Let’s say you bought a dress at Target for $30. I tell you, hey, can I borrow that dress for a few weeks? I’ll give you $5, and I’ll also give you the dress back.
You say yes, so I go straight to Target and return the dress. I get $30. I wait a few weeks when the dress goes on clearance for $15. I buy it and give it to you. I’ve just made $10 ($15 - $5 I gave you)
But let’s say someone wears the dress to like, the Academy Awards. It quickly sells out at Target, and the only way to get it is for $120 on eBay.
I have to buy it for $120 because I promised I’d give it back to you, and I’ve just lost a ton of money. This is what just happened to hedge fund people.