You think Iridium (IRID) is going to zero. Talk of bankruptcy -- a bankruptcy that would surely wipe out the common stock as that it the first level of corporate structure to be taken out and shot -- has you thinking, hmmm, 7 points down.

Hold it!

This stock can't be sold unless you own it. On my machines a big flashing R tells me that it is restricted. If you don't own this stock, you are breaking the rules if you short it. If your machine doesn't alert you and you want to short it, you could be out of luck.

Lately, perhaps because the market has had such a run, I am getting a ton of inquiries about shorting. The Iridium inquiries are jamming my box. Everybody wants to bag these 7 points down. Everybody.

I say forget about it. Don't even think about defying the rules. You can't short a stock that can't be borrowed.

To go over the cadence again, when you want to short something, the first thing you have to do is find out if it can be borrowed. Sure it looks like there are 7 juicy points of downside to Iridium if the company files for bankruptcy. But those are points that will always elude you if you can't get a borrow.

What does a borrow entail? Remember the

ABR Information Services


debacle? I described the process that allows you to call the stock loan department of your brokerage house to see if you can first locate some Iridium stock to sell.

Even though you don't own the stock you short, you have to deliver something to the buyer. Your brokerage house has to find stock somewhere from some vault to lend out to you to sell. Right now every conceivable share of Iridium that can be borrowed is borrowed. It is lent out. There is no stock to send to buyers if you short it. If there are shares around, they have been shorted.

Consequently, bottom-fishers who don't know better -- maybe one of the few thousand

satisfied Iridium customers? -- and people who want to profit from their existing shorts (short coverers) bought the stock yesterday. If they bought it from other short-sellers --illegal ones because it is restricted from shorting -- these new sellers won't be able to deliver stock.

You could be subject to a painful squeeze.

So what happens? Go back and read the ABRX story. The brokerage house that did the buying for the customer will demand that the client who sold the stock buy it back to deliver some shares. If he won't, the buyer's broker will go into the open market, buy the stock and just hose you, the short-seller, with whatever price he wants.

That's a squeeze, the deadliest fear of a short-seller. It is when merchandise that should go down goes up.

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Now, you say, how about those lucky folks who already have a locate. What are they doing?

They are sweating. Even if you have located stock to borrow, it can be called away at any moment. The short-seller has no guarantees that he won't be bought in anyway even if he has a locate. As I described in the denouement of the ABRX story, I was bought in viciously by a trading desk even though before I executed the short sell originally I had arranged a bona fide locate.

It doesn't matter. Locates are "subject" to change. Just like the weather.

I know, it seems arbitrary and capricious. It is. But remember

nobody ever feels sympathy for the short-seller

. Don't weep. Accept it as one of the hazards of betting against stocks. The rules are different in capitalism when you want to profit from a company's woes than when you want to benefit from the company's good fortunes.

The moral: Selling stock short may be the mirror image of buying stock long, except when you can't borrow it to begin with.

Random musings:



(MSFT) - Get Microsoft Corporation (MSFT) Report

news is generating some pre-market buzz. I am a part of it, taking stock at 95 and change betting that MSFT might get beyond its 95 options strike. (Please see archives for numerous articles about how stocks tend to be pinned at the strike.) Remember, summer Friday rules. Nobody big at a sell-side firm works past 11:46. It is way too unfashionable. ... No, I am not mad about

Aaron Task's

comment about first prize being a morning with me in the trenches and second prize being a week with me. Showed it to my wife and she said she had obviously won the booby prize. By the way, I like Task's column. It is kind of like early Letterman mixed with early Abelson, before the former was really funny and the latter was really cranky. That's good. It just needs more hedge fund commentary and more TV criticism. It needs less navel-gazing, as I don't think anyone is that interested in a TaskMaster's navel.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund was long Microsoft. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at