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Zecco.com » General Investing » Margin Trading » There aren't enough short inventory
Last post 09-21-2008, 5:14 PM by dozybrian. 2 replies.
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  •  08-28-2008, 4:15 PM 36798

    There aren't enough short inventory

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    What does this mean?  I tried to short a stock today and got this message.  I only put in a few shares and still got this message. 

  •  08-28-2008, 7:44 PM 36831 in reply to 36798

    Re: There aren't enough short inventory

    Reply Quote
    It's pretty simple:  Shorting a stock means that you borrow the stock from your brokers to sell, then you buy at the later time to repay your brokers.  Of course, when your brokers don't have any shares for you to borrow, you would get that message.

  •  09-21-2008, 5:14 PM 39196 in reply to 36798

    Re: There aren't enough short inventory

    Reply Quote
    Why are you shorting a few shares? Please tell me you are doing it "for fun" or for experience rather than trying to profit from it.

    Don't take this as an insult but one thing tells me that you don't know enough about investing to invest (or short). If there isn't enough short inventory, that means, simply, your broker can't obtain borrowed shares to be sold to the market. What does that mean? That short interest is already high.

    You will be doing the equivalent of buying high, selling low. You are following the herd. By the time you short a stock (and there isn't enough inventory), you are already too late to the game. Say you were able to short the last remaining shortable shares of a stock, then you will be scrambling when there is a short squeeze (Google it). Essentially, you committed an investing no-no: Buying high, selling low (the equivalent of selling low and buying high when shorting stocks).

    There are excellent websites (and multiple sources) in which you can get such data, links to which I will not provide since you have to do your own research. Anyways, the data is out there. If short interest (again, Google it) is 25%, that should tell you something. You should ask yourself, "Am I just jumping on the bandwagon or am I really making an intelligent decision?"

    Also, if a stock has been declining and declining and declining, should you then short the stock? Not necessarily; just because it's going down doesn't mean it will continue going down.

    Best example if buying into the hype and jumping on the wagon before the SEC came out with the short selling ban on 799 financial companies. If you shorted companies that were on this list prior to the SEC announcing the rule, you would have lost a lot of money when there was a short squeeze following the SEC announcement. Of course, you can hold your short position and potentially ride out the short squeeze but you have to make sure you have "maintenance excess" (i.e. collateral). As your short position's value decreases, your broker will require you to post more collateral to hold this money-losing position.


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