Short sellers on the New York Stock Exchange set a new record in the first half of June, amassing a total position of 17.6 billion shares. If that sounds impressive or even especially bearish, don't be fooled. In theory, at least, every one of those shares could have been shorted by traders and investors who are quite bullish on stocks. Actually, most short positions are initiated not by bears, but by institutions and floor traders seeking to extract profits from essentially riskless hedge positions. Two hedges commonly used are 'conversions' and 'reverse conversions.' Let's take a 'reversal' in Google as an example. With the stock currently trading $548 per share, you could lock in the three-sided reversal by shorting 100 shares of stock, shorting a September 550 put for $40 and buying a September 550 call for $39. If you work the numbers, you'll see that no matter what price Google is trading on September 19, when the options expire, your nominal loss on the position would be $100. Let's assume the stock is trading for exactly as much then as it is now, $548. You would have no gain or loss on the stock, but the put that you'd shorted for $40 (i.e., $4,000) would be worth $2 (i.e., $200), since the option would be $2 in-the-money. Your net gain from the sale of the short put would therefore be $3,800. But the call for which you had paid $39 (i.e., $3,900) would be worthless, so you would have lost that entire amount. Your net loss on the three-sided position, then, would be $100. If you were to work the numbers with Google trading for, say, $485 come September 19, you'd find that your net loss would still be $100. So why would anyone want to use such a
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