Shorting stock and the internet bubble.

[Greg Nowell]

It's all a question of timing, of course.  If you buy a
put option and the bubble keeps going while your puts
expire, you've lost money for nothing.  You can keep
buying more puts but, if you've been doing this for the
last year or two, your transaction costs may well
exceed eventual gains.

Or you can sell short, in which you borrow a stock,
sell it, and promise to repay the debt by replacing the
stock at a later date.

You really get squeezed on this play.  Lots of people
go short and the market moves up anyhow.  The short
sellers are required either to replace the stocks--at a
loss, paying back the stock they borrowed and sold with
one more expensive--or to cough up more money to keep
their margins in order.  What usually happens is that
as the market moves up short sellers are forced to move
out of their positions.  This means that they are
forced to buy on an upward movement, further
reinforcing the upward movement.

It doesn't look to me that this bubble is toppable with
rn-of-=the-mill financial tools.

--
Gregory P. Nowell
Associate Professor
Department of Political Science, Milne 100
State University of New York
135 Western Ave.
Albany, New York 12222

Fax 518-442-5298