A short sale's loss has no ceiling. This lesson shows how one call puts one there, and what that insurance really costs.
After this lesson you can
- Explain how a short sale works, and why its loss is open-ended
- Add up the running costs of a short: the borrow fee, dividends owed, and collateral that grows against you
- Work out the most a short plus one call can lose: the climb to the strike, plus the premium
- Choose the strike by the worst case you can live with, and the expiration by how long you plan to stay short
- See why the insured short behaves like a put, and when the put is the simpler trade
Chapters
- 0:00Insurance for a short sale
- 1:54How a short sale works
- 3:38What borrowing costs
- 5:29Recalls, squeezes and gaps
- 7:15One call sets the ceiling
- 9:32Why it acts like a put
- 11:10Choosing the strike and expiration
- 13:24How each ending plays out
- 15:22The whole lesson on one screen