Short sales for Tepsda - Basically, in simplest te
Post# of 74957
Those "imaginary" shares are borrowed.
The short seller is betting on the stock going downward. So he takes advantage of sudden spikes in the price which he sees as unusual or extraordinary. He assumes that the deviant upswing will revert back to a more normal price, allowing him to profit off of that return to normal.
People think that sometimes short sellers will buy a stock when it is at a new high, and then promote bad news about the stock to drive the price down.
I personally don't believe that short sellers have THAT much influence over the price, especially if there is large volume. They may influence a small group of people on a bulletin board to sell, but overall I think that most investors make up their minds without the influence of the short sellers.
Second, I don't think that you can short sell a penny stock. I could be wrong, but I don't think it is allowed by any broker because the price swings on penny stocks (volatility) is so extreme. So I don't think that short sellers are an issue on this penny stock.
An important thing about short sellers, is that if the price of the stock continues to go upward, then they stand to lose a lot of money. When a stock is dropping in price, then there is a limit to how far it can fall. But there is no clear limit on the up side. So when a short seller takes a position in a stock, and it starts going upward, then he gets more and more panicky. So if there is a lot of shorts holding shares, then they get "squeezed" into selling their shares before the loses are too big. This causes the price to go up even faster. So a stock with a large quantity of shorts will go upward faster because they all start to "buy" their shares in order to close their positions and get out.
Again, I don't think this applies too much to penny stocks.