If a stock just submitted an 8-K that shows that it's diluting (has "cashless exercises", "dilution", and "warrants" in it), shouldn't that mean it's bound to go down (with a high level of likeliness)? Isn't this a great opportunity to short that stock? I don't see how it would be risky. Of course there's risk in any investment, but for this type in particular I think it's safer than most. Thoughts?

2 Answers 2


It depends on how big the dilution is. Could be a good trade. Do the math yourself, many times nobody else has. All the employees think they are going to get rich because "options" :)


Share price incorporates all publicly known information. Unless you have insider knowledge that the stock is diluting (in which case shorting is a bad idea from a legal point of view), the stock price will already have gone down. Furthermore, dilution in itself does not necessarily cause a decrease in stock price. Dilution means the company is issuing more shares of stock. Stock price is company value divided by number of shares, so more shares means the denominator is larger. But the company is also making money from selling the stock, so that's increasing the numerator.

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