In “The Big Short”, hedge fund managers Michael Burry and Steve Eisman correctly predicted the collapse of the US housing market and used investment vehicles called credit default swaps in order to bet against mortgage-backed securities.
This bet is the aforementioned “Big Short” – an investment that makes money when the price of a security declines. Most investors buy stocks of companies they believe in, hoping to make money off their future profits.
Short sellers do the opposite, borrowing shares to bet against companies they believe will tumble. But short selling isn’t this cut and dry compared to buying – especially when it comes to the risks.