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How to Sell Short (And Why? And When?)

Perhaps you've read about the ban on short selling. Many believe it is one of the main causes of the current financial crisis and the fall of Bear Stearns, Lehman Brothers, and AIG. But what exactly is "short selling"? How and when can you do it? And why is it so frowned upon?

When to sell short. You sell short when you think that a certain stock price is going to fall, and you'd like to profit from that premonition.

How to sell short. Say you know something about a certain stock that nobody else does. Let's use Apple. You were a tester for the new iPhone, which you found malfunctioned. You know that upon release of the phone tomorrow, Apple's stock price will fall. You want to profit off of this, but you don't own any AAPL shares. Or you do, but not as many as you'd like.

So you borrow AAPL stock from someone else's account. Let's call him Joe. Your broker can help you do this "“ take 100 AAPL shares out of his client, Joe's, account (without Joe knowing about it) and give them to you. You sell those 100 shares at $140.90 each, today's share price. The next day the new iPhone comes out, it bombs, and as you thought, shares fall to $100. (Dramatic, yes, but go with it). The next week, you think Apple's share price will rise, so you buy back those 100 shares at $100 and give them back to Joe's account. You've just made a sweet $4,090 in profit. To sum it up: you borrow shares of stock from someone else's account. Sell them. Then buy them back at a (hopefully) lower price and return them to the account from which you borrowed.

Why sell short? One reason, as described above, is to speculate. If you think a stock or the market as a whole is overpriced, you can make money off of it. A second reason is to hedge "“ to protect yourself from unexpected losses. That is, if you're long AAPL but want to take a little less risk, you might want to short another security in the computer industry, which includes risk inherent to Apple.

You probably shouldn't sell short. Now I'm not recommending you actually do this, unless you are well versed in the markets. It's pretty risky. If Joe decides he wants to do something with these shares, he can call you on it. At that moment you'll have to cover, which means you'll have to buy back the shares you borrowed from him and put them back into his account. So "“ say AAPL price actually rose and you were called when it was $160.90. Then you would have lost $2,000.

Even if you want to, right now you can't. I also don't recommend you do this, because right now you can't. The SEC just put a ban on short-selling. After allegations that short sellers have led to the failures of Lehman, Bear, and the like, the SEC stepped in last Thursday and issued a temporary ban on short selling for 799 financial stocks. It's alleged that short sellers often use false information and conspire to drive down the price of the stock.

This isn't the first time we've placed a ban on short sellers. Short sellers were blamed for the Wall Street crash of 1929. Congress reacted by enacting a law, referred to as the "uptick rule," which banned sellers from shorting during a downturn. Sellers could not short a share when the stock was selling for lower than the previous trade. This kept short sellers from adding downward momentum of a stock when it was already sharply declining. After almost 80 years, the ban was lifted in 2007, when the SEC determined the markets were orderly enough that they didn't need the restriction (this is despite the fact that just two years prior in 2005, the SEC sought to restrict short-selling outright).

The history of short-selling takes us back earlier than the Great Depression, however. In 1609, Isaac Le Maire, a Dutch trader, made the first short. He was concerned about threats of attack by English ships and shorted shares of the Dutch East India Company, the first multinational corporation and the first company to issue stock. The Dutch stock exchange did not approve of Le Maire's actions and temporarily banned short-selling.

Later, during the Dutch depression of the 1630s, speculators saw short-selling as a means to profit off of the economic downturn. The English reacted by banning short-selling completely.

Be sure to read more of what Diana learned today here.

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Martin Wittfooth
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Art
The Cat Art Show Is Coming Back to Los Angeles in June
Martin Wittfooth
Martin Wittfooth

After dazzling cat and art lovers alike in 2014 and again in 2016, the Cat Art Show is ready to land in Los Angeles for a third time. The June exhibition, dubbed Cat Art Show 3: The Sequel Returns Again, will feature feline-centric works from such artists as Mark Ryden, Ellen von Unwerth, and Marion Peck.

