say, I always look forward to you vids. Doing my best to keep up but watching it a couple of times helps a lot ;-) Stay safe and looking forward for next one.

This was sooooooooo helpful! I didn't really understand the ins and outs of shorting, and you made it so easy to understand. You're truly a skilled teacher, which *isn't* common among people with extensive knowledge in a particular area.

Thanks Patrick. I'm doing a financial course and your videos have become essential watching as i try to understand quantative analysis.Your final comment about looking for stocks most likely to rise is a great rule to live by!

Futures I trade Long and Short, no bias, just a systematic approach. I do very well. I do well enough that if I say how well I do, people say I'm lying. But, I am involved in the markets 16 hours a day, usually not all at once, with a good deal of overnight trading during volatile markets. Stocks, my first short trade was a stock called STEC, it was also one of my first long buys. I had bought 30 shares of the stock, because it had rising EPS and meant several Growth Stock numbers. The day after I bought it, it opened down, hit my stop, and sold me out. I went back and started looking at the numbers. The way they went up seemed a little too perfect. So, I looked at it's previous low, and decided to short it if it hit that low. It did, I shorted it, put a stop in, and held it all the way to bankruptcy because it turned out it was a Fraud. I stopped shorting stocks, when I suffered a gap up, and lost 8% of my account to an unexpected move. When it comes to stocks now, I usually trade puts instead of actually shorting the stock, for three reasons, to cut my exposure, to preserve my capital, so I can make multiple trades without tying up a bunch of capital, and for the tax reasons (derivatives are taxed so much better for short term trading) . I trade with an incredibly small amount of exposure and do so with only directional trades in the market. I'm wrong with my options trading as high as 70% of the time. The thing is when I'm right, my average return can be 10 to 20X the initial investment. I put .5% of my account into an options trade. I might make 50 of these trades a year. This year I made a lot more, for a lot shorter time span, and it's been hugely profitable. There was one day, I made 13% on my account trading an Amazon Weekly puts on a Friday, it was risking, I would've likely lost all .5% of that trade if I was wrong, but, if I made that trade 20x I still only had to be right once to be profitable. I get away with it because I'm investing so little of my capital, .5%, and I usually exit the trade when I'm wrong at 25% to 50% loss of the contract, meaning I don't lose my whole investment anyways. All trades combined, it's my highest return rate with a near 7 to 1 payout on average.

This video is super informative but I keep coming back just because of the smile in the thumbnail😂. It's just so perfect.

Love it! Thank you for sharing!

Could you do a talk for CFDs? Your level of depth is mind blowing. Thanks for creating this channel.

love it mate, keep it coming!

Patrick, this is a really great description of short selling ! Excellent job !

When you explain it sounds easy to short sale.

Top notch as usual 👍

Best explanation that Ive heard yet! Thank you patrick

Such a great explanation. Thank you!

You are the first person in years I heard to explain how the borrowing in short selling truly works. My guess is all the other guys just had no idea what they were really talking about😅👍

Merci Patrick, super intéressant, c'est la première fois que je ne vois aucun dislike...

Another great video, thank you!

One day I would like to see you cover the story of how Goldman was able to screw AIG on both sides by demanding their cash back from AIGs stock lending arm knowing they had invested RMBS and that the demand for cash would force them to sell allowing Goldman to get even more from their CDS deals with AIG FP

I like how this video was to the point and exactly what the title described

Great Video! Thank you!

Thanks for this great video!!!!

Patrick ... I’m new in your channel .. but I feel that you are the real thing , so instructive and juicy all your stories.. I just love it.. with your stories I am learning how to be a better investor and on the books you advise to read ??? It’s like an enlightenment.. thank you so much to give away so much knowledge... I’m following you not to long ago.. but I’ve seen one video from a radio station also with a great guy on the lead giving you this great interview about faked investors... soooo good .. I loved it.. I gave it a try to see one of your videos on KZfaq and VOILÀ.. the best videos about investing EVER.. so real so down to earth.. and by the way... I love your sense of humor.. great job man.. keep it up.. I’m 1000% follower.. 👍👍👍

I love these videos. They are so interesting

I like the simple data backed points you make.

