I may be misunderstanding, but in order to short, there must be shares available. If you check the listing for KBLB on Level II, its shown as "KRAIG BIOCRAFT LABORATORIES IN COM
(OTC, Hard to Borrow)"
My understanding of "Hard to Borrow" is that either the shares are not available or that they are already all shorted. MM typically will trade shares to each other to allow for shorting but this indicates you just can't do that because they aren't there. So any strategy that depends on additional shorting seems to be moot.