How To Short Penny Stocks: Playing It Safe By Covering Short Positions Early
This is a profession where we know 90% of the players lose—you want to do everything you can to not be one of them. What’s worked for me is short selling weakening stocks that have a bunch of overhead resistance and if the price action doesn’t pan out EXACTLY like I want, cutting my losses quickly. I’ve proven both these points with my latest trades on COT and ASTI.
As I posted the other day, I shorted COT at $3.48, encouraged by a late afternoon crack of sideways price action, making em think it’d seen its top. Unfortunately, overnight good news caused a 15 cent/share gap higher—not much, but definitely not to my liking. Thought about holding, but when I see fading volume and 20k and 30k buy orders—whether they’re real or not—there’s the potential for a big squeeze, so I covered my 1,000 shares at $3.60, a $140-ish loss. Not bad, just playin’ it safe.
Minutes later, the stock was looking to go negative and I tried reshorting 2,000 at $3.55—order REJECTED. Too much trading for this under $25k trader, pesky SEC-Reign-Of-Terror-Rule (Pattern Day Trading Rule (PDTR) should really be ROTR) stopped me…stock drops nicely down to $3.25—annoying $500 gain missed, but this is why most traders play FX and use tons of leverage (SEC you realize you’re punishing the good guys and encouraging the bad ones, right? AKA any economic disaster is squarely on your shoulders). Gotta learn I can’t enter and exit as I please, like being on probation for a crime I didn’t commit—never gonna get more comfortable risking losses.
Focused on writing most of the day, but then recent runner ASTI showed signs of afternoon weakness, cracking the day low at $16.20. Sure, plenty of support all through $15.6-$16, but this one was up waaaay too many days in a row, this was its first day, panic was possible—and panic sometimes cuts through support levels like warm butter. Shorted 300 shares at $16.13, not a great entry, but not bad, waited, waited, waited, lots of buyers just over $16 wouldn’t get taken out…until a 20k sell order showed up on the as at $16.05…that scared buyers and the tank was on, right before the market close, coulda woulda shoulda gotten ugly.
But it was stopped cold around $15.90, a pathetic 10 cent panic—screw this, waaaaay too many buyers to risk holding overnight, covered on the bounce at $16.10, made nada after commissions. Sure it finished red on the day and under $16.20 intraday support, but it’d also gapped higher the previous few days and was already $2 off its highs, wasn’t gonna risk it.
Today COT was strong from the get go and ASTI dipped 50 cents before spiking $1.50-ish. Both prove themselves to be more bullish than bearish justifying my decisions to get out…$140 loss is perfectly acceptable, no positions, now I go back to stalking my next prey…
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| Date | Stock | Buy | Sell | Net |
|---|---|---|---|---|
| Sept 4 | COIN | $5.70 | $6.21 | $745 |
| Sept 3 | COIN | $6.49 | $6.30 | $305 |
| Sept 3 | COINW | $2.75 | $2.85 | $180 |
| Sept 2 | TAYD | $7.51 | $8.13 | $545 |
| Aug 18 | FOUR | $2.80 | $2.66 | $342 |
| Aug 14 | APII | $2.66 | $3.30 | $1261 |
| Aug 12 | APII | $3.25 | $3.40 | $285 |
| Aug 7 | NOBL | $5.02 | $5.49 | $680 |
Total: $26,508 (
114%)
1timsykes
April 2nd, 2008 at 11:39 am
read this post and u’ll see why no I don’t think ASTI is a great short here…
2Michael Goode
April 2nd, 2008 at 11:58 am
Hey Tim, take a look at MXFD. The bugger looks to me like it is about to crack. Couple weeks of almost no volume, and the last couple days it has started a slide.
I’ve been short it for awhile and am sitting on huge losses, but I am patient. Because of the low volume and the hard borrow I’m sure it won’t meet your trading criteria, but it will still be fun to watch it fall.
3InvestorsLive.com
April 2nd, 2008 at 12:07 pm
MXFD is bull - same people as RVNG and KYUS - Just a very small float controlled by very few people. It may get halted before it stops moving up… who knows though maybe it’all work, not sure what could roll in to support 500M-1B market cap but hey worth a shot.
Where are you able to short it?
4Michael Goode
April 2nd, 2008 at 12:12 pm
Interactive Brokers. It took months of watching, and then one magic day a large chunk of shares were available.
5leo00o83 (Amir)
April 2nd, 2008 at 12:13 pm
ASTI is trading alongside oil speculation. big money is in charge of this rocket.
Got in CDS at 7.95 today, meanwhile looking good, but we’ll see. Tim if this thing breaks down 7$ would you short?
6timsykes
April 2nd, 2008 at 12:13 pm
yah MXFD is surely on my watchlist, very scary though, how low did u short?