Like past shows, this one will explore cats through a variety of themes and media. “The enigmatic feline has been a source of artistic inspiration for thousands of years,” the show's creator and curator Susan Michals said in a press release. “One moment they can be a best friend, the next, an antagonist. They are the perfect subject matter, and works of art, all by themselves.”

While some artists have chosen straightforward interpretations of the starring subject, others are using cats as a springboard into topics like gender, politics, and social media. The sculpture, paintings, and photographs on display will be available to purchase, with prices ranging from $300 to $150,000.

Over 9000 visitors are expected to stop into the Think Tank Gallery in Los Angeles during the show's run from June 14 to June 24. Tickets to the show normally cost $5, with a portion of the proceeds benefiting a cat charity, and admission will be free for everyone on Wednesday, June 20. Check out a few of the works below.

Man in Garfield mask holding cat.
Tiffany Sage

Painting of kitten.
Brandi Milne

Art work of cat in tree.
Kathy Taselitz

Painting of white cat.
Rose Freymuth-Frazier

A cat with no eyes.
Rich Hardcastle

Painting of a cat on a stool.
Vanessa Stockard

Sculpture of pink cat.
Scott Hove

Painting of cat.
Yael Hoenig
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20th Century Fox Home Entertainment
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entertainment
11 Magical Facts About Willow
20th Century Fox Home Entertainment
20th Century Fox Home Entertainment

Five years after the release of Return of the Jedi (1983) and four years after Indiana Jones and the Temple of Doom (1984), George Lucas gave audiences the story for another film about an unlikely hero on an epic journey, but this time he had three Magic Acorns and a taller friend instead of a whip and gun to help him along. Willow (1988) was directed by Ron Howard and starred former Ewok and future Leprechaun, Warwick Davis.

Over the past few decades, Willow—which was released 30 years ago today—has become a cult classic that's been passed down from generation to generation. Before you sit down to explore that world again (or for the first time), here are 11 things you might not have know about Willow.

1. IT WAS WRITTEN FOR WARWICK DAVIS.

In an interview with The A.V. Club, Warwick Davis revealed that George Lucas first mentioned the idea for the film to Davis’s mother during the filming of one of the Ewok TV specials in 1983, in which he was reprising his role as Wicket. Lucas had been developing the idea for more than a decade at that point, but working with Davis on Return of the Jedi helped him realize the vision. “George just simply said that he had this idea, and he was writing this story, with me in mind,” Davis said. “He didn't say at that time that it was going to be called Willow. He said, 'It's not for quite yet; it's for a few years ahead, when Warwick is a bit older.'" The role was Davis’s first time not wearing a mask or costume on screen.

2. IT WAS ORIGINALLY CALLED MUNCHKINS.

Five years after he mentioned the idea, Lucas was ready to make his film with Ron Howard directing and a then-17-year-old Davis as the lead. The original title was presumably inspired by the characters from L. Frank Baum's The Wonderful Wizard of Oz, and the subsequent Victor Fleming film.

3. IT WAS CRITICIZED FOR BEING A COPY OF STAR WARS.

Having thought of the two worlds simultaneously, Lucas may have cribbed some of his own work and other well-known stories a little too much for Willow, and some critics noticed. “Without anything like [Star Wars’s] eager, enthusiastic tone, and indeed with an understandable weariness, Willow recapitulates images from Snow White, The Wizard of Oz, Gulliver's Travels, Mad Max, Peter Pan, Star Wars itself, The Hobbit saga, Japanese monster films of the 1950s, the Bible, and a million fairy tales," wrote Janet Maslin of The New York Times. "One tiny figure combines the best attributes of Tinkerbell, the Good Witch Glinda, and the White Rock Girl.”

Later in her review, Maslin continued to point out the similarities between the two films: “When the sorcerer tells Willow to follow his heart, he becomes the Obi-Wan Kenobi of a film that also has its Darth Vader, R2-D2, C-3P0 and Princess Leia stand-ins. Much energy has gone into the creation of their names, some of which (General Kael) have recognizable sources and others (Burglekutt, Cherlindrea, Airk) have only tongue-twisting in mind. Not even the names have anything like Star Wars-level staying power.”

