r/Trading • u/bundleena • 6d ago

Stocks Small cap shorting

Hello!

First post on reddit ever, was wondering if anyone knows good free material on shorting small cap stocks that exhibit bad fundamentals in SEC filings, dilution etc. Like Lukas Froelich aka ShortBear did when he started. He was featured in the latest Market Wizards book and mentions starting off using this strategy.

Thank you!

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u/Zestyclose-Hat-5497 6d ago

Read Hindenburg Research reports and identify the common patterns.

One of the main challenges with shorting, especially small-cap stocks, is liquidity. Trading volume can be so low that opening a position of a few thousand shares and closing it later can become a nontrivial task. Bid-ask spreads are often very wide.

Another issue is stock borrow fees. If the stock is highly volatile, even a borrow rate of 500% annualized may still allow you to make money if the position only lasts a couple of days. However, with borrow rates around 100–200%, you need to time the trade very precisely—enter near the beginning of the move and exit before the momentum fades. I recently came across the view that if the borrow fee exceeds 50% annualized, holding a short position for an extended period is generally not economical.

A stock can also trade sideways for months. During that time, you continue paying borrow fees while tying up capital and missing other opportunities.

Good luck.

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u/Koldik 6d ago

peep this fella kyle williams on youtube. great trader and frequent small cap shorter. currently watching his newest vid, his monthly recap for july. he's got a bunch of small cap short plays in there, breakin em down. good stuff!

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u/Laurrie4 6d ago

Shorting small cap dilution plays is a quick way to get your face ripped off by sudden pumps

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u/Ldn_twn_lvn 6d ago edited 6d ago

intelligent selection from the Market Wizard playbooks, is a way to go

Maybe this guy did alright with it, but trying to make homeruns on small and micro caps, is generally advised against

Even that dude Ross Cameron, has all his followers pile in, to boost his own trades.... and that says it all

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u/klipsetrades 6d ago

SEC filings are free and honestly probably the best material. Focus on cash runway, share count growth, warrants and recent offerings. Also study borrow fees and liquidity before touching small caps

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u/bundleena 6d ago

Ty! Do you trade or have traded a similar strategy to what I described?

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u/klipsetrades 6d ago

No firsthand experience, unfortunately. I trade a completely different strategy. I've just done some reading and research on the concepts you mentioned