1. You sell short 200 shares of Apple at $100 per share. In addition to the money from the short sale, you place $10,000 of your own money in your brokerage account and no money in your account earns interest. If Apple share price rises 10%, and you buy back the 200 borrowed shares, the return on your $10,000 investment is -20%. You lose $2,000 in Apple and you invested $10,000
2. You sell short 200 shares of Apple at $100 per share. In addition to the money from the short sale, you place $10,000 of your own money in your brokerage account and no money in your account earns interest. If Apple share price falls 10%, and you buy back the 200 borrowed shares, the return on your $10,000 investment is 20%. You make $2,000 on Apple and you invested $10,000.
3. You short $50,000 worth of Apple stock and buy $50,000 worth of Microsoft stock. You place $25,000 of your own money into your account as margin and this money is invested in short-term Treasury securities earning 6% annually. One year later, Microsoft is down 8% and Apple is down 10%. You sell your Microsoft shares and buy back Apple shares to cover your short position. Your percentage return on your own money is 10%. You make $1,000 on long/short position + 6% on T-Bills.