Hacker News Reader

Comment by arcticfox | Hacker News Reader

> Betting against it is doing business with the company.

What do you mean? I struggle to understand how betting against a company is "doing business" with them, it seems even less like "doing business" than having no relationship at all. You are actively signaling you expect them to fail.

View on HN

I think 'with' was the wrong word here. Betting against a company is being in business around the company. Meaning you still trust the business, just trust it enough to fail. You can't not trust something and at the same time bet against it. You must trust one of the two if you want to be involved with the company.

I don't think you're trusting the company when you bet against it. You're trusting the stock market and brokerage you're using to do the short.

If the company completely disappears tomorrow, your short will be profitable.

Well, then you couldn't cover your short position.

Why would you need to? Who wants it back?

Nobody, but you would continue paying fees on your short position and there would be no liquidity to close it out.

A simple Google search indicates that you often don't need to cover a short if a company is delisted, and if it's not delisted then you can always offer over the current value (even if the current value is zero) to get some of the worthless stock, so I don't see how covering the short if the company implodes is a problem.

Unless you have expertise that it's not that simple? Or a source saying otherwise? (Not an attempt to be snide, but an honest opening for counter evidence, I'm not an expert in this).

In some markets, such as Hong Kong, instead of being delisted, suspected frauds are often halted (the stock cannot be traded). So you might end up paying the borrow fee for years, even though you were right about the company being a fraud.

See https://www.reuters.com/article/muddy-waters-asia-short-sell...

If a company disappears tomorrow, how would you realize the gains on the short? If there is no liquid stock to trade, they're just paper gains. You'd have to wait until legal proceedings end.

What you are betting on in a short position is for the company to continue to exist, but at a lower valuation.

My naive understanding: In a short you borrow then sell immediately. If the company disappears you keep the money from the sale (which you already made) and never have to return what you borrowed.

I agree with you 99.8%. I think there would be a clause in any short contract where if you were unable to provide the stock at the end then you would be liable to pay the cash equivalent. If the stock had "gone to the moon" you would be bankrupt but if the stock had gone to zero then your payment would be zero (or maybe miniscule)

There is no such clause, and yes you would have to figure out how to obtain the delisted stock from other holders (who are generally not friendly towards you).

Hindenburg specialise in doing this. They know the endgame better than anyone. You can guarantee they have a plan which will result in them getting paid off if their short thesis is correct.

Reply on news.ycombinator.com