CAPS Challenge Allows EARLY Entry
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.