 Hey everyone welcome to another video lesson from navigation trading in this video I want to talk to you about How to simulate short stock using options? Now there are a lot of stocks out there that you can simply just short outright But there are also several reasons why you may want to use options to short the stock instead of just using stock outright So before we jump into that I want to go over a couple things in relation to shorting stock Then we'll jump onto the platform and go over some actual examples So to start with what is shorting or short selling? The answer is when a trader borrow shares and he immediately sells them with the intent to profit by buying them back at a lower price That's what's known as shorting. So traditionally when you buy stock you want to buy low and sell high and When you're shorting stock, it's just the opposite you want to sell high and buy it back lower And so you can just think of short equals sell and long equals buy So if you buy stock, that's the same as being long stock if you sell stock That's the same as being short stock One question I get a lot and things that I hear is that short selling is more risky than buying stock Now the regulators and people who say that say that for this reason and that is Theoretically a stock can only drop to zero So if you buy a stock if you buy one share for a hundred dollars of a stock the most you can lose is a hundred dollars But theoretically a stock can go up forever So if you short a stock at a hundred Theoretically it could go to a thousand and keep going and so that's why they say that shorting is More risky than buying a stock But the reality of trading is a stocks don't go up forever and you can always get out or play stops There's a lot of things you can do to mitigate that risk. So you shouldn't be scared of shorting stock It's no different from a risk reward standpoint than buying stock in general So a couple things you want to know about shorting stocks as far as terminology one shorting stock Outright can only be done in a margin account I don't know of any brokers that allow you to short stock in an IRA So if you are planning to go short a stock you do want to have a Margin account and then a couple of things you'll see on your brokerage platform is related to shorting stock There's easy to borrow ETB hard to borrow HTB and none to borrow NTB Let's go to the platform and I'll show you exactly what those mean So here's a here's a ticker symbol that I found that has stock that is none to borrow BHP I have no idea what this company does but what you'll see right here is NTB and that stands for none to borrow and all that means is this stock is Not shortable. There's no outstanding shares for you to borrow to be able to short this stock So you wouldn't be able to short this stock Let's take a look at another example of DDD. This is 3d systems corporation And what you'll see up here is that it says HTB which is hard to borrow So what that means is that there are not shares just readily available for you to borrow in short by Clicking and selling the shares like you would hear you would actually have to contact your broker They would have to locate a certain number of shares for you to allow you to short the stock And lastly, let's take a look at a more popular stock a more highly traded liquid stock like Facebook for example And what you'll see here is you're going to see the acronym ETB or easy to borrow And so that means that shares are readily available to short if you wanted a short Facebook stock you could simply just sell as many shares as you wanted and You know hit confirm and send just as if you were buying a stock But the opposite direction and you could make that happen so again There's easy to borrow which are readily available shares that you can short any time There's hard to borrow which means there may or may not be shares available You just have to contact your broker to check with them and there is none to borrow meaning you cannot short that stock So let's say that you wanted to short a stock But you had an IRA account and remember what I said is there aren't any brokers that I am aware of out there That allow you to short stock in your IRA What if we took a look at Facebook for example, and you wanted to get short this stock? What options do you have? Well first off, let's take this stock and analyze it. This is a short stock position and what you'll see is If you look at this right here, obviously, this is the profit line And so if the stock is going down, that's when you're making profit and if it's going up that's when you're losing profits and so that's kind of the Visual graph of shorting a stock right you make money if it goes down you lose money if it goes up So let's take a look at what we can do to simulate shorting stock using options Let's just go to the options with 52 days to expiration We like to typically put on positions with 30 to 60 days So that fits right into our wheelhouse and all you have to do if you're trying to simulate Shorting options is you can sell a call and Facebook is currently trading at about a hundred and seventy six dollars So let's call it one seventy five since these strikes are five points wide So we could simply sell the call and then let's take that over to the analyze tab and Then we can come back to the trade tab and we can buy a put of the very same strike Okay, so let's take this over to the analyze tab So what you're seeing here is we are selling a call at the one seventy five strike And we are buying a put at the one seventy five strike and now look what your P&L graph looks like Almost identical to that of shorting stock, right? If the stock goes down in price, you're making money if the stock goes up in price You are losing money now the other benefit to using options versus stock is That if we just hit confirm and send on the short stock piece if you're gonna short a hundred shares of Facebook It's gonna cost you about seventy five hundred dollars almost seventy six hundred dollars in Buying power well if you buy and sell the option like I'm showing you here It's gonna cost you about thirty to forty percent less in buying capital So you're using leverage of the options to use less capital So that's one benefit the other is as I mentioned you cannot short stock in an IRA So you you might want to use options for that reason And then there are a variety of other reasons that options are a little bit more flexible to trade with than individual stock Which is beyond the scope of this video But there are a lot of different things that you can do with options that you just can't do with stocks outright to increase your probability of success So that's an example of doing it in a stock that's easy to borrow So it you know if you're not in an IRA it would be just as easy to short the stock or use the options It's it's more of a preference and an efficiency use of capital decision But going back to the stock that we looked at BHP where if we look here, it's none to borrow You can't even borrow shares of that. So shorting the stock outright isn't even an option So if you did want to get short this symbol what you would have to do is use options by you doing it exactly like we did in Facebook You can see the price is trading right about forty nine dollars. So you could simply Sell the call and we'll take that over to the analyze screen We'll go back to the trade tab and we will buy the put the exact same strike the forty nine Take that over to the analyze tab and there you go You've got a very close simulation of selling stocks short using options Remember the stock market goes up and it goes down There's no reason to limit yourself to only long positions where you benefit if the price of the stock or that market goes up You need to have these different strategies at your disposal Because there are times where you're going to want to either hedge your overall positions using short stock or short Simulated stock using options and you need to have these strategies at your disposal I hope this was helpful in helping you learn how to short stock using options. See you in the next lesson