ABC stock reached$155. “$155” for a stock that should be valued at$100. Wow! “That’s it,” I said to myself. “It’s time I make a decision. I’m going to short that stock.” I thought to myself, “This stock is overvalued. It can’t remain at the present level for long. This means money in the bank.”
So I phoned my broker.
“I want to place a trade. I want to short 1,500 shares of ABC.
“I’m sorry, Mr. Junkie,” he said, “I can’t process that for you. Your account is cash account. You need a margin account to short a stock. I can send you the application form or you nearest financial institution to fill out the forms.”
The minute I got of the phone, I heard out the door because time is money. I ran to the financial institution to fill out the form and sent it to the broker by express mail service. Next morning I called him.
“Hello, it’s Mr. Junkie. Did you get my application?
“Yes.”
“Great, I would like to short ABC then.”
“One minute please…I’m sorry, Mr. Junkie, but you now need a shorter’s account.”
“What! You mean the margin account isn’t enough?”
“No, you also need a shorter’s account. Any financial institution nearby has the forms.”
Off I ran again. I completed the form and had a taxi deliver to my broker. In the afternoon I called again.
“Hello, it’s Mr. Junkie. I want to short 1,500 shares of ABC at $155.”
A few moments later he answered, “Mr. Junkie, I am sorry, but I don’t think that is possible.”
“Why not?”
“Well, the last trade went through at $99.”
F 1. The broker did not believe ABC stock could remain at $155 for long.
T 2. Mr. Junkie wanted to short 1,500 shares of ABC.
T 3.Mr. Junkie could get a margin account through either a financial institution or his broker.
T 4. To short a stock, one needs both a margin account and a shorter’s account.
F 5. Mr. Junkie asked a taxi driver the forms for a margin account to the broker.
