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

Cramer: Short Selling Doomed Netflix

But the supply of stock outstanding that's needed to locate shares to sell short wasn't expanding at all. In fact, it was contracting because of Netflix's buyback.

So, shorts kept shorting and trying to borrow stock and they couldn't locate it.

When you can't locate stock you are forced to cover or buy back shares. When you saw the stock skyrocket from $50 to nearly $300, some of that demand was from natural buyers. But much more was from buyers who were forced to cover. In an amazing confluence, just at the height of when shorts were being forced to cover like mad, Netflix committed its now legendary screw up.

The longs panicked, but more importantly the shorts who would normally cushion the blow with their buying had been wiped out by the rise. The result? No floor. None. Without growth, with a shrinking subscriber base and with no natural covering short sellers what happens?

You got this astounding collapse from a level that it should never have been. You want to know why Netflix soared? Blame the short selling process. You want to know why it collapsed? Blame management, for certain. You want to know why it fell with such velocity? That's what happens when a stock gets squeezed up to the point that there's no one left to cover.

At the time of publication, Cramer had no position in any of the securities mentioned.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
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!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

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