4. IT WAS THE LARGEST CASTING CALL FOR LITTLE PEOPLE IN MOVIE HISTORY.

Lucas has previously cast several little people for roles in Return of the Jedi, and there were more than 100 actors hired to portray Munchkins in The Wizard of Oz. But, according to Davis, the casting call for Willow was the largest ever at the time with between 225 and 240 actors hired for the film.

5. THE DEATH DOGS WERE REAL DOGS IN COSTUME.

The big bad in the film, Bavmorda, has demon dogs that terrorize Willow’s village. The dogs are more boar-like than canine, but they were portrayed by Rottweilers. The prop team outfitted the dogs with rubber masks and used animatronic heads for close-up scenes.

6. IT WAS THE FIRST USE OF MORPHING IN A FILM.

While trying to use magic to turn an animal back into a human, Willow fails several times before eventually getting it right, but he does succeed in turning the animal into another animal, which is shown in stages. To achieve this, the visual effects teamed used a technique known as "morphing."

The film’s visual effects supervisor, Dennis Muren of Industrial Light & Magic, explained the technique to The Telegraph:

The way things had been up till that time, if a character had to change at some way from a dog into a person or something like that it could be done with a series of mechanical props. You would have to cut away to a person watching it, and then cut back to another prop which is pushing the ears out, for example, so it didn't look fake ... we shot five different pieces of film, of a goat, an ostrich, a tiger, a tortoise, and a woman and had one actually change into the shape of the other one without having to cut away. The technique is much more realistic because the cuts are done for dramatic reasons, rather than to stop it from looking bad.”

7. THE STORY WAS CONTINUED IN SEVERAL NOVELS.

Willow has yet to receive a sequel, but fans of the story can return to the world in a trilogy of books that author Chris Claremont wrote in collaboration with Lucas between 1995 and 2000. According to the Amazon synopsis of Shadow Moon, the first book picks up 13 years after the events of the film, and baby Elora Danan’s friendless upbringing has turned her into a “spoiled brat who seemingly takes joy in making miserable the lives around her. The fate of the Great Realms rests in her hands, and she couldn't care less. Only a stranger can lead her to her destiny.”

8. THERE IS A MISSING SCENE CONCERNING THE MAGIC ACORNS.

Hardcore fans of the film have noticed that there is a continuity error that involves the Magic Acorns Willow was given by the High Aldwin. During an interview with The Empire Podcast, Davis explained that in a scene near the end of the film, he throws a second acorn and is inexplicably out after having only used two of the three Magic Acorns he had been given earlier in the film. Included in the Blu-ray release is the cut scene, in which Willow uses an acorn (his second) in a boat during a storm and accidentally turns the boat to stone. Davis says that his hair is wet in the next scene that did make it into the original version of the film, but the acorn is never referenced.

9. JOHN CUSACK AUDITIONED FOR THE PART OF MADMARTIGAN.

Val Kilmer in 'Willow' (1988)
20th Century Fox Home Entertainment

Val Kilmer famously played the role of the reluctant hero two years after played Iceman in Top Gun (1986), but he was not the only big name to audition for the role. Davis revealed in a commentary track that he once read with John Cusack, who in 1987 had already starred in Sixteen Candles (1984), Stand by Me (1986), and Hot Pursuit (1987).

10. THERE IS A NOD TO SISKEL AND EBERT.

During a battle scene later in the film, Willow and his compatriots have to fight a two-headed beast outside of the castle. The name of the stop motion beast is the Eborsisk, which is a combination of the names of famed film critics, Roger Ebert and Gene Siskel.

11. THE BABY NEVER ACTED AGAIN.

A scene from 'Willow' (1988)
20th Century Fox Home Entertainment

As is the case with most shows and films, the role of the baby Elora was played by twins, in this case Kate and Ruth Greenfield. The IMDb pages for both actresses only has the one credit. In 2007, Davis shared a picture of him posing with a woman named Laura Hopkirk, who said that she played the baby for the scenes shot in New Zealand, but she is not credited online.

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