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FreeMarkets (89.70)

CAPS Challenge Allows EARLY Entry

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March 19, 2010 – Comments (4) | RELATED TICKERS: PALM.DL2 , GM

One of the great challenges of shorting a stock is knowing when to start a short.  With CAPS, that isn't a concern.  Take my short position in PALM for example.  I started shorting at $3, fully knowledgeable that the company's products were only iPhone wanna be's and not the real deal.  Fully knowledgeable they didn't have enough cash without a big success.  Fully knowledgeable they made a deal with SPRINT - which is/was losing customers by the bucket load.  Fully knowledeable this company was DEAD.

I watched as the stock climbed and climbed.  Over $16/share.  It was a thorn in my portfolio.  Don't get me wrong, there are plenty of shorts in my portfolio that I do NOT expect to go bankrupt.  But PALM really irked me, because I was so confident.

Today, palm is barely holding much above $4/share and I'm quite confident I'll make 50 pts on it before 2010 is over.  But it goes to show how dangerours a REAL short can be - even if you're 100% correct.  Had I really shorted Palm, would I be able to keep covering the margin calls?  Even at $16/share, I wasn't willing to REALLY short Palm - because it could have hit $50 before its eventual fall to $0.

How can so many investors be so wrong about a stock?  How could GM have traded over $1 just days before its bankruptcy?  Are there really that many stupid investors in the world or is there a game going on to trick the few suckers who just don't do their research?  I'm betting theres a little bit of both going on.

4 Comments – Post Your Own

#1) On March 19, 2010 at 11:08 AM, FreeMarkets (89.70) wrote:

Peter Misek, technology analyst at Canaccord Adams cut his price target to $0 from $4.

”We believe Palm’s troubles will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support,” Mr Misek wrote in a client note.

”With what appears to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity, we no longer see any value in the company’s common equity.”

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#2) On March 19, 2010 at 11:54 AM, outoffocus (22.75) wrote:

Are you kidding? I bought puts in PALM last year because I was that confident this stock would fall. I was just a bit too early with my call and I didn't really have time to roll the puts to a later date. But I agree with you, I'm looking at dozens of financially bankrupt debt-ridden companies defy gravity everyday. I've given up trying to predict their demise.  I called for GM's bankruptcy back in 2007 when the stock was somewhere around $60 a share I think. I even called for it again sometime in 2008 in one of my first blogs on CAPS. Yet that stock continued to defy gravity even up until GM officially declared bankruptcy.

Even though the stock market isn't at the bubble levels of 2007, it is still showing all the other signs of a bubble, such as stocks teetering on bankruptcy somehow defying gravity. 

So until sanity returns I'm done following the stock market and focusing on commodities and currencies.

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#3) On March 19, 2010 at 1:36 PM, Tastylunch (29.20) wrote:

You have to remember the default bias of the market is bullish. I forgte it myself from tiem to time.:) I got PALMed just like you except I actually a short I had to exit pretty quickly intraday after the PALM Pre mania just kept going and going. I stayed in it in CAPS though

How can so many investors be so wrong about a stock? 

the market is always going to be more likely to believe the positive over the negative and let's face it PALM had a lot of good sounding news (on the surface) right when a major bull move was getting underway

Other horrid stocks bounced with them. The tide was was with the bulls in unusual force for anything. Something like PALM which actually had a scneario it could pitch only heightened that effect.

How could GM have traded over $1 just days before its bankruptcy? 

gamblers who think the stock will hold value in bankruptcy and daytraders. And morons

Are there really that many stupid investors in the world or is there a game going on to trick the few suckers who just don't do their research?

You are right it's both.

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#4) On May 05, 2010 at 12:30 PM, FleaBagger (29.21) wrote:

If you had invested a couple hundred dollars in puts when it was at 16, you would have made a lot of money, perhaps thousands, and risked only the original $200 investment.

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