In a Short Sale, what happens to the stock?

In a short sale, the fundamental process involves borrowing shares of stock from a broker or financial institution to sell them in the market, with the intention of buying them back later at a lower price.

When the stock is borrowed, it is then delivered to the buyer who purchases it during the short sale transaction. This practice allows the seller to capitalize on the expectation that the stock's price will decrease. By selling high and then aiming to buy back low in the future, the short seller hopes to profit from the difference between the selling price and the repurchase price of the stock.

The other options do not accurately reflect the mechanics of a short sale. For instance, in a short sale, the stock is not kept indefinitely by the seller until prices rise, nor is it necessarily purchased outright before the transaction takes place. Understanding this process is crucial as it highlights the inherent risks and rewards involved in short selling, which are essential concepts in trading and investment strategies.