You believe that Rose, Inc., stock is going to fall and you’ve decided to sell 3

Question

You believe that Rose, Inc., stock is going to fall and you’ve decided to sell 300 shares short. If the current share price is $89, construct the equity account balance sheet for this trade. Assume the initial margin is 100 percent. (Input all amounts as positive values. Omit the "$" sign in your response.)

You believe that Rose, Inc., stock is going to fall and you’ve decided to sell 300 shares short. If the current share price is $89, construct the equity account balance sheet for this trade. Assume the initial margin is 100 percent. (Input all amounts as positive values. Omit the "$" sign in your response.)

Explanation / Answer

Shorting strategy is getting the required number on shares on loan and sell in the market. Once the price of the stock falls, buy the shares and return the loan

Since stock is sold at $89, proceeds from sale = 89 * 300 = 26,700

Since margin required is 100%, initial margin deposit = 2670 * 100% = 26,700

Similarly Short position = 26,700 and since the amount invested in the deal is 26,700, equity would be 26,700

So balance sheet would be as follows

Assets Liabilities Proceeds from sale             26,700 Short Position              26,700 Initial Margin Deposit             26,700 Account Equity              26,700 Total             53,400 Total              53,400

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