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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis
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To: Joe Waynick who wrote (1762)9/11/1998 8:05:00 AM
From: Q.  Read Replies (1) of 2506
 
Joe, when a stock is delisted from nasdaq or another exchange, it usually begins to trade in the pink sheets or bulletin board. Quite often the stock price will fall at this time, as this scares shareholders.

Another factor about being delisted is that if the company has a weak cash position, for example PNDA, being delisted threatens their very existence because it makes it harder to find someone to give them equity private placements.

Common reasons for delisting include failure to file financial statements with the SEC on time, or when the stock price or net tangible assets fall below the exchange's requirements. Often we are able to anticipate these events, which provides a degree of predictability that I like.

Two downsides to this strategy:

It doesn't always work ... some of us shorted PAMC, an insurance co., when we believed it would be delisted for failing to file its annual report on time. And it was delisted. But the stock went up, rather than down.

When a stock is delisted, you can still trade it, and eventually you must still buy the shares to cover. This transaction often is inconvenient or has higher transaction costs -- for some this is reason enough to avoid this strategy.
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