Weak Shorts

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Weak shorts refers to investors that quickly exit a short position at the first hint of an increase in the stock price. Investors that short a stock expect the stock price to decrease; however, when this does not happen, weak shorts will be the first investors to exit their positions to avoid sustaining greater losses.

Example

  • An investor shorts a stock at $10 with the expectation that the stock will go down. The next day, the stock trades upwards to $11 and the weak shorts exit their positions with a $1 loss. In ensuing days, the stock trades even higher and the weak shorts have successfully limited their losses.
  • An investor shorts a stock at $10 with the expectation that the stock will go down. The next day, the stock trades upwards to $11 and the weak shorts exit their positions with a $1 loss. In ensuing days, the stock trades lower and reaches $9. In this case, the weak shorts have not had the patience to wait out their initial position and have sacrificed whatever gains they would have had on the position.
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