Broke Out Inc (BRKO)

[janice shell]

If you short a stock, you take your position through your broker, just as you would if you were going long. But although both short and long plays can result in margin calls, at least if you're using margin to buy your long position, shorting is much riskier.

First, your broker has to find stock to borrow. He borrows it for you, and you sell it on the market. Since there's always a chance the stock may go up rather than down, you need to have an ample cushion in your account; enough to cover a steep rise. (You'll also need to pay a daily fee, but that's another issue.)

But when a stock runs the way BRKO did, your broker and its clearing arm, or, if you're using an introducing broker, his clearing firm, will get antsy. They're liable for your risk, and they don't like to find themselves in that position. And so, basically, they'll call in their loan, forcing you to cover the position immediately by buying on the market. Years ago, it was possible for shorts who found themselves in that position to negotiate for a little more time, and pray that the stock would crash in the meanwhile. But they're a lot less friendly about that these days.