Investment Vehicles

Emilee Paull
Short Selling

Definition- When an investor anticipates a decrease in share price

How it works- When you sell a short stock, your broker lends you security. The
shares are sold and eventually you will have to “close” by buying back the same
number of shares.If the price drops, you can buy back the stock at a lower price. If
the price rises, you have to buy it back at a higher price.

Other- Most of the time you are able to hold the stock for however long you want,
but sometimes you get “called away”. You will have to pay the lender of the stock any
dividends or rights that were declared in the beginning.
Pros and Cons

Pros-

1. Give you the potential to have a large return without putting too much money
up upfront
2. Shorting can hedge your investment if you already own a stock
3. It’s one of the few ways to make money in a bear market

Cons-

1. There is potentially no limit for how much you can lose

2. Short sellings has even worse of an implication for the stock market as a whole
When and Why

Why would you use Short Selling?

Short selling is used in order to speculate and hedge. When using this method,
you are able to make a huge profit from an overpriced stock or market. Some
sophisticated money managers use shorts to protect other long positions with
offsetting short positions.

When would you use Short Selling?

You should only use short selling when you are sure that you will make profit.
Since this is so risky, it should not be done carelessly.
Options

Definition- A contract giving the buyer the right, but not the obligation, to buy or sell
an underlying asset at a specific price on or before a certain date
How it works- You can negotiate a deal with the lender that gives you the option to
buy or sell their product by a certain date and for a specific price. Then, whether or
not you bought or sold their product, you have to pay their price. If you let the date
go by without buying or selling then you lose 100% of your investment.
Other- The two different types of Options are “calls” and “puts” . A call gives you the
right to buy and asset while a put gives you the right to sell an asset.
Pros and Cons

Pros-

1. They are cost efficient and come up with way more leveraging power
2. They have the potential for high returns
3. There are more strategies available to trade options

Cons

1. Less liquidity along with high commissions

2. The value of your option decreases everyday
3. It can be difficult for a trader to hedge their positions with option strategies
When and Why

Why would you use Options?

You aren’t limited to making a profit only when the market goes up, you can also
profit when the market goes down due to the advantage of options. This method is
also good for hedging. Many companies use options in order to keep talented
employees.

When would you use Options?

You should buy options for a stock when you are looking to not spend as much
money buying shares for a stock.