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betting against Facebook 4949 Responses
Last post: 1 year, 1 month ago | Thread started: Apr 10, 12, 6:02 p.m.
- randommail
Does anyone know how a layperson like myself could invest/bet against the longterm success of Facebook?
- Apr 10, 12, 6:02 p.m. – Permalink
- ideaist
It's CNN, but relevant -> http://www.cnn.com/2012/04/10/te…
- Dog-earApr 10, 12, 7:29 p.m. – Permalink
- randommail
"short it after IPO". I hear that terminology often, but am not sure what it means. I know hedge fund guys do that often, but again how do I a layperson who wants to gamble a little actually get in?
- Dog-earApr 10, 12, 8:36 p.m. – Permalink
- 2002
Bet for FB:
Buy facebook stock and other social network stocks. Considering that most social network driven apps does not come close to facebook, it would be wise to diversify your self to buy other stocks in similar category.Bet against facebook:
There is no real competitor to facebook. Even if there was, you wouldnt bet against a competitor as most sectors flucutate in similar way. facebook goes up / down, a competitor moves the same way.Buying inverse / short:
There is no real way for public or someone 'layperson' to short a stock unless there is an existing inverse security available. ETFs have broader inverse or short securities available for 'layperson' to invest in to. For example, you can bet against gold by buying DGZ or GLL and many others. These are established ETFs (fund). They tend to move either 2x or 3x the given movement of an underlying benchmark security. You can lose a lot or make a lot.Shorting is just a contract between you and another person or institution. In order for you to bet with an institution, Goldman, Morgan etc, you need to be approved not just by the bank by regulatory authority. You need to prove collateral indicating that you would pay if you lost (bank does the same). Additionally, you need to be approved and trusted by the bank. Even if you were approved, there has to be someone at the bank who is willing make a contract with you indicating that they will pay X amount if under lying security goes X in certain X time. You would also need to buy insurance against your bet to hedge and also as a regulatory requirement from places like AIG.
See where I am going with this? Note this is why AIG and other banks failed. They made bets against each other. When things went sour, they couldn't pay, they go bust.
- Dog-earApr 10, 12, 8:36 p.m. – Permalink
- 2002
You can technically short using options. This is a simple explanation. Options are much more complex.
You are simply stating that you will buy stock A at X price at X time in the future. Between now and X time in the future, stock A can go up or down. Again, this is a contract but it is a readily available contract and you would need to state which maturity (X time in future) and price are given to you.
If you bought options for stock A will be at $5 in 6 months, and stock goes to $8 in 6 months, you made $3. You can either exercise your option to buy or sell the option to someone else. You can make options to buy or sell at given time.
The beauty about option is that you are not purchasing the stock but buying the right to buy or sell contract. You can spend 1/100 of the price of a stock. At the end of the contract term, you just either payout or get the difference.
- Dog-earApr 10, 12, 8:45 p.m. – Permalink
- 2002
Options can be dangerous because you get can lose a lot of money.
Example, you buy an options contract for stock A at future price of $10 in 6 months with quantity of 100 shares. The stock tanks and it is at $2 in 6 months. At the end of 6 months, you have to buy $2 stock at $10.
The person at the other end of the contract just made $8 off you per share.
- Dog-earApr 10, 12, 8:47 p.m. – Permalink
- 2002
Short selling:
You can do this with most trading account. You are borrowing shares and when the price falls, you buy them back.
This is how it works.
On your behalf, your broker borrows 100 shares of stock A at $5 and sells them. In your account, you have $500. When the stock falls to $2, you buy them back at $2 and gives back the shares. You just made $300.The opposite.
You tell your broker to borrow 100 shares of stock A at price of $5 and that is sold. You again have $500 in your account. The stock moves up to $10. The shares are borrowed and you need to give back the shares. In order for you to give back the shares, you need to buy the shares at the current price of $10. You pay $1000 total to give back the shares. Your account -$500.- Dog-earApr 10, 12, 9:11 p.m. – Permalink
