It is worth mentioning that in order to short a stock you need to find someone who owns that stock, and is willing to lend you the shares. That is a service offered by stock brokerages.
An obscure stock, such as the penny stocks mentioned in the above post are not heavilly traded, therefore it is unlikely that a brokerage has them to lend.
Why would you short-sell penny stocks? They can’t get much cheaper, so you can’t make much profit on them, and there’s a risk that they suddenly go up in value (perhaps because theyt have been touted on the Internet).
You short-sell when you expect the price to go down. The people sending out that penny-stock spam have bought the shares in the expectations that some of the marks receiving the spam will buy the shares, and the prices will then go up.
Pretty much: you need to have the money put somewhere in order to sell short; if you can cover it with your account, fine, but if you can’t, you need to pay up.
And the money covering the short sale is not available to you for other purposes, so it’s as if it has been spent until the sale is complete.
Of course they can get cheaper. The company could fold, and most likely will if it’s being shilled on spam mail.
I wasn’t being serious, by the way.
(But if anyone wants to contract to buy 250,000 shares in Pneumatic Penile Pumps Inc. for $0.01 each, delivery in March 2008, please e-mail me 
)
I knew that: I was just explaining why it likely wouldn’t work, just in case some naive Doper thought of short-selling then buying some of your PPPI stock.
I think the term you’re looking for here is “leverage”. 
It might be more exact term, but most people are familiar with the notion that speculation is borrowing money to buy stock from having studied a bit of US history.
I still don’t understand why you say “Why would you short-sell penny stocks?” though. The way I see it, anybody who goes long on penny stocks that are advertised by spam e-mail is a fool, likely to be parted from his money pretty rapidly. I certainly wouldn’t expect to make money buying such stocks, so shorting them would allow me to do the opposite, and take my slice of the money that the mugs lose.
That’s the point I was trying to make with my throwaway remark about being a billionaire, anyway.
Pneumatic Penile Pumps?
They can only go up! :eek:
Because it fluctuates and you can’t just short sell something with an indefinite date on it hoping that at some point it’ll go down (or can you? Who’d loan you stocks without a fixed term?)
Don’t be silly. They go up… and down… and up… and down…
The stocks might fluctuate somewhat, but the preponderance of the movement would be decisively downwards so it would likely pay off to short junk stocks, but as has been mentioned, you can’t because no one offers such a service.
It also seems there is some misconception that stock price determines if a stock is expensive or not. It really doesn’t work that way. One stock could go for $0.50/share and another could go for $1,000 per share, but the fifty cent one could be the more costly. It depends upon how thinly the company is divided and what its earnings are. Price to earnings ratio is a better indicator of cost.
I’m a stockbroker.
Here is a pdf file on margin accounts which are required for short selling. Short selling in particular is described starting on page 10.