I feel like this great new video may have come partly as a result of my suggestion to do a video on long/short macro strategy haha Thanks for explaining all this. What I would have added is a bigger word of caution on shorting companies that are going bust which is really playing with fire in practice. This year we've seen very violent "pre-bankruptcy rallies" as the media dubbed them. Herzt was probably the most widely publicised one but certainly not the only. As a matter of fact, a good friend of mine decided to go short Valaris (VALPQ) - an offshore drilling company that was going bust earlier this year. So he sold short at around $0.30 right before the pre-bankruptcy rally of the stock which took it all the way to $2.19 (that would have meant a loss of around 7x the amount invested in the short position). Luckily the position was relatively small (1000 bucks or so) and he managed to wait for a few months before it went back down and he ended up selling only at a small loss. So, it's funny how short selling is said to be betting on zero but in practice you may really not want this to actually happen to the company you're shorting and get caught in the middle of a violent short squeeze. And yeah given the nature of it, it is not surprising hedge funds with short bias have done terribly on average. It may be interesting to discuss the macro long/short funds that use short position not because they bet the stock is going to zero but to hedge out risks in a respective opposite long position. To my understanding it works like this: suppose I'm bullish on any sector, say paper products, and think there is a growing demand which will be a great catalyst for earnings growth in the next 6 months to a year. Given it's a fairly commoditised sector and stocks are not particularly liquid (nothing beyond mid caps at best), I may wanna pick the best company in the sector as my long (usually the one trading at the highest multiple of all and with most pristine financial statements) and then the worst one as my short (usually the most indebted, with the worst margins and trading at the lowest multiple but still liquid enough, say, at least $1bn market cap). So what I'm hoping is to have my long position really surge and the short to stay kinda flat or even go down a bit. If I happen to be entirely wrong on the sector or there is generalised panic sell-out in the market and it all starts to go down, the idea is that the bad company (my short position) -- being the rubbish that it supposedly is -- will go down more than the good one (the long position) and I would trade out relatively unscathed out of both. I've been told by friends working in finance that this is a strategy often used by short-term investors (3 months to a year horizon) in macro strategy hedge funds. To be honest, I'm giving it a go with very small amounts of money and trying to see how it works. I find it intellectually appealing (putting my econ degree to work for once haha) and I'd really love to hear more about it by a professional like you, Patrick, as you may have used it :) Cheers! (apologies for the screed, I'm really passionate about these things)

I shorted Nikola not long after the IPO. I own a few EV stocks and had a pretty decent knowledge of the company and the position. It still made me very nervous but it ended up being profitable. I held for about a month.

We’ll explained. Thanks. Alot.

Great information, i didnt know about the uptick rule. Thanks

0 dislikes wow. Really he does just give the straight truth so I guess it's not that surprising. Nothing to complain about here. Great to have content from such a knowledgable investor. He can be a bit dry, but I prefer that in my investment advice sources. Anything too exciting and its probably false and/or trying to sell you something.

Thank you for another great educational video without all the BS of so many other hacks on KZfaq

You explain things very well. :)

I think the unlimited exposure to short selling is mostly just theoretical. In practice, your loss is, in a way, bounded to your margin account. If have insufficient margin, your position will be closed on your behalf. Sure, if the stock price changes drastically in a short amount of time, it could eliminate your margin and more, leaving you obligated to pay the difference. But on these same more volatile stocks, the margin requirements should be higher to compensate for that.

