It is often said or written, “One cannot make any money (legal or naked) shorting a penny stock, because the price is so low.”

Our company, Silverado, is one of the most often discussed companies regarding the issue of shorting, be it legal or naked shorting, therefore this subject is very much an on-topic issue.

This discussion is not about whether or not Silverado is shorted legally or illegally, but whether or not money can be made in doing so.

I’d like to start the discussion with this premise:

Shorting a penny stock can be just as profitable as shorting a dollar stock.

It is all a matter of percent change; it is relative price movement, not absolute price:

Case 1: Short a stock from $5 to $3.

Borrow 10,000 shares (legal shorting) of a stock currently at $5, put them in your account, then sell them into the market at ~$5 average over a period of a few days, you now have $50,000 'cash' in your trading account.

When the company SP drops as you have so cleverly predicted (due to poor performance, other shorting, whatever) to $3, you buy 10,000 shares back with $30,000 of your $50,000.

You now return the 10,000 borrowed shares to the entity from whom you borrowed them (since you legally shorted), and pocket $20,000 profit.

Case 2: Short a stock from 5 cents to 3 cents.

Borrow 1,000,000 shares (legal shorting) of a stock currently at 5 cents, put them in your account, then sell them into the market at 5 cents average over a period of a few days, you now have $50,000 'cash' in your trading account.

When the company SP drops as you have predicted (due to poor performance, other shorting, etc) to 3 cents, you buy 1,000,000 shares back with $30,000.

You now return the 1,000,000 borrowed shares to the entity from whom you borrowed (since you legally shorted), and pocket $20,000.

Naked shorting is even easier. You do not even have to borrow or return any shares, you counterfeit them out of thin air (thin electrons).