Question about stock market
Can somebody explain in layman's terms exactly how Vitus made all the money with his insider information? I didn't quite catch all that.
shareHe shorted the company's stocks meaning he borrowed the shares from the brokerage house and sold them. When the price of the stocks dropped he bought them back thus earning a huge profit. Here's how the transaction would have happened if Phonaxis stock was selling at $10 per share before the price dropped to $1:
Borrowed from brokerage and sold short 1000 shares at $10 = $10,000
Bought back and returned 1000 shares to brokerage at $1 = $1,000
Profit = $9,000
He might have also had a "put option" on the stocks which give the buyer the right, but not the obligation, to sell an underlying asset at the strike price.
Oh sweet mystery of life at last I have found yuuuuuu
Thank you!!! My faith in the intelligence of IMDb posters has been restored. I may have to reread your post 2 or 3 times to really get it, but I hopelessly in the dark before your answer.
I too will have to reread and try to understand. How can you borrow stocks and then sell them?
PS -- wasn't this illegal because the kid had insider knowledge and the grandfather was the father of person who benefitted?
Very very enjoyable movie!
Selling short is a quick way to make millions if you can see into the future or if you have inside information. Basically you sell something you haven't bought, then you buy something. It's timing, and it's risky in the extreme. If you are wrong and the stock goes up, you can bleed money. Brokerage firms do not advertise this because it's an insider thing, and also if you go broke the bankruptcy rules do not benefit the creditor. The Vitus scenario is entirely credible, but the critical part was when Grandfather put up the security. The secret to Vitus is that he was not only a musical and performance genius but a polymath and a 180+ IQ who could intuitively absorb the essence of a situation and find the out-of-the-box answer.
I love this movie; bought it from Switzerland and got a Region 2 player.
I think Vitus' first transaction was probably illegal but made in the name of the grandfather who was dead by the time anyone would find out. The son of the owner, who quit, could possible make a stink about it claiming Vitus' father must have told his father the stock was going to go belly up.
Its called insider trading and got Martha Stewart sent to jail by a prosector who wanted publicity. Its pretty common but hard to prove unless you bring out the heavy guns and pound an admission out of someone.
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