Short selling is very risky You have to be both correct and time it very well. I have half a dozen companies I think the share price will fall 70-80% and I am highly confident this will happen within the next 3 years however I won't short them because 1: If you put the capital into the stock market for three years you would expect about 30% return. So the shares need to fall at a minium 30% to 'break even' 2: If at any point in the next three years the shares double I would lose all of the investment even if it later indeed does fall 70-80% 3: I'm a bit paranoid that market makers in the smaller AIM markets intentionally swing the smaller stocks widely to crush such bets. Swing a share 100% up 50% down and hit the stop losses and margin calls of the smaller investors like taking candy from a baby 4: And of course I could be wrong although

The merger arbitrage video isn't in the description. But since I had to go to your channel to find it and found a wealth of other interesting videos there you definitely earned my sub. Great content and thanks for sharing your insights for free! Really well explained.

Thanks for another great video! I have only shorted VIX and UVXY. Maybe that could be a topic for another video.

yah love your perspective on fundamental concepts. Sad that the news of the day have priority over revisiting the basics. Cheers!

I have never shorted a share or bought puts or calls. Just been trading and playing with crypto, I will have to find better brokers. Great videos man, been binging your channel

Yeah. I shorted BitCoin at $118. Just hanging in there, waiting for it to comeback down. Fingers crossed..🤞🤞🤞 PJ...

Great content. Really enjoy Patrick’s breakdowns. I would add to this that even if you are correct in your valuation and short a stock that is intrinsically overvalued, it may take a long time for the market to come to terms with this. As mark meldrum says, there is no use being right in a room full of wrong people.

I went into this thinking, "I know what short selling is, I'll just brush up and give my guy a watch..." It turns out I had a surface level understanding, pretty much where you started. This was very educational, and I thank you for it.

Outstanding

Great explanation Patrick! Although as a retail investor im not comfortable with shorting

Hi Patrick, thank you do much for the amazing content. Can you please do an in depth review on CFD's? They are widely popular and many people who use the instrument don't really understand it or the level of risk involved.

I successfully shorted TWTR recently when i saw the CEO report to Congress looking like the Taliban and was obviously lying to some od the questions. I've also used SQQQ to stabilize my portfolio during days with higher than normal volatility, the problem I've had with this strategy is I tend to hang onto the short too long. I've put that strategy on the back burner for now.

Thanks again.

Hi Patrick, would be cool if you do a video on short squeeze. How it works, why and how to avoid them as a short seller. Thanks

I see these investment strategies as fulfilling a gambling addiction. When you make money off of failure, a small group of people are incentivized to burn the whole world down. I know I am simplifying this into a base morality, but I lost a house in the 2008 financial crisis and I have seen the destruction people create when they want to make short term gains. Thank you for this explanation. I don’t work in finance, but I really try to understand finance.

Thanks Patrick. More. I have a question. Many people blame shorts for their stock going down. I hear others say shorts are good for the market. Any opinions? Not sure if you did a calls and puts video yet. Why are puts sometimes priced way above the current price?

I am a hard brutal critic, but you Patrick deserves a lecturer crown.

One of the few people with a very unique voice. You should do audio books.

I have shorted stocks on occasion but not recently. Often the position was generated by an assignment or early exercise on an option. Usually there was some other option position limiting the downside of such an unintended short-sale. A few comments on your video: - Buy low/ sell high applies equally well to shorting stocks if you add the caveat "either order." -Borrowing first - The idea that a short-seller borrow's the shares FIRST, is, well, a joke. In the US a broker has 2 days to deliver shares and that is an eternity in this world of high-speed-trading. A well-funded short-seller can generate a significant dilution event in a stock in 2 days and that's how a stock like GME became 138% short-sold.

Never shorted a stock and I don't think I ever will but NKLA tempted me to no end.

Great video Patrick! Naked short selling could create FTDs which dilute the outstanding shares. I hope you'll make a video about FTDs, I'd like to get your take on them.

Great video Patrick! Now can somebody tell me why I went to business school for four years? Shorting was an entire course-and they didn’t provide much more useful information!

