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Technology Stocks : Zitel-ZITL What's Happening -- Ignore unavailable to you. Want to Upgrade?

To: Mama Bear who wrote (18038)	9/22/1999 11:05:00 AM
From: Daniel Chisholm	Read Replies (2) \| Respond to of 18263

Barb, thanks for the explanation, it makes sense. It is essentially the same as the way the accounting and margining is done at the Canadian brokerages I am familiar with (just about the only difference is that the identification of subaccounts uses different numbers or letters than you have indicated ;-). A lot of the "explanations" I've read about how margining is done at US brokerages just doesn't seem to ring true. From your explanation though, it sounds like there is an opportunity cost of $5 per share of "frozen capital" in order to stay short a low-price stock. So even though you can earn (say) 4% on this frozen capital, it is not yours to do with as you please (e.g., withdraw it, invest it otherwise), and if you are able to generate substantially more than a 4% ROE on your trading capital it may very well be worth your while to cover, pay the taxes, and move on with more attractive uses for this capital. Does anyone know of US brokerages that have more sensible margin requirements for shorting or staying short low-price stocks? - Daniel

To: Mama Bear who wrote (18038)	9/22/1999 5:07:00 PM
From: dumbmoney	Respond to of 18263

Daniel, the only non interest bearing portion of a short sale in my account is the actual proceeds of the sale. To use your numbers, short sell 1000 ZITL at 11 1/2, and I have to put up 5250 in security. But that security can be in the form of money market cash or any negotiable security. ZITL falls to 1 1/4, and 10250 is released from my type 5 (short) account into my type 1 (cash) account. That's right. To put it another way, covering the short does not add cash to your account, no matter what the stock price. In fact, covering doesn't really have any effect, unless you are operating at the hairy edge of your buying power.