Unfortunately, I’ve had a bad start in 2014. My long positions and my short positions are moving against me. I suppose that this is bound to happen because stocks are never perfectly correlated. (If they were perfectly correlated then there would be no point in trying to pick stocks or to profit from short selling.)
While I have a large number of short positions (30+), I have managed to find many stocks (mainly Chinese and solar stocks) that have quickly moved against me.
I think that short sellers are right most of the time. The most obvious shorts tend to have very high short interest and/or borrow costs. I try to avoid going long heavily shorted stocks because the short sellers probably know something that I don’t.
The borrow on RGR is a whopping 80.5% (on Nov 2 it was “only” 62%). If RGR was about to enter bankruptcy like ATPG or STP or CMEDY, I would understand the borrow being so expensive. But I seriously doubt that RGR is about to enter bankruptcy anytime soon. The company has been paying dividends since 2009. At the end of 2012, it issued a whopping $4.5 dividend (about 8.74% of its market cap at the time). Its products are real and are reviewed all over Youtube. I think that the shorts are wrong to pay such a high borrow for this stock. It is almost impossible to make money when the borrow is 80.5%.
Because the borrow is so expensive, the call options on RGR are trading at very low implied volatilities (mid 20s versus historical volatility of around 40).
