your wager was with dragon man so I guess I won't hold you to pay but a while back I heard that Schwab allowed shorting of pennies so I called them and asked the question.
The broker I talked to said, yes, they will let you short but it would "not be worth your while". Apparently they make the margin requirements so high that it is somewhat impractical in most cases. We didn't discuss a specific stock but I imagine that to short $1000 of, say, MOSH you might be required to hold $10,000 in cash, and so forth. Presumably it depends on the stock. I also think that there is a list of shortable including some but not all penny stocks. Probably also depends what they have on hand in inventory.
The number of different stocks increases logarithmically the lower the pps so I don't think that most brokers go out of their way to disallow retail shorting of pennies, they simply can't keep an inventory of 10,000 different stocks in sufficient quantity. There are probably practically countless more down in the quantum foam of the sub-penny realm.
A lot of them sit there with wide spreads with pretty much zero volume for days, so, as difficult as it is to simply exit a position on some these, trying to cover could be downright unnerving. SO there porbably really isn't that much demand anyway.
Someone said $3 but at least with Scott it is $5 minimum pps for shortable, but so far as I know (last time I checked). I think that is more typical. (with 100% margin being typical also)...
