posted on Oct, 1 2011 @ 07:49 AM
Originally posted by paulmasoner
Personally I only understand enough about this aspect of trading to think that, assuming this is legitimate, something is very wrong as I believe the
norm would be in the neighborhood of 20,000 contracts. Not well over 2 million.
Very right, you are... The thing with shorting (for those who don't know) is that the value of your trade goes up if the market goes down. Basically
what happens is that you "borrow" someone's stock, sell it, and then have to buy it back at a later date. If you short sell a stock at $50, and it
drops to $30 when you buy it back, then you just made a $20 profit per share. But shorting is very risky as you can lose more than you put in. If you
short sell a stock a $50 and the value goes to $200, you just lost $150 per share, 3x what you put in. So, to see a large increase of shorts is very
pessimistic for the market.
However, I'm not sure I agree with the assessment to buy gold and silver (at least not now). See, if the market tanks, the value of the dollar would
skyrocket (they have an inverse relationship), making the value of gold & silver plummet also. If you want to buy now, then do so, but you could
potentially pick it up at a lower price later. Or, the price of gold & silver could skyrocket also. It really depends on how investors react, if they
flock to the dollar as safety, or put their funds in hard assets like gold & silver.