Definition of Short sale, short position

Short sale, short position

The sale of a security or financial instrument not
owned, in anticipation of a price decline and making a profit by purchasing the
instrument later at a lower price, and then delivering the instrument to
complete the sale. See Long position.

Best-efforts sale

A method of securities distribution/ underwriting in which the securities firm agrees to sell
as much of the offering as possible and return any unsold shares to the issuer. As opposed to a guaranteed or
fixed price sale, where the underwriter agrees to sell a specific number of shares (with the securities firm
holding any unsold shares in its own account if necessary).

Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.

Clear a position

To eliminate a long or short position, leaving no ownership or obligation.

Closing sale

A transaction in which the seller's intention is to reduce or eliminate a long position in a stock,
or a given series of options.

Composition

Voluntary arrangement to restructure a firm's debt, under which payment is reduced.

Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.

Days' sales outstanding

Average collection period.

Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.

Foreign Sales Corporation (FSC)

A special type of corporation created by the Tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.

Forward sale

A method for hedging price risk which involves an agreement between a lender and an investor
to sell particular kinds of loans at a specified price and future time.

Installment sale

The sale of an asset in exchange for a specified series of payments (the installments).

Limitation on merger, consolidation, or sale

A bond covenant that restricts in some way a firm's ability to
merge or consolidate with another firm.

Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.

Long position

An options position where a person has executed one or more option trades where the net
result is that they are an "owner" or holder of options (i. e. the number of contracts bought exceeds the
number of contracts sold).
Occurs when an individual owns securities. An owner of 1,000 shares of stock is said to be "Long the stock."
Related: short position

Limitation on asset dispositions

A bond covenant that restricts in some way a firm's ability to sell major assets.

Modigliani and Miller Proposition I

A proposition by Modigliani and Miller which states that a firm cannot
change the total value of its outstanding securities by changing its capital structure proportions. Also called
the irrelevance proposition.

Modigliani and Miller Proposition II

A proposition by Modigliani and Miller which states that the cost of
equity is a linear function of the firm's debt-equity-ratio.

Negotiated sale

Situation in which the terms of an offering are determined by negotiation between the issuer
and the underwriter rather than through competitive bidding by underwriting groups.

Open position

A net long or short position whose value will change with a change in prices.

Opening sale

A transaction in which the seller's intention is to create or increase a short position in a given
series of options.

Position

A market commitment; the number of contracts bought or sold for which no offsetting transaction
has been entered into. The buyer of a commodity is said to have a long position and the seller of a commodity
is said to have a short position . Related: open contracts

Position diagram

Diagram showing the possible payoffs from a derivative investment.

Price/sales ratio (PS Ratio)

Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.

Purchase and sale

A method of securities distribution in which the securities firm purchases the securities
from the issuer for its own account at a stated price and then resells them, as contrasted with a best-efforts sale.

Sale and lease-back

sale of an existing asset to a financial institution that then leases it back to the user.
Related: lease.

Sales charge

The fee charged by a mutual fund when purchasing shares, usually payable as a commission to
marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It
represents the difference, if any, between the share purchase price and the share net asset value.

Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.

Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.

Selling short

If an investor thinks the price of a stock is going down, the investor could borrow the stock from
a broker and sell it. Eventually, the investor must buy the stock back on the open market. For instance, you
borrow 1000 shares of XYZ on July 1 and sell it for $8 per share. Then, on Aug 1, you purchase 1000 shares
of XYZ at $7 per share. You've made $1000 (less commissions and other fees) by selling short.

Short

One who has sold a contract to establish a market position and who has not yet closed out this position
through an offsetting purchase; the opposite of a long position. Related: Long.

Short bonds

Bonds with short current maturities.

Short book

See: unmatched book.

Short hedge

The sale of a futures contract(s) to eliminate or lessen the possible decline in value ownership of
an approximately equal amount of the actual financial instrument or physical commodity.
Related: Long hedge.

Short interest

This is the total number of shares of a security that investors have borrowed, then sold in the
hope that the security will fall in value. An investor then buys back the shares and pockets the difference as profit.

Short position

Occurs when a person sells stocks he or she does not yet own. Shares must be borrowed,
before the sale, to make "good delivery" to the buyer. Eventually, the shares must be bought to close out the
transaction. This technique is used when an investor believes the stock price will go down.

Short sale

Selling a security that the seller does not own but is committed to repurchasing eventually. It is
used to capitalize on an expected decline in the security's price.

Short selling

Establishing a market position by selling a security one does not own in anticipation of the price
of that security falling.

Short squeeze

A situation in which a lack of supply tends to force prices upward.

Short straddle

A straddle in which one put and one call are sold.

Shortage cost

Costs that fall with increases in the level of investment in current assets.

Shortfall risk

The risk of falling short of any investment target.

Short-run operating activities

Events and decisions concerning the short-term finance of a firm, such as
how much inventory to order and whether to offer cash terms or credit terms to customers.

