It’s even less likely because short selling involves regular payouts to whoever actually owns the underlying asset, and these payments usually increase over time. In
The Big Short, the investors that come to see Michael Burry towards the end of the movie are concerned about the premiums his firm Scion Capital is paying to keep the position open.
In a nutshell, short selling flip flops “buy low, sell high” into “sell high, buy low.” A hypothetical situation might look like this:
I know
@rusty shackleford 1 owns 100 shares of KIWI, which is priced at $75/share. I offer to rent these shares from him, and pay him $250/week I have them rented. He agrees, and I promptly turn around and sell those shares for $7500.
Four weeks pass, during which the price of KIWI falls to $50/share. I buy 100 shares for $5000 and give them back. I have paid $1000 to keep my position open, and $5000 to re-buy them, and pocket the $1500 difference.
The reason why short selling exposes you to a huge amount of risk is if the price goes up after the “rented” shares are sold. If KIWI shot up to $100 per share and I closed my position after four weeks, I would lose $2500 plus the $1000 I paid to keep the position open.