You want to short Pravit Gaming at Rs 500. Borrow costs 12% a year. You think there is a 60% chance it falls to Rs 350 within a year and a 40% chance it rises to Rs 700. Is the short worth doing, and what borrow cost would make it work?

No: a good thesis, a bad short. The expected gain is only Rs 10 a share, and a year of borrow at 12% costs Rs 60, so the trade expects to lose Rs 50. It breaks even only if borrow is below 2% a year, or if the fall comes within about 2 months. You would need to be 74% sure of the fall, not 60%. Express the view through puts, a pair or a smaller, catalyst-timed short instead.

Lay out the tree. A fall to Rs 350 earns Rs 150 a share with 60% chance; a rise to Rs 700 loses Rs 200 with 40% chance; the expected gain is Rs 10, 2% of the price. Notice the asymmetry. The downside for a short is larger than the upside here, because the stock can rise further than it can fall, and a short that goes against you grows as a share of the book, which is why shorts are usually sized smaller than longs with the same conviction.

It comes off both branches, whatever happens. 12% a year on Rs 500 is Rs 60 a share, six times the Rs 10 expected gain, so the short now expects to lose Rs 50. It is like renting a shop for a year at Rs 60,000 to sell stock you expect to make Rs 10,000 on: the idea can be right and the rent still loses you money. Crowded shorts are exactly the names where borrow costThe fee paid to the lender of shares that are sold short, quoted as a yearly percentage of their value; it rises when many investors want to short the same stock. is highest, because many funds share your thesis.

Solve for each lever. Borrow must be below 2% a year, Rs 10 on Rs 500, for the trade to break even over a year. Or the fall must come faster: at Rs 5 a month of borrow, the Rs 10 of edge pays for about 2 months, so a short around a result or a regulatory decision due in weeks can work where a year-long hold cannot. Or you must be more confident: breakeven probability rises from 57.1% without borrow to 74.3% with it.

Three ways, each with its own cost. A put option caps the loss if the stock rises to Rs 700, but on a crowded short the puts are expensive for the same reason the borrow is. A pair, short Pravit against a long in a gaming peer that the regulation does not hit, keeps the thesis and may be cheaper to carry, though the borrow on Pravit remains. Or a smaller short timed to the catalyst, held for weeks rather than a year. The answer the PM wants is that the view can be right and still not pay for its own carry.