We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.


Key takeaways from this chapter

  1. Shorting requires us to sell first and buy later.
  2. The short trade is profitable only when the closing price is lower than the entry price.
  3. There would be a loss when the price goes higher than the price at which one has shorted.
  4. The stop loss in a short trade is always higher than the price at which one has shorted.
  5. One can only short on an intraday basis in the spot market.
  6. The short positions cannot be carried overnight in the spot market.
  7. The short position in the futures market can be carried forward overnight.
  8. The margins requirement for both short and long trades are similar.
  9. The M2M computation is also similar for both short and long trades.

 


22 comments

  1. Amogh says:

    This was so helpful. Thanks a lot

  2. Udhav says:

    Hi Karthik and Prateek.
    Quick Question – What if I short the futures of a company by using the overnight function because my initial intention was to hold my position for a few days; however, towards the end of the trading day (the same day I placed my short position) I decided to exit my position since I notice a significant profit/loss. Is there a way I would be able to exit my position on the same day even though I placed an overnight position and not intraday?

  3. Chetan says:

    Hi Prakeek/Kartik,

    Why are futures some companies not available? Is there an option to short a stock that you know will fall in a few months time (for which the future contract is not available)?

  4. KRISHNA says:

    can i sell the future stock first and then buy the stock after one week

  5. Rohit says:

    Lets say I short a futures contract trading $120 (spot trading at $100) when the futures is in contango and I exit it on expiry when futures’ price approaches spot and lets say at the time of expiry spot is still at $100.
    1. Will I be at a profit of $20 now? because futures’ price approaches spot on expiry be it in contango or backwardation
    2. Does this mean futures’ sellers have an edge over buyers when in contango? (which is usually the case)

    • Karthik Rangappa says:

      1) Yes, thats right.
      2) Hmm, not really. If the spot is not priced in correctly, then the spot can also catch up with the futures right?

  6. Rohit says:

    Thankyou sir,
    one more question but this is regarding options on futures, for a stock XYZ and its future expiring on Dec 2023.
    1. will the options on this particular future contract expiring dec 2023 have multiple expiries between march (current month) and dec (futures expiry month) or just one same expiry of dec 2023 shared with futures contract?

  7. Raja says:

    If I short in future stocks at expiry.i have more than margin fund. What will happened on after expiry

  8. Ratnakr says:

    If I shot & then bye the stock, do the stock remains in my demat account?

  9. Aaryan Gupta says:

    In case I short a Futures contract, say SBIN(@596), 1 lot = 1500 qyt, and buy the same qty(1500) of the underlying stock itself(@593), will my position on expiry of the future contract be settled at the said profit of rs. 3?
    Also, will this be done by the app itself or do I have to take some other necessary steps?

  10. Aaryan Gupta says:

    Also, what if positions are placed on different exchanges?

  11. Ashwin says:

    Hey there Karthik, can you please throw some light on why we can’t short sell the shares other than through Intra day trades? I would like to short few shares and buy them at a later date, which is currently not possible in my account. Please let me know what to do. Thank you.

    • Karthik Rangappa says:

      It is because of the settlement system in the Indian capital markets. However, you can short futures and option contracts and carry it forward for multiple days, till the expiry of the contract.

  12. Nihar Sharma says:

    Sir, “Sell or short sell, are they the same or different? If they’re different, what’s the difference between them?”

    • Karthik Rangappa says:

      To sell means, you close your open long position and completely square off your position.
      To short sell is to initiate a new short position in the market. To square off, you’d need to have a buy back the stock/futures etc.

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