short selling questions

I have been learning a bit about short selling. I was wondeing about the process. I've heard that when you short a company, you can only short a company that another person owns within the same brokerage company. I was planning on shorting ny stocks(sub $2 su. Bch has riteaid). But is this true? Or am I able to short any stock at any price regardless if someone within my compa ny network?

My brokerage account is through Optionshouse.

Assuming you don't have any limitations on your account that prevent you from short selling, the key factor is finding shares to borrow from someone who owns the stock. Remember that the first step in a short sale transaction is borrowing those shares, or else you'd be guilty of naked shorting which is illegal.

For most stocks this is easy as they readily have shares available to borrow. However, some stocks are hard to borrow and thus you may have to pay a locate fee to borrow those shares. You can check with your broker regarding their locate practices, but most brokers should at least attempt to contact other brokers in order to locate shares you wish to borrow.

Keep in mind the other choices for profiting on the down side - ETFs and options.

There are several inverse ETFs for the broad market and for sectors. Check out Yahoo ETF page for Bear ETFs for a good list. I currently hold some SH, the inverse S&P 500 ETF.

With options, you can get into a "short" trade with less money and less risk, although you probably can't find decent options on a $2 stock. Put options allow you to play the down side. Bear Spreads are a bit more complicated, but let you profit from a down move and from a stagnant stock. You buy and sell adjacent options, and get to keep the difference in the prices if the stock moves in your favor.

Hey all,

THanks for the reply. I was wondering have either of you, or anyone else for that matter, shorted penny stocks such as pump and dump ones found in newsletters?

My main concern for doing this would be: A) You get "calledaway" B) You cant find any shares to borrow.

Has anyone shorted these stocks and had either of these issues?