1. AIM How can you invest smartly when stock prices are declining? DO NOW How does short selling work? SELLING SHORT AND DCA

2.  When you sell short, you are betting that the stock price will DECLINE  Instead of “Buy Low and Sell High”, you “Sell High and Buy Low”!  How do you “Sell High”?  Borrow shares at the current market price  You must have a “margin” account, which lets you to borrow  Once the price drops and you are ready to cash in, you buy shares at the current market price and “cover your short” (shares you owe)  Return = Price You Sold Them At – Price You Covered Them at SELLING SHORT

3. 1.You sell short 50 shares at $25. So you have “borrowed” $1,250 worth of shares (50 x $25). This gets deposited in your account. 2.Price drops to $20 and you cover your short by buying 50 shares at $20, which costs you $1,000. This gets deduced from your account. 3.Your total return is $1,250 - $1,000 = $250. SELLING SHORT

4. What are the potential risks of Selling Short? http://www.dailyfinance.com/2014/0 1/13/how-to-sell-stocks-short-risks/ How can you limit your potential losses? SELLING SHORT

5.  You each have sold short 100 shares of Twitter at $39.04  Come to the board and generate a random number, which indicates your Twitter stock price in 2 months. This is the price you will use to buy shares to cover your short.  Write down your number and calculate your total return (or loss) after you covered your short: RETURN = Proceeds From Initial “Sale” – Cost To Buy Shares SELLING SHORT

6.  Buy 100 shares at $10.00  Price eventually hits $12.  Profit = $200 and Rate of Return = 20%, not bad! But if I buy the same 100 shares at $10.00 each & the price drops to $8, I buy 50 more. What is my total average cost per share?  Original purchase: 100 shares at $10 = $1,000  New purchase: 50 shares at $8 = $400  Average purchase = $1,400/150 = $9.33 My NEW rate of return when the stock hits $12 is: ($12 – 9.33)/9.33 = 28.6%! Even better! DOLLAR COST AVERAGING

7.  Now imagine you have bought 100 shares of Twitter for $39.04  Come to the board and generate 2 random numbers and write them down. These are your two new Twitter share prices.  Assume you bought an additional 50 shares at the 1 st price and an additional 50 shares at the 2 nd price.  Calculate your AVERAGE share cost.  If the prices rises back to $37, how much return per share have you made? DOLLAR COST AVERAGING