Tuna, Regarding shorting stock.
If you borrow 100 shares from one holder's account and sell it to a second buyer, you have created two holders of 100 shares where there was one before. Shorting actually creates stock from thin air. This stock becomes part of the "float" (shares registered and freely tradeable.) So, in any stock you must add the short interest to the "listed" float to get the actual float. If VVUS has 9 million shares shorted and a float of 33 million, the actual float is 42 million. Since trading on margin like this actually creates purchasing media, it is controlled by the Federal Reserve Board rules, not the SEC (which does enforce the regulations)
So shorting increases the supply of stock and is virtually unlimited, as shares once shorted can be borrowed and shorted again. So shorting does negatively impact price by increasing the supply of stock. A short squeeze occurs when the supply of stock falls due to short covering, often because of rising prices, and then the falling supply accelerates rising prices due to the actual decrease in the real float as shorters cover positions. Insiders with large holdings have been known to precipitate short squeezes by transferring their holdings to another brokerage house, or simply moving shares into a cash account from a margin account. Rising prices alone will not precipitate a short squeeze in the absence of short covering or another factor that decreases the float.
Since shorting is done internally by a brokerage house, the supply of shares to borrow is dependent on the number of shares the broker's clients hold in their margin accounts. In other words, shorts from small brokers are more squeezable. This is also why, since short shares trade on the exchanges like any other, the exchange must query the brokers and market makers once a month to find out how many shares they have shorted and therefore what the total "short interest" is.
Tuna you said, <<<"In all my future news posting I will always post a warning for all new ( and old ) Vivus shareholders to instruct their broker " TO RESTRICT THEIR STOCK FROM BEING GIVEN OUT FOR SHORTING". This will definitely put a crimp in the short's investment style don't you think?>>>
Well, you can do this by simply asking your broker to keep your shares in a cash account, but doing so may crimp your own style as it reduces your available margin. Frankly, as two thirds of VVUS stock is in institutional hands, I see that much of the short interest may simply be hedging downside risk on large portfolios. These hedgers are not as subject to being squeezed as they already hold the shares they might need to cover. They will still cover below their hedge price if the stock is definitively moving upward. I think VVUS could do this when MCA approval comes before the second quarter.
Hope this answered your question.
Zebra
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