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Non-Tech : Save The World Air Inc. (ZERO)
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To: Mr. Aloha who wrote (393)1/20/2001 4:39:58 PM
From: Q.  Read Replies (1) of 445
 
re. <<Is there any reason to cover before the price matches the name?>>

Two reasons:

(1) Opportunity cost.

Many brokers have a minimum margin, varying from $0.25 to as much as $5.00 cash equivalent that you must have when you are short a share of stock. If the stock has fallen to $0.25, you can't make more than about $0.24 on what remains, and that might be a lot less than you can make by using the same margin collateral to short something else at a higher price.

(2) Possible inconvenience of no liquid market.

Despite the talk of "this is a stock to short to zero" that you'll read in online threads, I've never heard of a short seller actually remaining short until a stock is worth zero. Except in one case. A security was declared worthless, and the short seller regretted still being short. The stock was no longer traded, but he still had the short position in his account. It was going to stay there forever. There was some reason he needed to cover (buyin or he just needed to free up the margin, I don't remember) but there was no market for him to buy the shares. His solution to the problem is one I would rather not go through: he put out advertisements in newspapers asking to buy the shares for $0.25 or something. Finally a lady responded, he got her shares, and his problem was solved.
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