Question
Assume that an investor decides to Short sell one million shares of GE @ 14.00. Thinking the stock price will fall to $9.00, on October
Assume that an investor decides to "Short sell" one million shares of GE @ 14.00. Thinking the stock price will fall to $9.00, on October 31, 2018. What does the investor have to do to set up the transaction with the broker? Morgan Stanley? Describe all the steps including the margin requirements for the investor and Morgan Stanley? What is the difference between the initial margin and the maintenance margin? What sort of margin does Morgan Stanley have to respect between itself and the market? Where do the shares for the short sell come from? If the investor is correct , how much will they make on the short sell? Exclude commisions and assume maintenance margin is 30% intial margin is 50%.
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