There is an easier way to judge when to sell short. Read on and you shall learn…
In case you are unaware, selling short is a stock trading system where you are betting on the price of a stock to go down. you make money by “borrowing” the stock from your broker and selling it, hoping to make out by buying it back at a lower price when you return it to your broker. This has a lot of risk because if the stock goes up you are now in debt to your broker becuase you have to return to them the same amount of stock as you borrowed.
One thing I have learned about stocks is that certain trends are a given. One trend in particular is that of the “dividend crash.”
The dividend crash, as I call it, is the peculiar nature of most stocks to fall in value just about the time dividends are paid out. Look at this 5 year example of AT&T stock. Nearly every dividend marker on the chart is at the bottom, or very close to the bottom, of the share price. It is then followed by a climb in value. Verizon has the same thing in it’s history as well.
Now let me say this as well, not all companies go through this dividend crash phase. That is why it is very important for you to look at the history of a stock before attempting to use this trend for financial gain.
A quick look at Sprint will show you that they do not go through this phase in the same way that AT&T and Verizon do!
Just so you know, shorting dividend bearing stocks has one other component involved in that you are responsible for paying the dividend to the brokerage you borrowed the stock from. The other problem with shorting dividend stocks is that you can not sell short (in the USA) unless the stock is climbing in value, this is to prevent run away drops in stock value. Using this method requires careful planning and exact timing, it is not a strategy for the new investor to attempt.
I hope this information proves as valuable to you as it has to me.
DISCLAIMER: I am not a stock market analyst. Following the suggestions in this series of articles is done at your own risk. Before you invest in any stocks or bonds please take some time to talk to someone who knows more about the market than I do!