A standard long position profits when a stock's price rises and loses when it falls. Choosing a short position reverses that relationship: the position gains value if the stock price drops, and loses value if the price increases.
The arithmetic of falling and rising prices
Because a share price cannot drop below zero, the maximum theoretical gain on a short position is 100%, which occurs only if the stock falls completely to zero. Each percentage point of decline adds a point of gain until that zero floor is reached.
On the upside, there is no mathematical ceiling on how high a share price can climb. For every percentage point the stock rises above your entry price, the short position loses an equivalent point. If a stock you shorted doubles (a 100% price rise), the short position records a 100% loss. If the stock triples (a 200% rise), the loss reaches 200%.
What this means for short positions
Losses on a short position grow point-for-point with price increases without an upper limit, while gains grow point-for-point with declines and stop at 100% when the price reaches zero.