Jim Cramer - Shorting Stocks Explained

1 00:00:00,489 --> 00:00:03,739 whenever I mention a stock on the show in some misguided 2 00:00:03,740 --> 00:00:07,040 individual I wanna said something much less quite if I weren't such a 3 00:00:07,040 --> 00:00:10,730 our statement that you're now immediately goes out and 4 00:00:10,730 --> 00:00:15,110 after-hours trading in by that stock placing a market order not a women 5 00:00:15,110 --> 00:00:16,430 orders I demand 6 00:00:16,430 --> 00:00:20,109 that misguided fellow is about to lose some serious money 7 00:00:20,109 --> 00:00:23,600 and I'm all about making money not losing 8 00:00:23,600 --> 00:00:27,810 I want to put a stop to this behavior once and for all 9 00:00:27,810 --> 00:00:31,060 on going to put the beer Cramer Inc you 10 00:00:31,060 --> 00:00:34,899 if you even so much as think up immediately buying a stock in 11 00:00:34,899 --> 00:00:36,829 after-hours trading when I recommend it 12 00:00:36,829 --> 00:00:42,070 know this there are hundreds if not thousands a professional traders point 13 00:00:42,070 --> 00:00:43,280 to tear you to pieces 14 00:00:43,280 --> 00:00:48,620 and rob you blind they're sitting there waiting for someone like you to come in 15 00:00:48,620 --> 00:00:51,719 and put in a market order for stock these guys 16 00:00:51,719 --> 00:00:55,920 it there anything like I was and they are otherwise they wouldn't be making 17 00:00:55,920 --> 00:00:56,570 money 18 00:00:56,570 --> 00:01:01,000 they're going to short you the stock shorty is when you borrow stock sell to 19 00:01:01,000 --> 00:01:02,570 someone and if you do it right 20 00:01:02,570 --> 00:01:06,979 buy it back at a lower price and keep the difference between where you sold it 21 00:01:06,979 --> 00:01:11,450 and where you bought it back let me give you a quick example to help make this 22 00:01:11,450 --> 00:01:12,210 clear 23 00:01:12,210 --> 00:01:16,180 because shorting stock is one of those things that can look very complicated 24 00:01:16,180 --> 00:01:17,799 when you explain a theoretically 25 00:01:17,799 --> 00:01:21,930 but actually is very simple if you just watch how it works 26 00:01:21,930 --> 00:01:25,729 I want to decode although Wall Street gibberish 27 00:01:25,729 --> 00:01:30,039 out there so I don't want to break my own rules by mentioning something in 28 00:01:30,040 --> 00:01:30,850 passing 29 00:01:30,850 --> 00:01:36,450 without breaking it down to the basics let's say I want to be short sellers 30 00:01:36,450 --> 00:01:39,909 these jackals who just want you to make a wrong step 31 00:01:39,909 --> 00:01:43,680 so they can rob you blind what am i doing precisely 32 00:01:43,680 --> 00:01:46,680 for the second example let's say I am shorting bondage 33 00:01:46,680 --> 00:01:51,850 BG the internet telephone company also commonly referred to as 34 00:01:51,850 --> 00:01:56,560 looked all gone mad money that means I'm betting bondage will go down 35 00:01:56,560 --> 00:02:00,920 but that doesn't explain the mechanics which is what you need to know 36 00:02:00,920 --> 00:02:04,860 it I wit my head's fun in ordered a short bondage 37 00:02:04,860 --> 00:02:09,848 I would call my broker and tell him that I want to sell 100 shares a bonded short 38 00:02:09,848 --> 00:02:11,519 at fifteen dollars a share 39 00:02:11,520 --> 00:02:15,530 my broker would then go out and borrow those shares 40 00:02:15,530 --> 00:02:20,690 don't worry about me barring them from the big investment banks in a horror 41 00:02:20,690 --> 00:02:23,120 start the day command out the short sellers 42 00:02:23,120 --> 00:02:27,819 so we parse the stock for me in any sells it at fifteen dollars a share 43 00:02:27,819 --> 00:02:32,200 now I've got fifteen hundred dollars from that sale I wait for bondage to 44 00:02:32,200 --> 00:02:33,190 calm down 45 00:02:33,190 --> 00:02:36,280 let's say ten dollars because bondage was a real 46 00:02:36,280 --> 00:02:39,629 underperformer after it came public then I 47 00:02:39,629 --> 00:02:44,179 cover my short that means I take one thousand dollars because now the stock 48 00:02:44,180 --> 00:02:44,920 is a 10 49 00:02:44,920 --> 00:02:49,280 and buy back those 100 shares a bondage that I initially borrow 50 00:02:49,280 --> 00:02:53,190 the shares get returned to whomever the broker bar them from 51 