Description Not often used by bearish investors. Although mechanics of execution are not that complicated, most investors only think in terms of making money from a stock advancing, not by one declining. When to use When bearish on XYZ and willing to accept the strategy's risk/reward profile. Offers the greatest potential if opinion is correct. If wrong, has the highest potential risk. Risk/Reward Characteristics Profit increases as XYZ declines. Loss increases as XYZ rallies. The strategy's P&L is based solely on the difference between the initial selling price and the eventual purchase price. Break-even Point: Initial shorting price. Time Decay: No effect. Volatility: The more volatile the underlying stock becomes, the greater the potential for both larger profits and larger losses. Assignment Risk: The investor must watch XYZ for possible assignment if XYZ declines below the Put's strike. Note: Short-selling requires that the investor have a complete understanding of both how shares are borrowed and lent and the responsibilities and rights of both parties to the agreement.
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