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Naked Short Selling


Disclaimer 

Stock speculation is very risky



Do not trade with more than you can afford to lose.



Seek professional investment advice.



This is not investment advice.



No warranties, you are on your own.



This is not suitable for all investors


Naked Short Selling Defined 

Short sellers are supposed to borrow the stock they sold and deliver it to the buyer



When the shorts do not bother to borrow the stock, they are “naked�


Why go naked? Naked short selling is now prohibited I am going to explain why it was so lucrative (Note – legitimate short selling serves a good function)


Negative Cash Flow Companies 

If a company has a negative cash flow, it needs to sell stock to raise money to survive



Legitimate development stage and biotech companies often have negative cash flow



If the shorts can push the stock down, the company cannot raise money and dies, giving the shorts a large profit


Naked Short Selling 

Naked shorts can push a company to zero stock price because they can sell unlimited amounts of stock



If there are 10 million shares outstanding and the stock trades 50,000 shares per day, at a price of $10, the naked shorts can sell a million shares, driving the stock down, down, down



If that isn't enough stock, more, more, more can be sold


The Naked Short Printing Press 

Naked shorts can sell MORE than the outstanding stock!



Imagine a naked short selling 30 million shares of our hypothetical company that has 10 million shares outstanding



If the short sells the 30 million shares at an average price of $5 and drives the stock to one cent, he has a profit of almost $150 million!


The Naked Short Printing Press If the short sells the 30 million shares at an average price of $5 and drives the stock to one cent, he has a profit of almost $150 million! But the market value of the entire company to begin with was only $100 million!


Taxes 

The naked short has an incentive to stay short – taxes



When he closes the trade by buying back the stock, he has to pay about 1/3 of the gain in taxes.



But if he keeps the trade open, his friendly broker will let him play with the almost all the profits – on margin



So on his $150 million profit, he can trade abpout $300 million in stock


Pyramiding 

In this way, a naked short could pyramid his profits



Take profits in the first stock and sell another $300 million short, etc.



After a few trades like this, the profits are humongous


Naked Shorts Exposed 

If a naked short does not close out the trade, he definitely does not want the company to come back from the living dead, especially if he is using the money to destroy some other company



If the stock comes back, he will lose heavily and the broker will ask him for more money to cover the margin on his short



Thus, he will stop at nothing to hold the company down


Shorting the World 

Naked shorts were eventually outlawed



If they pyramided their profits, they made huge gains in the 2008-9 market meltdown



They would have had the money to attack large institutions, and eventually short whole countries



All of this is hypothetical, naturally


Hypothetically Speaking 

Hypothetically speaking, there have been reports of stockholders being able to buy more than the outstanding common stock. Naked shorts were eventually outlawed



I am investigating now one company that is alleging there is a short position of many times the outstanding stock


Learn More 

Subscribe to my YouTube videos



Go to www. Short-stoppers.com



Subscribe to my blog

www. investing-performance.com


Read My Book on Amazon.com 

How to the Shorts Raid Your Stock, Destroy Your Company, and What to Do About It



Amazon.com


John Lux 

Trader, investment banker, former OTC Market Maker and attorney – he is a former and possibly current short seller – but not naked

Lux.Investor@ gmail.com

Copyright ©John Lux 2011


Naked Short Selling  

Naked Short Selling www.short-stoppers.com This is not investment advice. Stock speculation is very risky This is not suitable for all inves...

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