The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone, Kirk here again at optionalpha.com and welcome back to the daily call. Today, we are going to be talking about short covering and dead cat bounces. And no, we do not harm animals on this podcast, nor in trading. But the dead cat bounce is a concept that's very, very often used in describing markets that selloff quickly and then rebound quickly. Let’s cover short covering first. Short covering just basically is the general concept of closing out a position where you’re short. You’re covering your short by buying back the stock. And so, this would generally happen if you’re trading stock and you sell stock to begin with. You can do that, by the way. Most people actually don't know that that can be an entry position. You can sell something you don't own. But you have the obligation obviously to cover that position by buying back the stock later hopefully at a lower price. If you think that a stock is going to go lower, you might sell stock at $100 hoping to cover or buy the stock back at say $90 an