I was asked "What's this cash account stuff?"
If you have a margin account, your shares are held either in the cash or margin account section of it.
In the margin account part you can borrow against that stock value to spend up large with the wealth effect or buy more stock.
In the cash account part, you can't borrow against the stock. Brokers put the stocks in the cash account if they are low value [under $5 a share or so] or risky, or maybe you have only one stock, Amazon, and the concentrated position and broker's decision is that the position is so risky that although you have $10m in value there, you can't borrow against it or buy new stock using it as security.
But if you have a spread position with a low margin balance, you can move your Globalstar Telecommunications Limited stock to the cash account portion of your holdings.
What that means is that the short sellers can't borrow them, sell them and hope to cover later. It also means the broker who might have loaned that stock to a short-seller, will call the stock back in, requiring the short seller to cover, meaning buy some stock at market price to repay the loaned stock.
What that does is cause a sudden shortage of stock if that happens to any significant extent. In fact, just the fear of it happening can make short sellers cover to avoid being caught in a rapidly rising market.
The risk of such an event on Memorial Day might just be enough to cause the effect, even if nobody changed their stock to a cash account. But I'm going to do it!
I thought three weeks was a good idea, to let the idea gel a little. Get a bit of 'momentum' going. See what comes out of the shareholder meeting and Globalstar results and let that settle in for a week or two, good or bad.
Any questions, feel free to ask. I've never shorted anything and know little about it, but it seems to make sense in this situation with such a high short interest.
Maurice |
