IMP'T question for knowledgeable traders: Is this a "red flag" alert?

Discussion in 'Trading' started by Option Trader, Apr 29, 2010.

  1. A person I know received an express mail from his broker (Schwab) with a letter suggesting he loan out shares of his thinly traded stock (on the verge of a make or break announcement). They are offering to pay him over $1400/month to borrow the shares and with a return legal express envelope with an authorization signature to expedite the matter.

    On the one hand it seems shorts are on the verge of forced buy-ins. On the other hand, it seems the shorts are doing everything they can to hold on (or to even short more?), and the last time I know something like this happened the stock shortly afterwards tanked.

    There are only a few million shares outstanding in the market and stock is selling cheap. In my mind, either explanation is viable and in a way it's like tossing a coin; however, if someone very knowledgeable can share his views would be appreciated. Note that since this information (about Schwab) was posted on a message board, the stock rallied 6%.

    Please spare the funny remarks.
  2. $1400 a month for sitting on your butt in front of your monitor?
    Take the money and run!
  3. The person absolutely refuses, as it would supply ammo rope to the shorts to get oneself hanged.

    The question is if this is a sell signal, and if one should assume shorts are generally knowledgeable tradeable who are better informed than us.