Short-term financial plan

A financial plan that covers the coming fiscal year.

Short-term investment services

Services that assist firms in making short-term investments.

Short-term solvency ratios

Ratios used to judge the adequacy of liquid assets for meeting short-term
obligations as they come due, including
1) the current ratio,
2) the acid-test ratio,
3) the inventory turnover ratio, and
4) the accounts receivable turnover ratio.

Short-term tax exempts

short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.

Substitute sale

A method for hedging price risk that utilizes debt-market instruments, such as interest rate
futures, or that involves selling borrowed securities as the primary assets.

Swap sale

Also called a swap assignment, a transaction that ends one counterparty's role in an interest rate
swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Take a position

To buy or sell short; that is, to have some amount that is owned or owed on an asset or
derivative security.

Terms of sale

Conditions on which a firm proposes to sell its goods services for cash or credit.

Wholesale mortgage banking

The purchasing of loans originated by others, with the servicing rights
released to the buyer.

NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)

NUMBER OF DAYS SALES IN RECEIVABLES

(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.

RATIO OF NET INCOME TO NET SALES

A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(Net income) / (Net sales)

RATIO OF NET SALES TO NET INCOME

A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(Net sales) / (Net income)

Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.

Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.

Sales

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.

Sales discounts

A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.

Sales journal

A journal used to record the transactions that result in a credit to sales.

Sales returns

A contra account that offsets revenue. It represents the amount of sales made that were later returned.

return on sales

This ratio equals net income divided by sales revenue.

sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company

sales value at split-off allocation

a method of assigning joint cost to joint products that uses the relative sales values of the products at the split-off point as the proration basis; use of this method requires that all joint products
are salable at the split-off point

Long position

Outright ownership of a security or financial instrument. The
owner expects the price to rise in order to make a profit on some future sale.

Short rate

The annualized one-period interest rate.

Gross sales

The total sales recorded prior to sales discounts and returns.

Net sales

Total revenue, less the cost of sales returns, allowances, and discounts.

Sales allowance

A reduction in a price that is allowed by the seller, due to a problem
with the sold product or service.

Sales discount

A reduction in the price of a product or service that is offered by the
seller in exchange for early payment by the buyer.

Sales value at split-off

A cost allocation methodology that allocates joint costs to joint
products in proportion to their relative sales values at the split-off point.

long position

Purchase of an investment.

MM dividend-irrelevance proposition

Theory that under ideal conditions, the value of the firm is unaffected by dividend policy.

MM's proposition I (debt irrelevance proposition)

The value of a firm is unaffected by its capital structure.

MM's proposition II

The required rate of return on equity increases as the firm’s debt-equity ratio increases.

percentage of sales models

Planning model in which sales forecasts are the driving variables and most other variables are
proportional to sales.

shortage costs

Costs incurred from shortages in current assets.

short position

The sale of an investment, particularly by someone who does not yet own it.

terms of sale

Credit, discount, and payment terms offered on a sale.

Fallacy of Composition

The incorrect conclusion that something that is true for an individual is necessarily true for the economy as a whole.

Policy-Ineffectiveness Proposition

Theory that anticipated policy has no effect on output.

Sales Tax

A tax levied as a percentage of retail sales.

Available-for-Sale Security

A debt or equity security not classified as a held-to-maturity security or a trading security. Can be classified as a current or noncurrent investment depending on the intended holding period.

Gain-on-Sale Accounting

Up-front gain recognized from the securitization and sale of a pool
of loans. Profit is recorded for the excess of the sales price and the present value of the estimated
interest income that is expected to be received on the loans above the amounts funded on the loans
and the present value of the interest agreed to be paid to the buyers of the loan-backed securities.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.

Sales-type Lease

Lease accounting used by a manufacturer who is also a lessor. Up-front gross
profit is recorded for the excess of the present value of the lease payments to be received across
a lease term over the cost to manufacture the leased equipment. Interest income also is recognized
on the lease receivable as it is earned over the lease term.

Deemed Disposition

Under certain circumstances, taxation rules assume that a transfer of property has occurred, even though there has not been an actual purchase or sale. This could happen upon death or transfer of ownership.

Conditional Sale

A type of agreement to sell whereby a seller retains title to goods sold and delivered to a purchaser until full payment has been made.

Conditional Sale Agreement

An agreement entered into between a conditional buyer and a conditional seller setting out the terms under which goods change hands.

Financial Position

Status of a firm's assets, liabilities, and equity accounts as of a certain time, as shown in its financial statement.

Sale and Leaseback

An agreement in which the owner of a property sells that property to a person or institution and then leases it back again for an agreed period and rental.

point of sale (POS)

The terminal at which a customer uses his/her debit card to make a direct payment transaction. See also Interac Direct Payment.

Long

One who has bought a contract(s) to establish a market position and who has not yet closed out this
position through an offsetting sale; the opposite of short.

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