Short selling is basically the practice of selling borrowed shares, with the intention of purchasing them back later at a lower price. It amounts to a placing a bet on the share value dropping, is a favoured move of
hedge funds, and has been recently
blamed for much of the current economic mayhem.
However, when last Sunday
Porsche tersely announced that, in addition to its 44% of
Volkswagen's shares, it had secured 31% through
cash-settled call options, the invisible hand of the market gave those short-sellers an
atomic wedgie:
Since the German state of
Lower Saxony holds just over 20% of VW, Porsche's disclosure meant that, in fact, there were only 5% of VW's shares left on the market, whereas traders were shorting for about 13% of those shares. This set off the "Mother of All
Short Squeezes".
[more inside]
posted by Skeptic
on Oct 29, 2008 -
98 comments
Confused about what caused this whole credit crisis? Let me Paddy Hirsch from Marketplace explain it to you in
this surprisingly entertaining and easy to understand video. While you're there, check out his
explanation of short selling and
credit default swaps. I wish this guy was my finance professor.
posted by JPowers
on Oct 23, 2008 -
23 comments
