JD, shorting IBM is much less risky because there's so much stock available on the market. It's these smaller issues, where there may not even be stock available for borrowing in order to establish or maintain a short position. That's the risk -- too little float, leading to a shortage of shares to borrow.
As a general rule, I never even think of shorting a small stock because of the possibility of getting squeezed. As an example, a few years ago Andrea Radio had some sort of noise cancellation device they said might be installed in every single pay phone booth. The stock soared, even though there was no indication the device worked or that there were customers for the device. Some people who shorted the stock on the rational basis of too much hype, not enough bricks and mortar, got squeezed but good, losing money even though the stock eventually went down. The word EVENTUALLY is key here, because in the process, if borrowed shares are in short supply, a broker may have to force the client to cover his short position.
I was short Kodak (big company, pretty awful management) back in 1987 before the crash. There was plenty of stock available for shorting. My position was a great cushion against the loss of value on several other holdings after the crash. My broker at the time was short several stocks, including even WalMart (one should never short good management, but he did anyway). He was, in fact, short in six figures. After the crash, he covered his short positions and retired.
Shorting BINC would be just plain crazy! |
