This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Short-Selling China Stocks Is Game for Pros

Stocks in this article: ONP RINO CEU

BEIJING ( TheStreet) -- When you watch a stock like RINO International (RINO) or China Education Alliance (CEU) plummet by 50% to 60% in one or two days, short-selling may look like an attractive game to play.

But in my opinion, the risk vs. reward tradeoff is very unattractive for individual investors.

First, the best you can do is make 100%, and that is only if the stock you short goes to zero. Second, borrowing the stock can be difficult and very expensive. Third, your potential losses are infinite because there is no telling how high a stock can go. Lastly, when shorting, timing is everything. You could have been right about RINO being a fraud and shorted it when it was at $15.00, but the stock still ran to $30.00 and you would have lost 100%. Unless you are a short attack artist who knows the timing of the release of a damaging report about a company, shorting puts you at a distinct disadvantage.

In any event, it seems there is a new short-seller in town going by the name of Kerrisdale Capital. This company recently issued a 28-page report claiming that China Education Alliance is a fraud devoid of students, desks and teachers and that its online Web service (the company's main revenue driver) doesn't even function. China Education Alliance is a NYSE-listed company that was trading at $5.50 before the report's release, giving it a market cap of about $150 million. The short attack caused shares to plummet about 60% to as low as $2.34.

Shares rebounded by as much as 18% on heavy volume Wednesday on no news and closed up 12.2% at $3.03. People keep asking me, "Was that the short cover? Are they gone?" It is difficult to say, but I am guessing the answer is no.

China Education Alliance is scheduled to hold an investor conference call on Tuesday, Dec. 7 to address the report. If the call goes well, shares could rise. But I would expect Kerrisdale to issue a new report rebutting the company's statements on the call and launch a new short attack, driving shares down again.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,191.37 -195.84 -1.13%
S&P 500 2,002.16 -27.39 -1.35%
NASDAQ 4,637.9940 -43.5030 -0.93%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs