This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How to Get Around Short-Sale Ban

Some of the funds use leverage to magnify results. When the S&P falls by 1%, Rydex Inverse S&P 500 2X (RYCBX) rises by 2%. The leverage can provide flexibility. Say an investor has a $1 million portfolio that tracks the S&P. To protect against losses, he could put $1 million into the regular S&P inverse fund. Or the investor could accomplish the same thing by putting $500,000 into the S&P leveraged fund and invest the rest in stocks or bonds.

Instead of buying an inverse fund, an investor could short an ETF, such as iShares S&P 500 (IVV), which tracks the benchmark. (The SEC order did not bar shorting of ETFs.) But shorting has become increasingly cumbersome. In a typical short transaction, an investor borrows shares and then sells them. If the stock drops, the investor can repurchase the shares at a low price and book a profit.

To short a stock or ETF, a retail investor must first establish a margin account with a broker. Then the broker must borrow the shares from an investor who owns them. In recent months, it has become increasingly difficult to borrow stocks. "Because of the concerns about credit risks, some people have been restricting the shares they will lend," says Ryan Harder, a Rydex portfolio manager.

Once he succeeds in selling the borrowed shares, the short investor must monitor the position carefully. If the shares drop, potential profits climb. But if the stock rises, losses can mount. The investor could face a margin call, a demand from the broker that the client put up more collateral to back the losing position. No matter how a trade fares, it can generate plenty of paperwork and hefty brokerage fees.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
SEF $16.78 -0.59%
IVV $210.62 1.30%
REW $51.09 0.27%
AAPL $123.77 0.81%
FB $95.36 1.30%

Markets

Chart of I:DJI
DOW 17,641.86 +201.27 1.15%
S&P 500 2,091.74 +24.10 1.17%
NASDAQ 5,087.3130 +47.5370 0.94%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs