Hi IHSC,
What you say about shorting and brokers and such is certainly true. But it is very rare, as you say. I have never had any of these things happen to me, and I have never known anybody who did. No doubt it occasionally happens, but is probably limited to securities with limited floats, or securities that look headed for delisting.
I tend to disregard these things partly because they are rare, and partly because I think most people have a fear of shorting that is not consistent with the risk; there is a kind of taboo about the whole thing, people seem to feel that shorting is far riskier than taking long positions. I disagree with that, I think shorting carries unique risks, but also unique advantages, and so represents a viable strategy that is best used only in conjunction with an overall strategy, not by itself.
But as with any strategy, it is important to understand the risks, and minimize them wherever possible.
RE KKD....
That happens sometimes, especially on heavily shorted stocks, or stocks that have been a target of shorts for an extended period, or stocks that are thinly traded. If you ask, often your broker can borrow the stock anyway, even if they don't have inventory on hand. Some brokers (e.g., Scottrade) will for all practical purposes not allow you to short stocks trading under $5.00 (but if you are in a short, and it drops below $5.00, that is different; they won't ask you to cover).
It is just as well, because it appears the long party the shorts have had with KKD is at an end.
stockcharts.com[w,a]daclyyay[dd][pb50!b200][vc60]&pref=G
Notice that the last low was HIGHER than the previous; also, the 50 sma is now horizontal. And finally, as KKD rallied into the 50 sma, a region where it has been repeatedly turned away, this last time KKD powered right through it, showing little signs of weakness.
As far back as November 2003, the 50 sma was a pretty good spot to look for a short entry:
stockcharts.com[w,a]daclyyay[de][pb50!b200][vc60]&pref=G
So downward momentum appears to me to be easing back, and KKD may finally be finding a bottom.
That said, I would still re-evaluate KKD as a possible short when it rallies to the 200 sma, which is not that far above. That will probably prove to be too much for KKD on the first try at least. So I would look for signs of technical weakness there, then check the intraday for failure at intraday support.
However, it should be remembered that KKD is heavily shorted now (over 50% of the float is held short). So KKD is a setup for a short squeeze, which could cause the stock to move against you hard, particularly as stops are triggered around the even dollar marks.
T |
