Question for those who have seen Casino Royale (the new James Bond film)?

Question

I suggest not reading any further if you are worried about plot spoilers.

My question is about how exactly Le Chiffre planned to make his money. I'm talking about the original plan, not the poker game. Of course I can easily understand that blowing up the plane would cause the company's stock to crash. But how can anyone make money on a falling stock? If you recall, as soon as he got all the cash from the terrorist group, the first thing he did was to call up someone and tell them to SELL all his stock in the aircraft company. If he already sold his stock, then why would even care what happened to the company? And if he still owned it, he would stand to lose big time.

So it comes down the question, how in the world can someone profit from a crashed stock?

Answer 1

Best Answer - Chosen by Asker

He would short sell the stock.

Basically, he would borrow X number of shares of the stock he expected to plummet in price. He would then sell those shares to make X times the current selling price of the stock. When the stock price plummeted, he would buy X number of shares to return to the guy/gal from whom he borrowed them in the first place.

To put concrete numbers on this, say the stock is $100 per share and he borrows and short sells one million shares for proceeds of $100 million. If the attempt to blow up the plane had succeeded and the price dropped to $25 per share, he would only have to spend $25 million to replace the cost of the stock he borrowed - thereby netting him a $75 million profit.

If you try to short sell a stock and the price goes up, it costs you. If you correctly predict a drop, you can make money.

EDIT: BTW, this is a good question. I'm sure lots of people wondered about this, too, but (for whatever reason) didn't want to ask.

Asker's Rating:

Asker's Comment:

Makes sense. The key word here is "borrowed." I didn't understand the fact that he borrowed the stock, then gave it back.

Answer 2

i don't know but it was an excellent movie

Answer 3

He shorted the stock, otherwise known as taking out a "put option". If you google either of those terms, all your questions will be answered.

Answer 4

Don't know. Ask the terrorists who made money after 9/11.

Answer 5

He pretty much bet that the stock on the company that made the plane would tank. So he bought against the company (shorted). When he failed to destroy the plane, he lost his money. If the plane would have blown up, he would have made a huge amount of money.

And the comment about 9/11 where someone shorted on all of the major airline stocks is true. And they never did claim their money.