The Cut Throat World of Selling Short

20 November 2007

Selling short is a hard nosed game.
Growling_dogLast week the New York Times reported that Lululemon’s VitaSea clothing line wasn’t all it was cracked up to be.  Turns out the New York Times was tipped off by a short seller of Lululemon stock.

Here was Lululemon’s response.

The IR lesson – when a stock isn’t going in the desired direction for an aggressive short seller, then beware…things could get messy.  Unsubstantiated rumors will surface, pessimistic sentiment will mysteriously show up, and unflattering media reports will appear.

Was the news worth an 8% haircut in Lulu’s stock price the morning the news broke?  You wouldn’t think so, but that’s what happened last Wednesday morning.  The stock rebounded handsomely that day but it now trades almost 17% below its closing price of 7 days ago.

It’s a dog eat dog world out there, and short sellers leave very few stones unturned.

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