Value of shorted stocks

Rookie question: I'm not sure I understand the way the value of shorted stocks is computed.

Let's say I shorted one stock at 0.2000 which means 0.8000 is deducted from my cash.

I know that when I cover the stock later at, for example, 0.0500, then 0.9500 is added to my cash which gives me a profit of 0.1500.

This is all good.

What I don't understand is why, if I have one shorted stock at 0.2000, and the last price is showing as 0.2000 (i.e. no change), the value is showing as 0.8000?

In what way is this shorted stock increasing my worth by 0.8000?

Thanks,

WLB

Hi WLB,

When you short the stock you have $1 deducted from your account to cover the maximum potential loss (ie stock closes at $1 and youhave to pay that). Then you recieve $0.2000 from the person who bought your shorted stock. Therefore your net worth for the shorted stock is always $1 minus the last traded price of the stock. This is based on the idea that if you bought a stock at current market price of $0.2000, you would get your $1 back, so overall would get $1 minus $0.2000, so $0.8000.

Ahh makes sense now... I hadn't properly accounted for the dollar being returned to me when I cover.

Thanks!

WLB



Edited 1 time(s). Last edit at 02/10/2014 12:54PM by WLB.