Naked short selling
Stock trading tips on hot stocks to buy now, stock market strategy, picking hot stocks, picking penny stocks, and how to buy cheap stocks. From “How to Find a Home Run Stock” and “How to Pick Hot Reverse Merger Penny Stocks” and also “How the Shorts Raid Your Stock, Destroy Your Company and What to Do About It” all by John Lux.
Published on: Mar 3, 2016
Transcripts - Naked short selling
www.short-stoppers.comNaked Short Selling
DisclaimerStock speculation is very riskyDo not trade with more than you can afford tolose.Seek professional investment advice.This is not investment advice.No warranties, you are on your own.This is not suitable for all investors
Naked Short Selling DefinedShort sellers are supposed toborrow the stock they sold anddeliver it to the buyerWhen the shorts do not bother toborrow the stock, they are “naked”
Why go naked? Naked short selling is now prohibited I am going to explain why it was so lucrative(Note – legitimate short selling serves a good function)
Negative Cash Flow CompaniesIf a company has a negative cash flow, it needs tosell stock to raise money to surviveLegitimate development stage and biotechcompanies often have negative cash flowIf the shorts can push the stock down, thecompany cannot raise money and dies, giving theshorts a large profit
Naked Short SellingNaked shorts can push a company to zero stockprice because they can sell unlimited amounts ofstockIf there are 10 million shares outstanding and thestock trades 50,000 shares per day, at a price of$10, the naked shorts can sell a million shares,driving the stock down, down, downIf that isnt enough stock, more, more, more canbe sold
The Naked Short Printing PressNaked shorts can sell MORE than the outstandingstock!Imagine a naked short selling 30 million shares ofour hypothetical company that has 10 millionshares outstandingIf the short sells the 30 million shares at anaverage price of $5 and drives the stock to onecent, he has a profit of almost $150 million!
The Naked Short Printing PressIf the short sells the 30 million shares at an average price of $5 and drives the stock to one cent, he has a profit of almost $150 million!But the market value of the entire company to begin with was only $100 million!
TaxesThe naked short has an incentive to stay short –taxesWhen he closes the trade by buying back thestock, he has to pay about 1/3 of the gain in taxes.But if he keeps the trade open, his friendly brokerwill let him play with the almost all the profits –on marginSo on his $150 million profit, he can trade abpout$300 million in stock
PyramidingIn this way, a naked short could pyramid hisprofitsTake profits in the first stock and sell another$300 million short, etc.After a few trades like this, the profits arehumongous
Naked Shorts ExposedIf a naked short does not close out the trade, hedefinitely does not want the company to comeback from the living dead, especially if he is usingthe money to destroy some other companyIf the stock comes back, he will lose heavily andthe broker will ask him for more money to coverthe margin on his shortThus, he will stop at nothing to hold the companydown
Shorting the WorldNaked shorts were eventually outlawedIf they pyramided their profits, they madehuge gains in the 2008-9 market meltdownThey would have had the money to attacklarge institutions, and eventually shortwhole countriesAll of this is hypothetical, naturally
Hypothetically SpeakingHypothetically speaking, there have beenreports of stockholders being able to buymore than the outstanding common stock.Naked shorts were eventually outlawedI am investigating now one company that isalleging there is a short position of manytimes the outstanding stock
Learn MoreSubscribe to my YouTube videosGo to www. Short-stoppers.comSubscribe to my blogwww. investing-performance.com
Read My Book on Amazon.com How to the Shorts Raid Your Stock, Destroy Your Company, and What to Do About It Amazon.com
John Lux Trader, investment banker, former OTC Market Maker and attorney – he is a former and possibly current short seller – but not nakedLux.Investor@ gmail.com Copyright ©John Lux 2011