Thanks Patrick - great vid. What are the downside risks to shareholders lending their shares to short sellers? It almost seems like free money and a hedge against a declining price?

keep making the vids

Never short sold a stock, but I had mixed experiences with buying derivatives or selling derivatives that might be compared to a short. Recently I sold call options on Grenke and this trade has moved into a very good direction for me (thesis: overvaluation and fraud). Also sold a OTM call on Zoom. Thesis: Small addressed market and the stock is incredibly overvalued. This trade is a high risk, but potentially high reward. Plus, I sold OTM calls on SPY expiring end of the year. The overall portfolio is predominantly long, so if SPY moves up a lot - from a portfolio perspective it would be beneficial. On the other hand, Zoom is a bit of a risk if that company doubles from current levels. Zoom is a good company, but already valuation seems outlandish and option prices are through the roof. Absent a major short squeeze that would make Zoom eclipse McDonalds or J&J's market cap, I don't see too many issues with the trade. In the past, my problem was never that a company got turned around or that I misunderstood an economic development. BUT: I consistently underestimated how stupid most investors are. This year for example Grenke, Wirecard or the mid March Covid crash. I never expected that it would take the market months to understand what is happening. Now, I am not sure when the market will understand that Zoom might be a good company, but that the price of far OTM call options is just ridiculous.

Thanks for the information. This clearly isn't something I should be doing

The problem that I have personally noticed with short selling is this: the really really good short opportunities are usually unavailable because shares are out, and if you have one of the brokers that's good for short selling the borrow rates on such trades can be astronomical I have seen as high as 20% not on the year but on the day!! Not to mention if it's a good short you're probably not the only one who noticed so you always have to check the short interest if it's above 20% you're at risk of a short squeeze. Which can happen for no reason at all other than there's too many shorts in the stock.

Shorted my first ever stock NKLA, at 34 down to 18 about two weeks. booked about 5000 USD less about $500 in interest. I saw friends get wrecked trying to Short TSLA before this, but the case for fraud on NKLA was much stronger. Previous to this I have tried shorting via leveraged ETFs SQQQ /SPXS and as a novice and got burned with the volatility of the Trump-China trade war. I was sucked to it from bias and FOMO.

I know of short selling for awhile but only started doing it with Nikola this year @34

Given the chart of return on the shorting indexn near the end of the video, it would be a brave and confident investor that would see shorting as a good plan. Personally, I prefer my charts to up & to the right, not down & to the right.

I always thought short selling was a sucker's bet. Thanks Mr. Boyle, now I know.

I was hoping to hear about short selling in the context of something like market neutral time series momentum, but I guess your videos are much tailored to interested newcomers of the market. Keep it up :)

Hi Patrick, CMC brought CFDs to Australia. We can short sell shares CFD. In the US, traders have to 'borrow' stocks to short. The other way to 'short' is buy put options. It would be interesting to your audience if you can do a video comparing the pros and cons of the three shorting instruments. What trading situation is it appropriate to use one other the others. Thanks.

I've watched a multiple videos on short selling and the more I understand it, the less understand why people are interested in it.

shytttt i love this guy

It's not rocket science. Maybe pure instinct, graphs reading and guts. My best strategy was to hedge at lower price based on research and information. Ratio between volume, stock price and commission fees does impact a lot. Too low volume may result in less profit then you wont profit enough to pay commission, thus a loss trade. For Robinhood. I would rather play by myself and pay commission than to rely on those guys. Thks for video. I learn a lot more about shorting.

I use short selling for pair trades. You sell short shares of a company you think will decline and use the money from the sale to buy shares of a company which you think will profit from the collaps of your short selled stock. With that you can profit double, loose double and/or you can manage your risk better.

Another awesome video Patrick, i've just a question (not related to the video itself) How do you find (or conciliate) your time to make youtube videos and running the fund you manage? We are usually given (mainstream, and hollywood plays his part too in this) with the fact that a person who manages an hedge fund is a "lone" wolf, who doesnt sleep and all of this things.