00:02:53,190 --> 00:02:58,060 and on left with five hundred dollars my profit from shorting bondage 52 00:02:58,060 --> 00:03:01,920 comes from the difference between where I sold it after I bought it 53 00:03:01,920 --> 00:03:07,940 any amount I had to pay to cover to buy back that stock I initially borrowed 54 00:03:07,940 --> 00:03:11,489 I soul bondage hi it fifteen dollars a share 55 00:03:11,489 --> 00:03:17,000 and put it back well it ten dollars it might help to think about shorting 56 00:03:17,000 --> 00:03:20,650 as regular investing in reverse sell high 57 00:03:20,650 --> 00:03:26,290 by low now that we've gone over what the short sellers do 58 00:03:26,290 --> 00:03:31,079 let me explain how it will hurt you if you don't follow my advice to never 59 00:03:31,080 --> 00:03:35,390 ever buy stock after-hours we're back to after-hours trading 60 00:03:35,390 --> 00:03:39,760 right after I recommend a stock on Mad Money when you try to buy stock after 61 00:03:39,760 --> 00:03:40,390 hours 62 00:03:40,390 --> 00:03:44,390 there's very little stocking up there because all the changes are closed 63 00:03:44,390 --> 00:03:47,450 only short sellers who want to destroy you will sell the stock 64 00:03:47,450 --> 00:03:50,680 and no sold at a price even the Mafia would cringe 65 00:03:50,680 --> 00:03:54,159 charging they can get away with charging you that price 66 00:03:54,159 --> 00:03:58,319 because you put in a market order and a market order gives your broker 67 00:03:58,319 --> 00:04:01,689 who just wants turns Commission why since the pay anything 68 00:04:01,689 --> 00:04:06,510 because they're borrowing the stock the shorts are the only ones with the real 69 00:04:06,510 --> 00:04:09,049 Supplier stock to sell after hours 70 00:04:09,049 --> 00:04:13,430 so they watch the show wait for stock to pop and then sell you the stock really 71 00:04:13,430 --> 00:04:15,330 high after hours 72 00:04:15,330 --> 00:04:18,509 then the next day around 10 or 11 a.m. 73 00:04:18,509 --> 00:04:23,400 when the stock starts to decline and you get discouraged about having bought it 74 00:04:23,400 --> 00:04:24,270 so high 75 00:04:24,270 --> 00:04:28,770 so you boot it the short will cover that means by that the stock they barred in 76 00:04:28,770 --> 00:04:29,639 return it 77 00:04:29,639 --> 00:04:32,800 and makeup fortune while you lose money 78 00:04:32,800 --> 00:04:36,540 I want you to stop buying stocks in after-hours trading period 79 00:04:36,540 --> 00:04:40,009 I want you never use a market order again period 80 00:04:40,009 --> 00:04:44,870 I don't want you to be fodder for these people on going to do my best in this 81 00:04:44,870 --> 00:04:46,740 program and on the show 82 00:04:46,740 --> 00:04:50,940 to prevent you from being torn to shreds by the Borchers who circle mad money 83 00:04:50,940 --> 00:04:54,639 waiting for unsuspecting investors to make a fatal financial mistake 84 00:04:54,639 --> 00:04:58,720 so they can feed but better than that better for you 85 00:04:58,720 --> 00:05:02,560 because most in your smart and don't just meet all over my pics as soon as I 86 00:05:02,560 --> 00:05:03,680 recommend 87 00:05:03,680 --> 00:05:08,419 I want to tell you exactly what to do in the first 24 hours after I recommend a 88 00:05:08,419 --> 00:05:09,639 stock 89 00:05:09,639 --> 00:05:12,710 it people can't make good use my recommendations on the show 90 00:05:12,710 --> 00:05:15,930 I might as well just pack up quickly detai 91 00:05:15,930 --> 00:05:19,560 where it's always sunny I live in New Jersey so I can pick made money in 92 00:05:19,560 --> 00:05:21,460 CNBC's Jersey studio 93 00:05:21,460 --> 00:05:24,880 do you have any idea what kinda sacrifice on making your to do that 94 00:05:24,880 --> 00:05:28,770 and I like Jersey I grew up in philadelphia who am I to complain 95 00:05:28,770 --> 00:05:31,299 again the point here is that if you don't know what to do with my 96 00:05:31,300 --> 00:05:32,500 recommendations 97 00:05:32,500 --> 00:05:36,020 if you or in a position to execute the trade some advising the best possible 98 00:05:36,020 --> 00:05:37,039 way 99 00:05:37,039 --> 00:05:40,219 it's going to be much harder for you to make money and make you money is the 100 00:05:40,220 --> 00:05:40,900 name the game

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