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Strategies & Market Trends : Shorting stocks: High fliers -- Ignore unavailable to you. Want to Upgrade?

To: Mark Marcellus who wrote (652)	3/4/1999 4:00:00 PM
From: Q.	Read Replies (2) \| Respond to of 709

Mark, re. BFLY I am generally in agreement with your take on the company's prospects. One thing that you didn't mention, though, is that the market cap is pretty small at about $50 M, so if their concept and brand does take off, and if they are able to get good margins someday, then there is the potential for the thing to go a lot higher. OTOH, the market cap is way too high compared to the present revenue rate. So you're left with the usual problem with internuts: you are looking at the company at such an early stage that the market cap is way too high based on their present meager revenues and their negative eps, but you can imagine scenarios where the market cap will be justified and then some. So you're speculating on the extrapolation of the business model when they aren't early stage anymore. I've been holding a boxed short in BFLY ever since the warrant redemption play was over in December. I've been waiting for a good time to sell the long side and expose the short side. Two such opportunities have occurred when the stock went to about 17, once in January and once yesterday, and I missed both opportunities. I'm just a little nervous about trading this one.

To: Mark Marcellus who wrote (652)	3/4/1999 10:36:00 PM
From: Bob Rudd	Respond to of 709

Mark: Consider shorting at a size where you wouldn't be uncomfortable if it went against you...you would just add to the position, average up rather than average down. The key to such an approach is imagine and plan for large adverse price excursion. The disadvantage, of course, is that if you're right, you won't have as big a bite of the apple as you would like to have had...but it can still be a lot of fun. I used this approach with a nervous short on Amazon, but as it turned out I nailed the top [so far] and closed the position 10 days later with 68 point gain. I don't regret having gone in skinny though, because there's just no way to know how far these things can go against you. The big ugly is where you're overextended and have to cover so your buying ends up making the top. Good look on your fly fishing, Bob