Understanding Short Selling

The video tutorial explains the concept of shorting a stock, where an investor bets that a stock's price will decrease. It details the mechanics of shorting, which involves borrowing a stock, selling it, and later buying it back at a lower price to return to the lender. The tutorial illustrates how profit is made if the stock price falls, but also highlights the significant risks involved, including the potential for unlimited losses if the stock price rises significantly.

What is the primary goal of short selling a stock?

• To profit from a stock's price increase

• To profit from a stock's price decrease

• To hold a stock for long-term gains

• To diversify an investment portfolio

In short selling, what is the first step a trader takes?

• Buying the stock at a low price

• Borrowing the stock from another owner

• Holding the stock for dividends

• Selling the stock at a future date

What happens if the stock price falls after you short sell?

• You incur a loss

• You have to buy more stocks

• You break even

• You make a profit

In the example given, what is the profit if the stock price drops from $50 to $20?

• $20

• $30

• $50

• $70

What is the outcome if the stock price rises to $80 after short selling?

• You make a profit

• You incur a loss

• You break even

• You gain dividends

How much loss is incurred if the stock price rises from $50 to $80?

• $80

• $20

• $30

• $50

Why is short selling considered risky?

• It is illegal in most markets

• It requires a large initial investment

• Stock prices can rise indefinitely

• Stock prices can fall to zero

What could happen if a stock price rises to $800 after short selling?

• You incur a massive loss

• You gain dividends

• You make a large profit

• You break even

What is a potential consequence of short selling if the stock price skyrockets?

• Fixed losses

• Unlimited losses

• Guaranteed dividends

• Unlimited profits

What is one way to profit from a stock price decrease?

• Holding the stock long-term

• Investing in stock options

• Short selling the stock

• Buying the stock