7InvestorsLive.com
April 2nd, 2008 at 12:15 pm
Its so very controlled and if you watch it the only one that buys is ARCA, TRLN is probably a short but most of the time its ARCA vs ARCA
8timsykes
April 2nd, 2008 at 12:25 pm
no shares at thinkorswim…cmon goode tell us what u’re in at, u can’t knock me–mr. full transparency–and then hide your details, for shame!
9Marv
April 2nd, 2008 at 12:38 pm
Tim - CVP took a hit and is trading sideways todays. Your thoughts on a breakout?
10Kris
April 2nd, 2008 at 12:46 pm
Have any of you guys seen the RUDY NUTRITION drink spam commercial on CNBC? Ticker is RUNU They use some fake website url and say the ticker symbol in the commercial talk about taking spam to a whole new level lol.
11Tony Ellis
April 2nd, 2008 at 12:50 pm
ASTI…lol
12Derek
April 2nd, 2008 at 1:03 pm
What do you think of PAY. The company has confirmed financial errors and shares tank.
13Nate
April 2nd, 2008 at 1:03 pm
Are you cheating on covestor or what’s going on there? 150% return?
14InvestorsLive.com
April 2nd, 2008 at 1:43 pm
CVP Just lit up! Trying to make an afternoon move towards $5.00, Big tanker earlier in the day. Had a good size position at 4.20 but unfortunately sold way too soon!
15Mike
April 2nd, 2008 at 1:50 pm
Michael Goode, do you know if interactive brokers still has shares available to borrow? I was thinking of opening an account with them.
16timsykes
April 2nd, 2008 at 1:54 pm
c’mon Goode put up or shut up, you come on a fully transparent website, you try to get others to short a stock you’re getting creamed on and you don’t have the balls to say what you’re entry price is–classic classic classic financial BS. thanks for being the latest reminder at why I’m gonna dominate this industry simply by being open and honest
17Mike
April 2nd, 2008 at 1:57 pm
That’s a weird stock. It’s a microcrapper in terms of float but still has market cap of half a billion. aka Susceptibility to short squeezes! aka Don’t short until it’s a super nova.
18Michael Goode
April 2nd, 2008 at 2:02 pm
Sorry for the delayed response. I still have a day job and can’t spend all my time here!
@Mike - no shares have been available for over a month @ IB.
TIm - I’m short 8,100 at an average price of $13.25. And yeah, that means I’ve been sitting on a loss of up to $50k (currently $36k). I shorted those shares between 2/12/08 and 2/19/08. Interestingly, because of other good calls, I was up 19.48% in February and 16.51% in March despite the huge losses on this position.
As long as I can hold on for a long time (and I can), there is little risk from spikes in the stock. The only risk if the stock goes Reg SHO and IB forces me to buy to cover at a huge loss. That has happened to me in the past, last January with RMDX. Luckily I was able to short that again just a couple weeks before it tanked.
19Michael Goode
April 2nd, 2008 at 2:05 pm
Mike–the one problem with using Tim’s trading methods on this type of stock is there are rarely shares available to short, and almost never are there shares when you want them. The only way to make money shorting it is to short when shares are available and hold on for dear life. Same thing happened in January with CCYG, and has happened numerous other times with junk OTC stocks.
20Michael Goode
April 2nd, 2008 at 2:09 pm
Tim–you want to apologize? Like I said, I was busy. Anyway, I thought y’all might be interested in it. I’m not trying to get anyone to short it. If any more shares become available, I want them.
BTW, I am now on Covestor (unfortunately they don’t auto-import from IB): http://www.covestor.com/mbr/goodevalue.com
My previous trades are all on Icarra (ignore my return, it is not correct, which is why I moved to Covestor):
http://www.icarra.com/viewPortfolio.php?id=1912
21timsykes
April 2nd, 2008 at 2:26 pm
Good answers, but no apologies, next time get your priorities straight!
As for saying there’s rarely shares to borrow–look at my trades man–I’m using a freaken basic online discount broker and I get shares nearly every time. I could use a specialty broker that requires minimums of $250k and get shares EVERY time, but that’d be tough for the mainstream audience now wouldn’t it
22Michael Goode
April 2nd, 2008 at 3:15 pm
Tim–for MXFD and similar thin, manipulated OTC stocks, the borrows are hard or nearly impossible. There’s a big difference between that and stuff like COIN and ASTI.
23ken
April 2nd, 2008 at 7:25 pm
Just want to share these two from my short filter. NXTM and HYTM are junky companies and the chart is in a strong down trend. There was no recent news to account for the recent big up moves. These types have a high probability of resuming their major trend which is down.
24Bob
April 15th, 2008 at 12:47 pm
It seems to me that RUDY NUTRITION (RUNU) is going to take off. It is worth investing in!
25JoeJoe
July 22nd, 2008 at 11:06 am
What broker do you guys use to short pennystocks? The only Online brokerage firm I found to have sufficient inventory is Interactive Brokers? Does anyone use a different firm.
Please Help.
Thanks