Ask TheStreet: Don't Get Squeezed

You can short a stock for as long as you want, unless your broker demands you give back the stock that you borrowed, which doesn't happen often. When you return the shares to the broker, you have to pay any dividends the company hands out.

There also are some restrictions on short-selling that may discourage some investors from giving it a go. You can't short-sell stocks that are trading below $5. Also, the price at which you short a stock must be at the market price or higher -- thanks to the uptick rule, which was instituted to avert continuous short-selling during a market decline, as was witnessed in the 1929 crash. (Exchange-traded funds, or ETFs, however, are not subject to the uptick rule.)

Also a key note for individuals: Most short sales must be executed in round lots of 100 shares.

Because of the costs and risks associated with short-selling, most individuals have no real need for short-selling in a diversified portfolio.

However, many financial planners suggest that individuals satisfy their urge for betting on the market by making side bets -- with less than 5% of one's investments -- on individual stocks. As long as an investor is aware of the additional pitfalls and realizes the potential for limitless losses, short-selling can make for a reasonable side bet. The trick, as with standard stock investing, is picking the right stocks.

Unfortunately, even if you do an in-depth fundamental analysis of a company and determine the stock is overvalued, the share price can still climb because of market momentum, causing some serious damage.

Investors looking to protect their short bets should consider two simple measures. First, set a limit on how much you are willing to lose on a short bet, and stick to it. Second, investors should consider hedging their bets by buying call options, which increase in value when a stock goes up.

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