The Dukes hired their secret agent Mr Beeks to get them the report before anyone else sees it. The insider information I'm referring to is the Dept of Agriculture crop report for oranges (they're trading a commodity - frozen orange juice). Short-selling can only be fully efficient if you know the price will go down. This is the most important piece of the puzzle. And of course: rigged insider information. That's why the buy back is important - you still have an obligation to provide the stuff, and your buyers have an obligation to pay you at the high price (the agreed $2), even if in the mean time the price dropped to, say 50 cents. It doesn't matter how you get the commodity (or whatever you're selling) as long as you are able to provide it at the designated time. Making a sell of a 1000 pounds of a commodity (say oranges) at $2 per pound in March simply means that the seller is obliged to provide and the buyer is obliged to purchase the commodity at the specified future time and price (in this case three months from now, at $2 per pound). Futures are perfect for short-selling: contracts one can sell when he doesn't yet own a commodity (or asset). You can do the same thing with futures contracts. The transaction also includes a fee to the broker who borrowed him the shares.
He waits for the stocks to plummet and then buys back the stocks he pre-sold at a lower price, since he still has an obligation to return these shares. If the price goes down, he can make a profit the size of the spread (just like with normal, "long" trading). He bets against the shares selling them immediately at a high price. Usually a short-seller will borrow shares to sell them, thus creating an obligation to return them. The graphic summarizes the whole story pretty well. And the best way of doing that is with a little short-selling. Needless to say, a lot of funny stuff happens on the way, but when Winthorpe and Valentine realize the deceit they want to get back at the Dukes, and the best way of doing so is by bankrupting them. Winthorpe is framed with drugs and ends up in jail, loosing his fiancee and his social status, while Valentine is being given Winthorpe's job and all possessions, including his house. When they encounter a street hustler/con artist Billy Ray Valentine falsely accused of trying to rob Winthorpe they decide to conduct a social experiment in which they switch the social positions of these two men to determine which is more important: environment or heredity. The Dukes own a commodities brokerage house and have young Winthorpe as their managing director. Dan Aykroyd plays a snobbish investor Louis Winthorpe ("the Third"), while Eddie Murphy plays a street con artist Billy Ray Valentine whose lives get reversed as a result of a bet between two cruel millionaires, the Duke brothers. Anyway, we all know the story from Trading Places.
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