The Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this week, Kass explained why he has never shorted shares of Sears Holdings and detailed why he is short other retail stocks.

Please click here for information about subscribing to RealMoney Pro.

---

When Not to Short
Originally published on Friday, March 2 at 3:28 p.m. EST.

Never short an equity whose short interest exceeds 7% of the outstanding float or three days of volume.

Sears Holdings'(SHLD) share price action today (+$7) (and its strong year-to-date performance (+135%)) are examples of why I have basic tenets on short-selling.

Among my rules is that I will never short an equity whose short interest exceeds 7% of the outstanding float.

In the case of Sears Holdings, there are 106 million shares outstanding, but the float (noninsider shares owned by the public) is only 40.8 million shares.

There are 13.15 million shares short, representing 32.5% of the float.

This is a nonstarter to me and why I have never shorted Sears Holdings.

Another principle I have with regard to shorting is that I never short a stock whose short interest is over three days of volume.

> > Bull or Bear? Vote in Our Poll

In the case of Sears Holdings, the average daily trading volume (over the past three months) is 2.25 million shares. The 13.15 million shares short represent about 6x average daily trading volume. Again this is a nonstarter.

If you must short a stock with a high short interest relative to the company's float, elect to buy puts and define your risk.

Otherwise, shorting heavily shorted stocks can be harmful to your investment and financial well-being.

I know, I have the scars to go with that experience!

Position: None

---