Roger:
Shorting a stock is rather simple. Say I purchase 10,000 shares of stock A for $1.00 through my broker. Let's say the stock moves to $1.5/share in the next week and my friend think the share price will go down now. He calls his broker and wants to short 1,000 shares. Essentially the broker will loan him 1,000 of my shares at $1.5/share. No money is transacted, but if the price goes to $1.75/share in the next week, my friend then has to buy 1,000 shares at the market for $1.75 and sell them back to the broker at $1.50, hence $.25/share loss. Contrariwise, if the stock goes down to $1.25/share, then the broke owes my friend $.25/share. The resaon why short can drive a price up rapidly is because investors need to cover the shorts by buy the stock back at the market price. In essence, it creates an upward spiral. As the demand for the shares increases due to the short owners covering their bets, the asking price for the shares rises as demand outstrips supply. Finally, it turns out there are only 850,000 shorts outstanding on TLTK, but enough to create an upward spiral. |
