I was reading a short-thesis piece on CurrencyWorks (CWRK) . Someone asked me to check it out, so I did, and it got me to thinking about the "advice." First, let's get past it was one of the laziest, least convincing, least thought-out pieces I've ever read. After I finished reading, I rolled my eyes and wondered if I could get those five minutes of my life back. The short answer: I couldn't.
I then started asking myself, "why?"
Not why would someone waste their time writing such a pedestrian article/thesis (they do it for ego, usually) but why would anyone recommend shorting a $1 stock in general? And in this market no less!
I understand that a $1 or $2 stock can still go to zero and you can make 100% on your position, but you can also get your face ripped off in the matter of weeks, days, or even hours.
One of the very first things I was told when I started trading was never short a stock under $5. Buying puts? Sure. Maybe. But shorting a stock under $5 was asking to be destroyed. And this is long before Memes or Reddit or WallStreetBets or Discord or Twitter. Fast-forward several decades and we found out exactly how quickly your face could be ripped off as GameStop (GME) destroyed large hedge funds. "Smart" money, if you will.
Shortly thereafter, we witnessed dozens of single-digit names skyrocket hundreds and thousands of percentage points, sometimes in a single day.
I simply don't understand the logic, given the current environment, for advocating a short on a $1 or $2 stock. What's the goal? That you're going to hold under zero? Very few names drop to that level in quick fashion, so more realistically, you're holding for a 30% to 50% drop, or $0.30 to maybe $0.60 per share. The problem is you may be risking $1.00 to $10.00 if that name catches fire. In nominal terms, not only might your face get ripped off, but also your spouse's, your kids', and your nosy neighbor who is always snooping around your property.
It's not that shorting is bad or should be avoided but shorting a stock under $5 simply does not check the box of responsible risk management for 99.999% of traders and investors. I can assure you, in this sea of thousands upon thousands of stocks, there are better setups than shorting a $1 or $2 name, any name.
Simply don't do it.