Welcome to part two of my blog when and why to sell a stock short which gives a good fundamental analysis of short selling stock.
Short selling strategies
Short selling strategies are used in speculation, hedging, arbitrage and ‘against the box’ strategies. Many investors believe that a good combination of short and long positions on stock is beneficial to your stock portfolio.
The first three strategies are quite simple and i have sourced some definitions from wikipedia below. The final against the box strategy is more interesting and I tried to give a clear outline of it myself:
A seller intentionally takes on the risk of the stock moving up or down in price in the belief that the value of the shorted stock will fall. An example of this is short selling the stock of a company before its earnings reports are released if you believe the reports will fall below the expectations of market analysts.