Can someone make me the technicality of this scenario?

Question

I dont understand this. I have been reading and watching all stocks. So what i realize the market is always fluctuated.

So i came up this scenario.

Suppose one buys a GOOG stock [not just one, at least 100 or so] and also do the sell short with the same amount of stock.

When the market fluctuates then he sell it or buy to cover and make a profit out of it and reinvest the principal again.

Now tell me where m i wrong as I m sure you guys r professional guru and someone must have thought doing this before.

Only professional and technicla knowledgeable folk answer.

Thanks.

Answer 1

Thats known as wanting the put & call. Or betting on all the horses in a race. If it was that easy don't you think there might just be someone else out there who had already thought of it??

Answer 2

If you buy 100 shares and simultaneously short 100 shares, it will be at the same price.  So no matter how the stock moves, the gain in one position will always negate the loss in the other, equally so.  But you still have to pay the transaction costs of the buying and selling.  So in the end you make nothing on the stock movement, but lose money on the buys and sells.

Answer 3

Here is the answer.

When you purchase a share of a stock, you in turn want it to increase in pricing.  An example:

Purchase 100 shares of GOOG at 567.00 = 56,700.00 (don't forget to add the commission as well.)  So anything above the 567.00 price per share is considered a profit.

When short selling GOOG you in turn are borrowing the share at a designated price say $567.00 per share.  Any downside of the price per share is your profit.

So in theory you are protecting your downside of the price, but negating your upside of the price.  This is not a sound strategy at the same share price.  This is a "retarded" arbitrage strategy.

Someone would be better off purchasing a position and then selling some covered calls at a higher price.  Say $580.00.  That way you stand to profit from the $567-00 - 580.00 share price movement, and you get the monies from someone purchasing your call options.  All covered means is that you actually are holding the shares that you want to sell the options on.

If in fact the share price never meets the $580.00, then the options will expire worthless.  But you still pocket the monies on those options that someone has purchased.

Let me know if this makes sense.