Excursus: Short-selling strategy - Exercise 2 Imagine you are a short-seller and
ID: 2618397 • Letter: E
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Excursus: Short-selling strategy - Exercise 2 Imagine you are a short-seller and you borrow 1,500 stocks of Deutsche Bank from a broker for six month. The broker demands the current stock price for each stock (13.01) and a risk premium of 1 per stock. Your plan is to sell the borrowed stocks at a level of 13,01 per stock and buy them back (cheaper) in six month to satisfy the broker. The stock price in in six months is (a) 9,87 and (b) 14,50 Calculate the returns from this short-selling strategy for scenario (a) and scenario (b)! Explain the results!Explanation / Answer
a) total premium paid = 1500
gain = (13.01 - 9.87)*1500 - 1500 = 3,210
b) scenario B
Total loss = (14.50 - 13.01)*1500 + 1500 = 3,600
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