Risk of Short Selling, Short Squeezes and the Stupid SEC Pattern Day Trade Rule (PDT)
I just experienced first hand one of the worst rules of the US Stock market – The Pattern Day Trade Rule… in laymen’s terms:
You can’t make more than 3 day trades within a 5 business day period unless you have $25,000 in your account, or else you will get a $25,000 margin call and a 90 day margin restriction put on your account.
This is horrible, because when a good play comes up to either buy long or sell short for some intraday profits, you have to hold on overnight or risk losing big.
My first hand experience with this today taught me a VALUABLE (read: expensive) lesson about short selling and the pattern day trade rule in the US Stock market.
An awesome play came up today with HSN, Inc. ($HSNI). Basically the stock went from $3 to $6 within a few days, and so it was a great short sale opportunity. So I shorted the stock because I thought that I could hold on and be safe. I shorted around $6 and was happy when the stock dropped to $5.50 – until a a Short squeeze came up (people covering their short to reap profits).
The short squeeze was horrible! The stock went up from $5.50 all the way up to $7.50! That’s a 36% difference! The stock closed are $7 (remember, I was short, so a rise in the stock price means a drop in my portfolio)
Because of the Pattern Day Trade rule (PDT) I couldn’t exit my position at all!! I had to hold on overnight, and risk even more loss from a morning gap up!!
Now, the ISSUE HERE IS NOT SHORT SELLING – remember, I was up intraday from $6 to $5.50 – but because of the Pattern Day Trade rule, I couldn’t exit my position and reap those profits (as of my writing this post, I’m praying it doesn’t gap up).
This taught me a 2 very valuable lessons.
1.) Don’t mess with the PDT rule and hope that you can beat the market, especially in volatility! 2.) Don’t hold onto a successful Short Sale in hopes of greedy profits!!
Now, my portfolio is up 20% because of taking the advice of Timothy Sykes and Tim Alerts, and in fact, this play was a result of Tim Sykes. If I had followed the rules, I would’ve actually made almost $400 on this trade if I could’ve exited with my position and followed his alerts – but because of the rule, I could’ve follow the RULES OF SHORT SELLING and exit.
This is a valuable life lesson in stock market dynamics and I will remember this FOREVER!
Currently, Tim is up 150% this year so far, and about 190% above the market so far in the last year! And he is getting results for those who FOLLOW HIS RULES!GET TIM ALERTS NOW!
So in all – I would say, I’m really not down emotionally on this trade too much, but it really taught me a lot! Thanks Tim! I owe you one man!
...on another note, watch this video… it’s pretty intense about the New World Order!
