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Non-Tech : Starnet (SNMM)Online gaming, sexsites, lottery, Sportsbook
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To: Anthony@Pacific who wrote (3434)7/10/1999 11:19:00 PM
From: afrayem onigwecher  Read Replies (1) of 8858
 
How would you feel if you sold SNMM short at $10 per share only to see it zoom up to $30, $40, $50, or even $70 per share?

The Short Seller's Timing Dilemma

The short seller is not yet ready to put her money on the line even though she has found an overpriced stock and has identified a future event that she believes will move the stock price lower. The timing of a short sale is crucial for several reasons: short sales are extremely risky, short sales are subject to margin calls, the potential for disaster is greater than the potential for profit, short sale candidates are usually volatile stocks, and emotions often run high and clear judgment is clouded on overvalued stocks.

Refer to the Zitel example discussed in The Bear Tracker's Short Selling FAQ. How would you feel if you sold Zitel short at $20 per share only to see it zoom up to $30, $40, $50, or even $70 per share? If you survived the margin calls, and if your nerves held out as people bid ever higher a stock you thought overpriced at $20 per share, if you didn't close out your position for a loss, then would it all be worth it to close out your position for a small profit months later when Zitel finally fell back to $15 per share? You could claim with justification that the market validated your judgment that Zitel was overpriced at $20 per share. You could point to your profit and think this was another successful short sale transaction. But would it not have been better to avoid that roller coaster ride, one that your portfolio might not have survived?

What if you were simply wrong? What if you had shorted Microsoft a few years back? You would be a lot poorer now. Is there a way to reduce your chances of making a costly bet against a stock that turns out to be a winner?

Simply, the question is how do you know the right time to place a short sale? No one knows with certainty how the market is going to behave. But you can reduce your risk by understanding the dynamics of supply and demand.

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