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Biotech / Medical : IMNR - Immune Response
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To: Robert DeHaven who wrote (324)3/31/1998 12:40:00 PM
From: Easy Mark   of 1510
 
There are at least two reasons you might consider shorting IMNR. One might at first think that the potential for a 2-3x upward movement is too risky to be short. However, short sellers do not "short and hold" (e.g. there is no equivalent to the "buy and hold" strategy). They short and then balance their book. Thus, the issue for a short seller is how long are you exposed to the upward price risk. Two ways to manage that risk are apparent.
First, if your basic position is long, you might still use it as the base for selling 20% of your position above $15/share and buying it back when the price is below $10. While not a true short it is the equivalent and lets you take both short term profits (at 38% taxation), and preserve long-term capital gains (at 20% taxes).
Second, if you have the opportunity to short a portfolio of 5-10 stocks, you can afford to take the risk for periods of time when the probability of the event occurring times the attendant loss is lower than the expected value due to the anticipated volatility without the event occurring. With several stocks in play, you can play the averages, and even a very bad loss on one stock doesn't wipe out the gains. In fact, the very presence of huge upside price movement is what leads to significant short selling profit potential. The reason is the risk scares away the short sellers that would normally operate to keep a lid on "irrational exuberance".
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