This is what us, kids, are taught in Finance majors these days:
"Suppose we sell short 300,000 shares of Dreck and use the $3 million proceeds to buy 100,000 shares each of Apex, Bull, and Crush. The dollar profits in each of the four scenarios will be as follows:
The first column verifies that the net investment is zero. Yet our portfolio yields a positive profit in any scenario. This is a money machine.
Investors will want to take an infinite position in such a portfolio because larger positions entail no risk of losses, yet yield evergrowing profits. In principle, even a single investor would take such large positions that the market would react to the buying and selling pressure: The price of Dreck has to come down and/or the prices of Apex, Bull, and Crush have to go up. The arbitrage opportunity will then be eliminated."
(in Investments)
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