c20d-is - Izabella Stepanyan Econ 171 Textbook Project...

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Izabella Stepanyan Econ 171 Textbook Project Prof. Sproul Chapter 20.d Stock Market: “Going Long and Selling Short” Going Long: when we own a stock we are in a “long position.” The owner benefits when the stock gains in value, and the profit is unlimited. So the “long” profit is said to be “bullish.” When the stock is down the most that the owner can lose is the amount of money he has originally paid for it. It is impossible to lose more, since owners have “limited liability.” 1 $60 -$60 -$30 $0 $40 $100 $30 Figure 20.d.1 Suppose a stock is purchased at $60, if the stock value doesn’t change the owner’s profit will be $0. If the stock grows in value up to $100, the owner’s profit is $40. If the stock price drops to $30, the owner’s loss will be $30. Notice that the positive profit that can be made is infinite, however, the loss is limited to the negative value of the stock (-$60).
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Izabella Stepanyan Econ 171 Textbook Project Prof. Sproul Selling Short: this concept is about borrowing and selling. The borrower borrows a stock from an owner in
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This note was uploaded on 09/25/2008 for the course ECON 160 taught by Professor Baim during the Summer '98 term at UCLA.

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c20d-is - Izabella Stepanyan Econ 171 Textbook Project...

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