| How to calculate ongoing short sale return |
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MarkJC
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| How to calculate ongoing short sale return |
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Hi guys, i'm having trouble calculating the ongoing return in Excel as if I was holding a short position in a stock and i'm really stumped at what i'm doing wrong.
Since it will make no sense explaining in words, I attached a picture of my excel sheet to demonstrate what is not working. To summarize, if I have a short position, I can take the final share price and the initial share price and calculate the return I would see if I had held this position short. This works.
But I should also be able to use the daily compounded returns to come up with that same number, and here is where i'm having the problem. When I run the calculations, doing a product of the daily returns to get overall return, i'm getting a totally different number. Would be really grateful if someone can find where i'm goofing up!
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Thu Feb 04, 2010 11:17 pm |
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oldguy
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Yes, going from 16 to 15.1 is a 0.9/16, or 5.625% gain on a 'short' position.
Your other calculations are not refernced back to 16, they are referenced to the previous day. You want the gain/loss referenced to your initial position, ie 16.
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Fri Feb 05, 2010 12:25 am |
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MarkJC
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But I thought I should be able to take each day's returns and manipulate them to arrive at the same answer as if I was just looking at the first and last day's share price. This works for long positions. For instance, you can test it with the excel data above, and both calculations will yield the same return, whether it's using only the first and last share price or the daily returns:
15.1/16 * 100= -5.625% loss.
Or take the daily returns of 0.9375, 1.033333, and 0.974194 and you get the same answer:
1 - (0.9375*1.033333*0.974194) = -5.625% loss
I attempted to use that same method to calculate the return from shorting, but negating the returns and multiplying them like before no longer works. How can I calculate the overall return from shorting using only the daily returns instead of the first and last day's share price?
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Fri Feb 05, 2010 11:49 pm |
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MarkJC
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thanks coaster, I didn't think to take margin requirements into account. But for the most conservative calculations, I will probably still assume that the full margin requirement is at 100%.
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Sat Feb 06, 2010 6:39 pm |
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zadvfb
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Thu Apr 26, 2018 11:24 am |
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SusanaP
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Because you do not use a forex profit calculator to know the returns of operation before operating is easier I think.
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Mon Jul 23, 2018 11:04 pm |
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Benstoke
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It could be looked at two ways: what it takes to cover (buy the shares back) at the end of the trade -- something you don't know right now; or secondly, the margin required to put the trade on in the first place.
Last edited by Benstoke on Wed Oct 13, 2021 7:21 am; edited 1 time in total |
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Mon Aug 23, 2021 11:39 am |
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vaduvala
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To calculate the margin required for a long stock purchase, multiply the number of shares x the price x the margin rate. The margin requirement for a short sale is the regular margin requirement plus 100% of the value of the security.ROI is calculated by subtracting the initial value of the investment from the final value of the investment (which equals the net return), then dividing this new number (the net return) by the cost of the investment, then finally, multiplying it by 100.
This formula, CR/1.3, calculates the market value to which the securities in a short account can rise before there is a maintenance call. For example, in a short account that has CR of 130,000, SMV of 80,000 and EQ of $50,000, the maintenance market value is $130,000/1.3 (CR/1.3) = $100,000.
There are no set rules regarding how long a short sale can last before being closed out. The lender of the shorted shares can request that the shares be returned by the investor at any time, with minimal notice, but this rarely happens in practice so long as the short seller keeps paying their margin interest.
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Thu Dec 23, 2021 11:17 am |
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