Shorting the Market

By Jason Fittler

Most people’s view of the stock market is you only make money when the market is rising, in fact you can make money when the market is falling as well.

You may have heard the term to “go long” or “go short” the market, ever wondered what this means.

“Go long” this is a term we use when we are bullish or positive on the market, it means that we are buying shares with the view that in the short term process and the market will go up.

“Go Short”
this is a term we use when we are bearish or negative on the market, we believe that the market will go down so in order to make money in such a situation we go short.

Clear as mud, going long is easy to understand as you buy share at a lower price then wait until they get higher sell and make a profit. But how do you make money when the market is falling.

When the market is falling to “go short” you can do one of two things:

1. Sell your share at the higher price with the view to buy them back when the price falls. Need to be careful of the capital gain tax when doing this.
2. Buy a “put” a put is the right to sell a stock at a specified price. For example, if BHP was trading at $39 and you purchased a put which gives you the right to sell BHP at $39 then if the price of BHP fell to $25 dollars then you make money. Why? Because you have the right to sell someone your BHP share at $39 once sold you could then buy them back on market for $25 netting yourself $14 per share.

Beware, shorting the market does come with risk but it does allow you to make money whether the market is going up or down.

Call your adviser on 4771 4577 if you would like to discuss what to do with your portfolio.