Zitel-ZITL What's Happening Message Board

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Technology Stocks : Zitel-ZITL What's Happening

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To: Daniel Chisholm who wrote (18039)	9/22/1999 4:56:00 PM
From: dumbmoney	of 18263

From your explanation though, it sounds like there is an opportunity cost of $5 per share of "frozen capital" in order to stay short a low-price stock. So even though you can earn (say) 4% on this frozen capital, it is not yours to do with as you please (e.g., withdraw it, invest it otherwise), and if you are able to generate substantially more than a 4% ROE on your trading capital it may very well be worth your while to cover, pay the taxes, and move on with more attractive uses for this capital. No, nothing is frozen. If you need $5 worth of margin, this can be satisfied with $5 in money market funds or - more typically - by $10 worth of marginable stock. The opportunity cost is not that you have to hold cash, 'cause you don't, but that your buying power (i.e. ability to borrow money and/or short more stock) is reduced.

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