Shorting Penny Stocks

Hi Monkeys,

How does a simple nomad like me short penny stocks? Do I have to have a certain brokerage or trading station? I have 11k to do this in one account which could be pure speculation. I have other more stable accounts focused on gradual growth over a 5 year horizon. Thanks for any help.

 

Your account size determines what price point you can short at. Most brokers wont let you short stocks under $5 unless you have account values over a certian point. The lowest level I have heard of is 25K for under $5 dollar stocks. Plus you will have to fill out paper work and do other things.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 

It really isn't worth the effort. Here's why:

First, you need to find a broker that will let you short pennies. Interactive Brokers is the only one I found that allows you to do it.

Second, you need at least $25,000 cash in the account to be able to short pennies.

Third, the margin requirements are ridiculous (I'm not exactly sure, but $1 per share is ringing a bell in my head).

Fourth, even if you meet all the requirements and put up the margin, it is incredibly difficult to find shares of penny stocks to short. Most are HTB and it is rare that you will find enough shares to short to actually make the possible return worthwhile.

Stay away.

MKballer
 

The risk levels don't seem to make sense here. Just think about how you are only able to manage a minimal gain, but are exposed to unlimited loss...that is a massive amount of risk that I don't think is worth the money.

 

The problem with this will be margin calls. It takes a ton of shares to make any money on this and with how easily the price can swing you can get eaten alive with margin calls. Plus if you do make a lot of money on this people are going to think you are trading on inside info or that you are part of a pump and dump scam.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
Best Response
mcnameo:
Might get flamed for this, but I was wondering if anyone has any experience shorting penny stocks.

I am looking to potentially take a good chunk of money and dive into it.

Does anyone have any suggestions for someone just starting out? Who should I use? What kind of qualifications does it take to get approved for a margin account?

Thanks

It's a fucking pain in the ass is what it is.

First off, you need $25k USD in your account to meet margin requirements. Depending on the stock, you'll have to post 100% margin to cover it. That's assuming you can find the actual stocks to short (interactive brokers is actually pretty good about that... well, sometimes). If you play the options market, the stocks are so thinly traded that the spreads are HUGE and even if the stock does crash and burn, the options may not move as much as you think they will.

Next, remember that the market can be wrong for far longer than you can stay liquid. A stock could EASILY run up 30% before it crashes and burns so you better damn well be sure your timing is good.

Finally, when the stocks get halted, it ties up your capital for a very very long time. Sometimes, the stock opens up thanks to the shorts covering so that cuts into your profits too.

If you're going to short pennies, you have to be on top of things.

Here's my experiences shorting so far (I've been targeting really shitty chinese RTOs)

PUDA - got in at about 9. Stock's halted now. The chairman is apparently making a bullshit offer for $12/share so it's going to be interesting to see how the stock opens. It's still going to zero, but it's going to be a waiting game.

SBAY - got in at $3. Stock's halted. Waiting.. waiting.. waiting...

SHZ - Got in at 5, watched it run up to 6 and decided the risk wasn't worth it. Got mad at the market for grouping the company in with REE companies. Learned my lesson about markets being stupid.

SCEI - Bought puts on Apr 27. Watched the options markets until the drop to 1.97. Got really lucky and decided to sell at that point as I saw the options markets drying up. Voila, stock spiked up.

ZSTN - Got in around 5, got out around 4.50. Missed the drop to 3. Timing is everything.

Another stock I was watching, but never got into was LEXG. Check out the chart on that one.

April 28th a hit piece came out. Stock pumped up 30%. The next day, down 65%, then up 30% after market. That be some stomach churning swings.

If you want to do more, look at the top promoted stocks here: http://stockpromoters.com/

You can also do your due diligence on the following Chinese RTO abortions:

ADY, AUTC, BORN, CAAS, CAGC, CAST, CBEH, CCME, CDM, CEU, CGA, CHBT, CHNG, CHOP, CIL, CMFO, CNET, CSKI, CTEK, DEER, DGW, FEED, FSIN, GFRE, GPRC, HEAT, HOGS, HRBN, JGBO, LIWA, LTUS, NEP, NEWN, NIV, ONP, PUDA, RINO, SCEI, SDTH, SKBI, SOKF, SYUT, UTA, VALV, YONG, YUII, ZSTN.

ALN AOB AXN CADC CBP CBPO CFSG CJJD CNAM CNGL CNIT COGO CPHI CPSL CREG CSR CTFO CWS CXDC HGSH HQS KEYP KGJI LLEN LPH NFEC SBAY SCOK SHZ SPU SUTR TBV THTI TPI WUHN WWIN

These things have more lives than cats, so waiting for them to die is a long and painful process.

 

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