Borders Bears Crowding Into the Wrong Side

Borders Group (BGP - commentary - Cramer's Take) tells me that when everyone is short, you lose on the short side. No matter what.

Last night Borders reported a bad number. But not so bad that there is room for all of the shorts to cover. Right now the stock has traded a couple of million shares, but you are going to need a lot more shares for sale for everyone to cover.

My thinking when I recommended this stock on TV yesterday was that no matter how bad the quarter was, Borders has a new management team, a great rewards program with 10 million customers and a pretty terrific balance sheet.

It also has a book value of $13 a share, which supports a valuation of $20-$25.

What I knew about the quarter was that it was in comparison with a Harry Potter-inflated same-store sales number, kind of like what happened to Abercrombie & Fitch (ANF - commentary - Cramer's Take). I knew that people would freak out, but that going forward the compares get much easier, and the idea that there would be no new blockbuster novels come the fall is simply unrealistic.

Remember how the short game works: You need sellers so the short-sellers can cover. The BGP short position doubled in the last month. That's ridiculous and way too crowded. Already I see a huge buyer of September $22 calls, which is simply protection against a squeeze for someone who is short.

I want to buy this stock. It has the makings of ANF at $50, one down, a ton up. Oh, and I am confident that had the market been up right now, this stock would be unchanged already, and that would freak out everyone who is short.

It never pays to short a stock when everyone else is.

Watch BGP.

Buy BGP.

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