“That’s the work of Dimitri & Clark, and Weeks & Bond,” whispered Coggswell. “My partner has sent me word that those two firms are doing the selling for Justin Bolton. He’ll sell, through his brokers, a hundred thousand shares short in the next hour, if need be, to keep the downward course of the stock in motion. Ah, what did I tell you?”
Ten thousand more shares of P. & Y. had gone at 65½.
“He’s a reckless bear, that fellow, Bolton!” ground out Coggswell, between his teeth. “He’s selling short at a furious rate. Mr. Delavan, your enemy, Bolton, expects to close your interests out this forenoon. If he can bear the stock low enough he’ll begin to buy in for his own account, as well as to cover his sales. If he can only keep this going for a while he’ll control the P. & Y. through his bona-fide buyings of the stock.”
Francis Delavan merely smiled, and Tom Halstead, looking covertly at him, admired the difference between his employer and Eben Moddridge.
A “bear” is one who is trying to lower the selling price of a stock. Often, in order to accomplish this, the “bear” “sells short.” That is, he offers to sell large blocks of the stock in question, at a lower figure than the market price. This “short operator,” as he is called, does not actually own the stock that he sells, but he hopes to drive the price of the stock still lower, and thus be able to buy and fill his sale at a lower price than he has made the sale for.
When a stock is headed downward in price, the offer of another large block at a lower price than yet offered has a strong tendency to force the price still lower, for scared investors who really own large blocks of the stock may become panic-stricken and close out their holdings of that particular stock at any price they can obtain.
Thus, a “short operator” may offer, in a falling market, ten thousand shares of a certain stock at 67. If he makes a sale at that price the fact may induce some real owner of stock to offer his holding of ten thousand shares to be sold at the best price offered, say 65. The “short operator,” who has just disposed of ten thousand shares at 67, but does not possess those shares, may be able to buy back again enough shares at 65, which under the terms of his sale, he has disposed of at 67. Thus, he has cleared two dollars a share, or $20,000 in all, by the operation. If the “short operator” who sells at 67 is able to cover his sales by buying at the still lower price of 63, his profits would be $40,000. But if our “short operator” buys at 67, and then the market rallies, it may be that the “short” cannot buy lower than 71. Having made his sale, he must fill the order, anyway, and thus he would lose $40,000.
If a “short” sells stock he does not own, and a sudden rally in that stock carries the stock up so high that he has not money enough to make good his sales, then he is ruined and becomes a bankrupt.
If a “bear” sells short, and then the stock continues to drop and drop in price, it is a happy day for that “bear.” On this Monday morning Justin Bolton, though not yet actually present, but operating through brokers whom he instructed by telephone, was prepared to sell short at a furious rate. First of all, Bolton’s purpose was to “bear” down P. & Y. to a point where he could buy all the stock he wanted for himself, and enough more to cover his “short orders” at a profit.