My First Short Sale

I never thought to make to posts in one day, but I've just decided on something, a course of action, that I just had to share with my readers.

If anyone has been following the financial news, they know that Microsoft's (MSFT) attempt to acquire Yahoo Inc. (YHOO) was unsuccessful. Therefore, the huge run up that Yahoo stock has had recently is more likely than not going to take a HUGE nosedive come Monday morning, and I am going to try and take advantage of that event. What am I going to do? I am going to sell short 200 shares of Yahoo at the limit price of $28.67, and then buy them back again at $23.67. This will earn me a profit of $1,000 if I am successful.

Some of you may not know what short selling is, so let me take this opportunity to educate you a little (I borrowed that line from my favorite financial personality, Jim Cramer). When you "sell a stock short", you are borrowing a stock you don't own to sell at one price, because you have determined one way or another (technical analysis, broker recommendation, Ouija board, or horoscope) that the price of the stock is going to go down. When you buy the stock back again, hopefully at a lower price than you sold it for, you are covering your position and the difference in price is your profit.

This is a very risky investment move, and one I'm not exactly comfortable with. The financial markets can decided that Yahoo deserves to go higher, or the board of Microsoft or some other company, may decide to try and buy Yahoo after all. You just never know.

I had originally thought to sell short 200 shares of Yahoo, and when it went down about $5.00/share, to buy 300 shares at the new lower price. This is the equivalent of getting 100 shares of stock for free as the profit made from selling and then buying back the 200 shares would be enough to buy 100 shares. I'm not sure now if I want to do this though. Yahoo doesn't pay a dividend, and I require anything I invest in long term, like my McDonald's stock, pay a dividend.

I'll keep you all informed.