Posted on: 02 July, 2004
Author: William Cate
Short Selling StrategiesTwo Dozen Types of Short SalesBy William CatePublished August 2002[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillagei... Short Selling StrategiesTwo Dozen Types of Short SalesBy William CatePublished August 2002[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]There 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 shareprice moves up because the short seller must add money to their marginaccount.2. A Market Maker Short Sale: U. S. Market Makers are not required to makephysical delivery of stock certificates when they sell it. They are assumedto be a repository of the company's shares.3. A Brokerage House Short Sale: This is a decision not to execute a buyorder from a client, but show the stock as owned by the client on theirmonthly brokerage firm account statement.4. A Clearing House Short Sale: The Clearing House doesn't execute the buyorder, but credits it to the brokerage firm client's account.5. A Naked Short Sale: This is where two brokerage firms agree to tradestock in a company with neither brokerage firm requesting physical deliveryof the share certificates.6. An Insider Short Sale: This is when insiders with restricted stock useit to sell short their company. It's illegal. It was a common practice whenthe Regulation S Hold Period was 40 days.7. A Ferrari Short Sale: This is where a bloc of stock is purchased. Thestock is converted to derivatives, thus factoring the stock one hundredfold or more. The short sale doesn't occur in the Stock Market, but thederivative owners are holding a short position.8. The DTC Short Sale: This is when Depository Trust Companies use thestock they hold to sell short that stock.9. The International Short Sale: Stock's created offshore. The company islisted to trade outside the United States (usually Canada). However thecompany is trading in the States. The shares are sold into the States. TheShort Sale is moved to the Primary Country, where the local brokers canensure that the short position will be covered by the listed company, ifthere is ever a successful short squeeze.10. The Arbitrage Short Sale: LTV - Scattered Securities is an example ofthis short play. The Court in the LTV reorganization determined theexchange rate for new shares for old shares at three cents. The Marketdidn't read the Court decision. The old shares traded far higher than theCourt Ordered exchange rate. The short sale was done by selling old sharesand buying new shares before the Court mandated exchange of sharecertificates.11. The Street Stock Short Sale: Sellers who are insiders or who allege tobe insiders sell counterfeit stock to buyers outside regular marketchannels.12. The MIDI Short Sale: Brokers sell stock at prices well above the actualtrading price of the stock. This has been popular with German OTC stockssold into the Middle East. The gap between the sale price and the tradingprice is an effective short sale.13. The Depository Receipt Short Sale: Using counterfeit stock, the sellerdeposits it into an overseas bank. They then sell Depository Receiptsagainst the counterfeit shares held by the bank. I've seen this done inAsia.14. The Rockford Short Sale: An investment firm buys shares and takesphysical delivery of the stock certificates. They replace the real sharecertificates with counterfeit share certificates. Next they sell the realshares back into the Market and repeat the process. This practice doeswonders for their balance sheet. The tactic was popularized in the RockfordTV Series. It's been done in Asia with NYSE shares.15. The Tax Haven Bank Short Sale: Small (usually Caribbean) banks act asagents for their clients unwilling to reveal their identity. The clientwants 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. Thispractice 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 tobroker. Using the certified receipt broker claims the client has the sharecertificate. A year is spent in proving it never arrived. Meanwhile thebroker 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 takephysical delivery of their share certificates. The broker sells themargined account non-existent stock (a short sale).18. The Takeover Short Sale: Brokers add non-existent stock into a takeoverwith stock transaction. The buyer pays for the non-existent shares. Theshort seller gets cash or stock in the buyers company.19. The Attrition Short Sale: For OTC stocks about 3% of the beneficialowners of the stock disappear each year. They die, forget they own thestock, etc. Brokers can safely sell short 3% of the float each year relyingon the fact that the beneficial owners will never claim their stock.20. Counterfeit Stock: Professionals regularly send counterfeit sharecertificates to Transfer Agents. A surprising percentage are accepted asreal share certificates. The result is the professional effectively hassold short the shares involved in the certificate.21. Issue Depository Receipts without holding the stock and sell theDepository Receipts. 22. The Warrant or Option Short Sale. Buyer holds the right to exercisewarrants or options, but doesn't do so. Instead, they sell short the stockand use the options or warrants as insurance. This was popular among VSEunderwriters in the 1980s-1990s23. Reg S Short Sale. Same format as the Warrant or Option Short sale, butusing 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 tothe business. You offer to lend 90% of the face value of the stock to theborrower for a long period of time. Your interest rate is better than thatof a bank. You take in the stock and sell it. You lend 90% of the proceedsfrom the sale. You are now short the stock. You collect your interestpayments until the borrower defaults on the loan.To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Article Tags: Short Selling, Sell Short, Short Sale, Brokerage Firm, Counterfeit Stock, Share Certificates Source: Free Articles from ArticlesFactory.com