Short Stock

Shares sold short: the position gains as the share price falls, and the loss grows without a cap as the price rises.

Also called Short shares, Short sale

Outlook

Bearish

Family

Basic

Level

Intermediate

Legs

1 leg

Expirations

1 expiration

Opens for

Credit

Maximum profit

Limited

Maximum loss

Unlimited

Requires shares

Yes

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
	Short	Shares	1

What it is

Shares borrowed and sold, to be bought back later. The position gains as the price falls and loses as it rises, one for one in both directions.

It is the mirror of long stock in shape and not in risk. The two are symmetrical on the chart and asymmetrical in fact: a share price can only fall to zero, but there is no ceiling on how far it can rise.

The payoff

At expiration

A single straight line falling left to right through the zero line: the position gains one for one as the price falls and loses one for one as it rises.

One straight line, sloping the other way. The maximum gain is the full sale proceeds, reached only if the shares go to zero.

Above the sale price the loss simply continues. The fact box says Unlimited and means it literally: there is no strike, no expiration and nothing that caps the outcome.

How it behaves before expiration

Today, before expiration

Today's line and the expiration line are the same line: a short share position has no time value, so nothing about it changes as time passes.

As with long stock, the two lines coincide: no premium, nothing to decay. What does change with time is the cost of holding it, which does not appear on this chart at all.

The Greeks

Delta is −1.00 per share, or −100 per round lot.

Gamma, theta and vega are zero. The position’s exposure never changes on its own; only the price does.

Where it lives in the volatility environment

Implied volatility does not price a share position. It does affect what it costs to hedge one with options, and a rise in implied volatility often accompanies the sharp upward moves that hurt this position most.

What can go wrong

• The loss has no upper bound. This is the one position in this encyclopaedia where that is true without an option being involved.
• The borrow can be recalled. A hard-to-borrow name can be bought in by the broker at a time not of the holder’s choosing, closing the position at whatever the market is then.
• Borrow fees accrue daily and are not part of the payoff line above.
• Dividends are owed, not received. The holder of a short position pays any dividend to the lender of the shares.
• A squeeze compounds all of the above at once — rising price, rising borrow cost and recall risk arriving together.

Building it in Option Panel

Like long stock, short shares reach a trade through a fill rather than through Build Strategy. The builder uses them only as a leg of a structure that requires stock.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Long Stock — the same instrument from the other side, with the loss bounded at zero.
• Long Put — a bearish view with the loss capped at the premium and no borrow to maintain.
• Short Call — the other position whose loss is unbounded on the upside, and the reason that page carries the same warning as this one.