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1.
(FINANCE) a situation in which an investor owns financial instruments (shares, bonds, financial derivatives, etc.) that will make the most money IF some other thing declines in value.

Therefore, one always has to take a short position on something in particular. A short position on gold means the investor expects gold to decline in value in the near future, and has bought various things to make money if it does.

Some ways to take a short position on X include:

(1) buying a put option on X

(2) writing a call option on X

(3) borrowing X and selling it (shorting a stock)

#3 is the classical way to take a short position. It was dangerous because a skillful trader could squeeze the shorts using a corner.
BILL: I guess you took a bath when the stock market tanked, huh?

ANA: Nope. I took a short position on all of the nine largest banks. Did rather well, thank you very much.

BIL: Sweet!
by Abu Yahya April 05, 2010
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