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Author: dsbrady Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5847  
Subject: Re: Couple of questions for TMF Date: 1/9/2003 10:50 AM
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Hi Jeff,
you are mentioning the possibilty of a reverse stock split as Plam did.
MAybe its a stupid question but what effect will this have on the short position the RB is holding?


I'm not Jeff, but I'll take a stab . . . .

It will have no real immediate effect (the same way a regular stock split doesn't really do a whole lot [I disagree with this sentiment a little bit, because of its psychological effects, but it's mostly right on]). However, let's look at it this way.

Stocks are traded in no smaller than 1 penny increments, right? So, let's say the stock is valued at 10 cents. It's almost impossible for it to reach 0, because no one's going to sell it for 0 cents. So, the best you could do in that short is reach 1 cent (another 90% gain for you).

Now, let's say they do a 10-1 reverse-split. That puts the price at $1. If the price goes down to 1 penny, you've maid a 99% gain instead.

Typically, reverse splits don't work, and often the stock continues to drop. So, while it might stave off being delisted, it probably won't stop the fall (and will probably result in bankruptcy or delisting anyway).

dsbrady
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