Shorted Apple back in the 90's. Made a profit, but longest week of my life. :-)

"there is theoretically no limit as to how much a stock could rise", for that to happen, this means money has devaluated by that much. There is no free lunch. Although, neat video of you to explain that to general public (on the other end one could say we need more small investors to rob them).

Short selling is risky, and usually doesn’t work out People still hate shortsellers with a passion, like thos guys didn’t have enough problems by themselves

It may be an interesting idea to delineate the difference between short selling and buying put options, both bet on a stock's fall, but puts limit that downside risk and pay a premium for that, whereas shorts have unlimited downside exposure.

Something changed with this video to come up on my recommended, Well played Patrick. Well played... you smart fella (Fart smella)

Learnt more from Patrick than from my degree

i short sell sports odds, its great whn a side pulls ahead and ther price steams in, thn u can shrt sell thm a very little exposure with huge upside the market often over reacts which provides gud value

I love Shorting stocks. Big money is made by shorting a financial instrument than going long on it. Ex Paul Tudor Jones, Dr Micheal Burry etc. Short and right, long and wrong. This is what the markets have taught me.

Hi Patrick! Is there a chance you could make a video talking about how reverse IPO's work?

Please explain/ How can a short seller borrow shares at some cost, sell those borrowed shares and then return the same said shares to the original lender?🤭☺️🤔🤔🤔 The party that buys shoted shares is making a counter bet right?

When you buy & hold a stock (go long) you technically have unlimited upside potential but... companies don't really have unlimited growth. Even the biggest companies will get to a certain point and the profit & stock price would stay at a certain level (the peak). And some companies stock are hyped up way more than the earnings (earning per share ratio would be very high) so a correction is likely. With online trading getting more popular, you're going to see more people taking short-term profit (trading in & out) causing a lot of volatility. With so much happening in the world, it's very unlikely for most companies' share prices to head to the sky. With up & down cycles we'd see shares rise to a certain point in an economic boom and get into correction during a downturn. A correction can be more severe than before since investors no longer have to go through a middleman (broker of some sort). Buying & selling can be done directly through a home computer. When it comes to short selling, you can make as much money as the current share price * # shares & the price you buy it back * # shares (buy to cover). Or you can lose the entire amount you short-sell when the company declares bankruptcy and stops trading. A few decades ago there used to be a rule you can do short-selling when company's share price is at least $5. If it gets below $5 you're not allowed to short. Not sure if this is still the case. Holding a company stock may/ may not mean higher prices overtime. All depends on the economic situation and whether there is demand for the products / services the company is promoting. Oil for instance is way down during C-19 due to decreased demand.

Wow, short *interest* returns are astounding, why don't all institutions utilize them? Where is the hidden risk?

hello mr. boyle, i've found your channel lately and i really enjoy the contant. one thing is unclear to me, you said that if a stock is down to 0 the max profit is to double your money, but the way i see it (lets ignore tax and fees for a moment) if a stock losess 50% i doubled the money (sold in 100 bought in 50) and if stock is down to 0 the gain cant br messured by precentage because you cant devide to 0. looking forward for your answer, thanks.

At 6:35, was that a cheeky jab at Bill Ackman shorting Herbalife? 😏

I am building a small position in an ETF that shorts brick and mortar retail (EMTY) to help protect against a major downturn as momentum can change very fast in times like these.

I would certainly like to hear about index ETFs that are sometimes leveraged 2X and short. How does that work, and are the risks less than short selling? And are traders short selling leveraged short ETFs? Is Micheal Burry correct that the next collapse is likely going to be due to ETFs?

i keep shorting crypto all the time, works well

short near term futures without using leverage and keep rolling

I haven't watched the video, but the thumbnail looks sick!

Hi Patrick. Great video as usual. Question: The put option premium reflects predicted volatility. It seems to me that the stock borrowing rate should reflect some trade off measure between upward and downward volatility. Is there a model that relates option premiums with borrowing rates? What is the empirical relationship between the two?

Can you make a digital version of your books?