No. of Recommendations: 1
I am not familiar with this company, but I will explain some parts of how this works in general.

1) Your understanding of how shorting works is correct.

2) It is common for share owners to be willing to lend their shares, for a fee. Large investors often have what is called "securities lending programs" where they are paid fees (by the shorts) for lending shares. For instance, part of the return of the VOO (an S&P 500 index ETF) comes from those fees.

There is no particular limitation to those fees, and in a short squeeze, the fees the owners are able to charge can be arbitrarily large. In an extreme example of a short squeeze, imagine that a person (or group of people) own 100% of the outstanding shares, and someone wants to short some shares and they lend them, and then buy them again, and now they own 101% of the shares. They could in theory refuse to continue lending the shares, and the price could rise arbitrarily as the shorts must buy the shares for whatever the sellers want to charge, without regard to the underlying value of the company.

3) If you own a PUT option, you have the right to require someone to pay a fixed price for some shares. But to exercise the option, you have to deliver the shares. If you don't have any shares, and you can't borrow any shares, then you can't exercise the option. If trading is halted, then acquiring those shares could be problematic.

4) I have no idea to what extent these issues are the brokers fault, or the SECs fault. When a short seller sells borrowed shares, the broker is legally required to return the shares on demand. The broker does not want to take any risk, so the broker tends to demand enough collateral so as to be comfortable that they (the broker) will not take any loss.

5) I am not saying that the brokers are or are not working with the longs to help make money on the short squeeze, I have no idea.

Morris
See positions at: http://my.fool.com/profile/CMFTurningItBlue/info.aspx
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