Taking a short position in stock means?

Taking a short position in stock means?

• A. Buying stock to hold long term.
• B. Selling stock in anticipation that its price will fall, allowing it to be bought back at a lower price.
• C. Buying a call option.
• D. Buying an ETF.

Answer: (B)

Taking a short position means you’re betting the stock’s price will fall. You do this by borrowing shares and selling them now at the current price, with the plan to buy them back later at a lower price to return to the lender. The profit, after costs, comes from the difference between the sale price and the repurchase price. If the price drops, you buy back cheaper, return the shares, and keep the gain. If the price rises, you must buy back at a higher price, which can lead to losses that grow as the price climbs. You’ll also owe any dividends that would have gone to the actual shareholder and you may incur borrow costs for the shares. Short selling is different from simply buying stock to hold for appreciation, and it's not the same as buying a call option or purchasing an ETF.

Taking a short position means you’re betting the stock’s price will fall. You do this by borrowing shares and selling them now at the current price, with the plan to buy them back later at a lower price to return to the lender. The profit, after costs, comes from the difference between the sale price and the repurchase price. If the price drops, you buy back cheaper, return the shares, and keep the gain. If the price rises, you must buy back at a higher price, which can lead to losses that grow as the price climbs. You’ll also owe any dividends that would have gone to the actual shareholder and you may incur borrow costs for the shares. Short selling is different from simply buying stock to hold for appreciation, and it's not the same as buying a call option or purchasing an ETF.