Can one short penny stocks and de-listed stocks?
I was just wondering about it. By the way, is there an option market for penny stocks and de-listed stocks? Please provide a link to some info if you happen to know. Thank You
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Answer by kgb
I will assume you know how short selling works.
The problem with penny stocks is liquidity. Fewer people trade them, and the market is much smaller, so it would be much tougher for your broker to find someone to borrow stock from than something like Apple or Microsoft. There are also rules on most major exchanges which dictate that a stock can't be cheaper than a certain price in order to be shorted.
If a stock is de-listed, you will first have to find some venue or OTC market where these stocks are trading, and brokers who would trade them. On that level, it's a shady business which attracts the worst of sleazy people. Many of them will put you through a meat grinder for your money.
Technically, options on penny stocks and de-listed stocks exist, but when you go so deep into the underworld, you again deal with the issue of finding someone who's actually willing to go into a trade with you. You might as well be buying and selling crack. If you find someone to trade penny stock derivatives with, he will probably be a loan shark who will not deliver even if he loses, and you will eat your losses or wake up with broken legs.
I recommend that you watch Boiler Room a few times, and forget about penny stocks. Trading penny stocks off the major exchanges really is gambling, because the SEC light rarely shines that far underground, and your odds are far better in Vegas.
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