No Own - No Sell

[Poet]

"The way I understand Short Selling, it's merely the shuffling of money, stock, coupons, whatever. Something of value is put up as collateral
on the anticipation of buying later. Now is this accurate to you."

Inaccurate.

"Long investors put up their money to buy and hold long their positions. However, the long positions are pooled at the clearing houses of the
brokerages where ever the certificates are deposited and even more pooling at the DTC/CEDE. Now is this accurate to you."

Not entirely.

"Now someone thinks a property is over valued so they merely borrow against this long position pool thus using other people's property as
collateral (if you do not agree then what is the collateral base). Now they have to pay a interest on the loan of this position ($2.00 a share I
believe at prime plus) but the base collateral for this loan is against the pooling of long position. Now is this accurate to you."

Innacurate. What is used as collateral is the trader's own margin, ie. stock and cash.

"Now in doing so they have to sell the short position to someone (another long position buyer). Thus this long position is now considered the
short position thus not diluting the long position according to you because it is an anticipated buy later down the road. Now is this accurate
to you."

Off the wall. -g I've already explained a few times that, once a number of shares are borrowed, the trade is open. If the stock moves up, the trader must buy the amount of shares borrowed (and this is done on the open market from the limited pool of stock available for trading. There is no change in float.)The trader then closes the tradeby buying the same amount of shares of stock at a higher price than where s/he borrowed. The resulting difference is the trader's loss. If, however, the stock moves down, the trader then closes the trade (called 'buying to cover') by buying the same amount of shares of stock at a lower price than where s/he borrowed. The resulting difference is profit.


"But you claim the people that bought the new long position from ths short is not a long position it is the short position. Even thought
the brokerage shows it as a long position on their books. Now is this accurate to you."

Innacurate. When a trader closes a short position, s/he buys stock, on the open market, to close the position. Hence, it is a closed trade, not long or short. Closed. It is seen as such by the brokerage and the SEC

"Now this Short position is basically is an anticipated buy because the shorter has not bought the position yet he has only borrowed and sold. Now is this accurate to you".

Innacurate again. In an open short trade, the trader has borrowed shares of stock. There is no selling. There is borrowing, then there is buying stock on the open market to close the position.

"Now say the owner of the original long position pulls his certificate. The short has to cover but according to the broker I talk to that only
shorts for a living that is true. However, the short does not have to actually cover, all he has to do through his broker is "float the short
position" or the broker does it automatically. Floating the short position merely borrows against the pooled long position again to cover the
first long position loan. Now is this accurate to you."

I am unfamiliar with offshore trading, familiar only with full-service and discount brokerages for retail customers in the US, which very likely covers the circumstances of anyone reading our discussion.

As to the first part of your statement, about pulling certificates, please see my previous post.

My experience is that if the trade goes the wrong way for the short, and the difference between the price paid for borrowed stock and the current price of the stock exceeds the margin available in the trader's account, the trader gets a margin call. This can be satisfied by either a cash infusion or a forced close of the trade.

"Now if the old investor's or even the new long position (who bought the loan from the first loan) pull their certs that would deplete the pooled long position and thus create a short squeeze because the collateral is being taken out of the market by the rightful owners. Thus the short positions will have to be covered by going into the market and have to physically buy the stock, coupons, whatever with his own money. Now is this accurate to you. "

Your phrasing is a bit fractured here, but if you are stating that requests for stock certificates causes short squeezes, you are incorrect. I described the mechanics of a short squeeze in my last answer above. When the stock price rises insread of falls, traders are forced to close their short positions BY BUYING THE STOCK. This causes further upside pressure on the stock.


I'm not sure what else to say, Gary. I appreciate having the opportunity to go point by point as to what my understanding of shorting is. I've said before that I do not trade stocks, so I cannot be accurately characterized as a "shorter". I trade index options, so specific companies are of very little interest to me, so I cannot be accurately called a "basher". I call myself an educated trader who has just spent a few hours of her time writing what she knows about this subject solely for the purpose of education. I would appreciate being treated respectfully.

If you want to discuss shorting any more with me, you can find me on the OBOX and I'll always respond by PM. Have a good and profitable day.