Question

You shorted 1,000 shares of WDC at $55.6. Show your account equity position value. If the stock price fell to $40 in 6 months and the company paid $2.8 in dividends, what is your dollar gain and percentage gain? What if the price went up t $68 a share?(please show me how to do it in excel.)

Answer 1

To sell short the shares, you need to post typically margin of 1/2 of the value of shares short. so margin would be: (1,000*$55.6)*1/2 = $27,800

In short selling you sell the shares now by borrowing shares from a broker hoping later the share price will fall and you will purchase the shares at lower price and return it to broker. so you short sell the shares now at $55.6 and after 6 months you purchase it at $40 from the market and return it to broker. but dividend paid by the company will be paid back to broker. so your gain will be short sell price - purchase price - dividend or $55.6 - $40 - $2.8.

below is the calculation in excel:

Formulas

if the price went up to $68 a share

Formulas