Ten Short Selling Strategies

Short Selling Strategies

here are dozens of ways to sell short a stock.

1. Traditional Short Sale: Borrow the stock against a fifty percent margin.

This is the only type of short sale that can be squeezed when the share

price moves up because the short seller must add money to their margin

account.

2. A Market Maker Short Sale: U. S. Market Makers are not required to make

physical delivery of stock certificates when they sell it. They are assumed

to be a repository of the company’s shares.

3. A Brokerage House Short Sale: This is a decision not to execute a buy

order from a client, but show the stock as owned by the client on their

monthly brokerage firm account statement.

4. A Clearing House Short Sale: The Clearing House doesn’t execute the buy

order, but credits it to the brokerage firm client’s account.

5. A Naked Short Sale: This is where two brokerage firms agree to trade

stock in a company with neither brokerage firm requesting physical delivery

of the share certificates.

6. An Insider Short Sale: This is when insiders with restricted stock use

it to sell short their company. It’s illegal. It was a common practice when

the Regulation S Hold Period was 40 days.

7. A Ferrari Short Sale: This is where a bloc of stock is purchased. The

stock is converted to derivatives, thus factoring the stock one hundred

fold or more. The short sale doesn’t occur in the Stock Market, but the

derivative owners are holding a short position.

8. The DTC Short Sale: This is when Depository Trust Companies use the

stock they hold to sell short that stock.

9. The International Short Sale: Stock’s created offshore. The company is

listed to trade outside the United States (usually Canada). However the

company is trading in the States. The shares are sold into the States. The

Short Sale is moved to the Primary Country, where the local brokers can

ensure that the short position will be covered by the listed company, if

there is ever a successful short squeeze.

10. The Arbitrage Short Sale: LTV – Scattered Securities is an example of

this short play. The Court in the LTV reorganization determined the

exchange rate for new shares for old shares at three cents. The Market

didn’t read the Court decision. The old shares traded far higher than the

Court Ordered exchange rate. The short sale was done by selling old shares

and buying new shares before the Court mandated exchange of share

certificates.

11. The Street Stock Short Sale: Sellers who are insiders or who allege to

be insiders sell counterfeit stock to buyers outside regular market

channels.

12. The MIDI Short Sale: Brokers sell stock at prices well above the actual

trading price of the stock. This has been popular with German OTC stocks

sold into the Middle East. The gap between the sale price and the trading

price is an effective short sale.

13. The Depository Receipt Short Sale: Using counterfeit stock, the seller

deposits it into an overseas bank. They then sell Depository Receipts

against the counterfeit shares held by the bank. I’ve seen this done in

Asia.

14. The Rockford Short Sale: An investment firm buys shares and takes

physical delivery of the stock certificates. They replace the real share

certificates with counterfeit share certificates. Next they sell the real

shares back into the Market and repeat the process. This practice does

wonders for their balance sheet. The tactic was popularized in the Rockford

TV Series. It’s been done in Asia with NYSE shares.

15. The Tax Haven Bank Short Sale: Small (usually Caribbean) banks act as

agents for their clients unwilling to reveal their identity. The client

wants to buy stock. The bank doesn’t buy the stock on behalf of the client.

They simply show the sale within the bank’s accounting system. This

practice extends to gold etc.

16. The Lost Certificate Short Sale: Client requests share certificate.

Broker sends it certified to the slightly wrong address. It’s returned to

broker. Using the certified receipt broker claims the client has the share

certificate. A year is spent in proving it never arrived. Meanwhile the

broker has the share certificate and can use it to cover other short sales.

This happened to me in Vancouver.

17. The Margined Short Sale: Buyer buys stock on margin. They can’t take

physical delivery of their share certificates. The broker sells the

margined account non-existent stock (a short sale).

18. The Takeover Short Sale: Brokers add non-existent stock into a takeover

with stock transaction. The buyer pays for the non-existent shares. The

short seller gets cash or stock in the buyers company.

19. The Attrition Short Sale: For OTC stocks about 3% of the beneficial

owners of the stock disappear each year. They die, forget they own the

stock, etc. Brokers can safely sell short 3% of the float each year relying

on the fact that the beneficial owners will never claim their stock.

20. Counterfeit Stock: Professionals regularly send counterfeit share

certificates to Transfer Agents. A surprising percentage are accepted as

real share certificates. The result is the professional effectively has

sold short the shares involved in the certificate.

21. Issue Depository Receipts without holding the stock and sell the

Depository Receipts.

22. The Warrant or Option Short Sale. Buyer holds the right to exercise

warrants or options, but doesn’t do so. Instead, they sell short the stock

and use the options or warrants as insurance. This was popular among VSE

underwriters in the 1980s-1990s

23. Reg S Short Sale. Same format as the Warrant or Option Short sale, but

using cheap Reg S stock. The short seller is exposed for one year.

24. The Lending Short Sale. This was used by the guy who introduced me to

the business. You offer to lend 90% of the face value of the stock to the

borrower for a long period of time. Your interest rate is better than that

of a bank. You take in the stock and sell it. You lend 90% of the proceeds

from the sale. You are now short the stock. You collect your interest

payments until the borrower defaults on the loan.

Here are Ten ways to sell short a stock.

1. Traditional Short Sale: Borrow the stock against a fifty percent margin. This is the only type of short sale that can be squeezed when the share price moves up because the short seller must add money to their margin account.

2. A Market Maker Short Sale: U. S. Market Makers are not required to make physical delivery of stock certificates when they sell it. They are assumed to be a repository of the company’s shares.

3. A Brokerage House Short Sale: This is a decision not to execute a buy order from a client, but show the stock as owned by the client on their monthly brokerage firm account statement.

4. A Clearing House Short Sale: The Clearing House doesn’t execute the buy order, but credits it to the brokerage firm client’s account.

5. A Naked Short Sale: This is where two brokerage firms agree to trade stock in a company with neither brokerage firm requesting physical delivery of the share certificates.

6. An Insider Short Sale: This is when insiders with restricted stock use it to sell short their company. It’s illegal. It was a common practice when the Regulation S Hold Period was 40 days.

7. A Ferrari Short Sale: This is where a bloc of stock is purchased. The stock is converted to derivatives, thus factoring the stock one hundred fold or more. The short sale doesn’t occur in the Stock Market, but the derivative owners are holding a short position.

8. The DTC Short Sale: This is when Depository Trust Companies use the stock they hold to sell short that stock.

9. The International Short Sale: Stock’s created offshore. The company is listed to trade outside the United States (usually Canada). However the company is trading in the States. The shares are sold into the States. The Short Sale is moved to the Primary Country, where the local brokers can ensure that the short position will be covered by the listed company, if there is ever a successful short squeeze.

10. The Arbitrage Short Sale: LTV – Scattered Securities is an example of this short play. The Court in the LTV reorganization determined the exchange rate for new shares for old shares at three cents. The Market didn’t read the Court decision. The old shares traded far higher than the Court Ordered exchange rate. The short sale was done by selling old shares and buying new shares before the Court mandated exchange of share certificates.

Comments

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