No. of Recommendations: 0
Greetings daveindeal and welcome to the Motley Fool!

You write:


Looks like you've found me. : )

Interesting question. I have to say that a splitting stock is neither less attractive nor more attractive for short sellers. Remember that when a short seller looks at potential returns, they are looking at percentages.

As a Foolish investor, I hope to make at least 20% on my short sale. Therefore, if I invest $10,000 and short 100 shares at $10 -- and the stock splits -- I will now have 200 shares short at $5.00. If I was originally looking for the stock to return 20% at $10, I would be hoping it goes down to 8; but if it splits, to make my 20% it now only has to go down to 4. It is neither more nor less attractive.

Also, when we look for stocks to short we are looking for companies that are in trouble. Before you think of shorting a splitting stock, remember this (taken from yesterday's Foolish Four article):

<<Sometimes it's done because the company has been performing well, is
excited about its future prospects, and wants to communicate this fact
subtly to the investing community. Often splits occur in the face of new
highs for a stock; thus it's an event dripping with positive associations.>>

In such a bullish scenario, shorting might not be the best position to take.

Hope this helps!

Barbara Eisner Bayer
TMF Venus
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.