Dave
I appologize for replying so late. If you'd like a very very informative fax on the nature of the danger inherent with small stocks, e-mail me with your fax number by clicking my name and it gives you my background.
I work at an investment bank and see the institution side of the business. The big cap value names and sometimes the small cap growth stocks for micro-funds. These particular stocks are the ultimate in dangerous plays. It doesn't come more risky. I personally call every company and ask ground floor up questions. Many times asking where these guys worked before.
Anyhow
The short position exists in two seperate capacities. The margin short position is the shorting(selling wo owning) of the stock and paying half the Fair Market Value of that security at the time of sale while borrowing the securities from your broker's frim. THe naked short is a misunderstood short to many people. The Market Maker/Trader sells stock to the other trader/customer when he doesn't have he stock in inventory to sell. Thus he isn't borrowing itbut just selling it. THus naked. When a stock runs up, if the price approaches the cost basis of the trader, he'll try to sell more to promote other selling and to prevent continued appreciation. If he cannot prevent this and is in jeopardy of losing, he'll begin buying desperately before he loses too much. In the case of NP Energy, NPEC, we shareholders apparently own 2/3ds of all the stock and 10 million shares are daily trading. As the stock has trades over 20million, mostly buying, we believe there is tons of short stock.
Here is the stick to the mM's:
If the owners of the stock don't sell, the MM will be in the shitter and NEED to buy back so he bids up exhorbitantly. Forget losses, just get out of the short".
Hust remember the buy low sell high, sellers suck, buyers rule theory. It works well.
Ask any questions any time man.
BTW, if the MM's keep shorting the stock, the owners can demand delivery of their physical shares to their accounts and the seller must deliver through the transfer agent. When trouble arises, the ta will freak out and raise pressure. The last ditch for the MM would be to collude with his hombres to drop the p very much to induce frantic "I gottya get outa this" selling by holders. If that doesn't work then you'll see bunching of the market where the bid is right up the ass of the ask. Then will arrive your short squeeze which is the mad dash up of the stock as the MM bids for more shares than there are sellers, supply vs. demand.
Hope this helps. Good luck man.
BTW, if you have some money to invest and are just starting out, split your money in half. Go high spec w/ this stock and own what is a very good chance at a tremendous appreciation in either DCTC or FTEL. Both are exciting, openly friendly companies going NASDAQ soon and spinning an IPO hopefully.
later |
