The cycles shuddered and roared. Four hours to the ferry, two and change on the boat, then eighteen minutes of open road out to Quidnet.

Johnny Dark cut the engine, swung a leg over his bike and stretched. The wind blew hard off the water. There were no lights on in any of the other houses on the dunes. This part of Nantucket Island was nearly deserted off-season.

Freakboy placed his hands on the edges of the sidecar and slowly, fluidly, pushed his body up and out, unfolding from a jackknife position until he was balanced in a perfect handstand. He somersaulted once in the air and landed nimbly on his feet, grinning and sniffing the sea air.

"Doc's a trip. A biker who summers. Go figure," mused Johnny. Freakboy made himself very still. Johnny, suddenly attentive, knew to wait.

"Not a biker who summers," said Freakboy in the curious, flat monotone he used when he had his insights. "He's ... a broker who simmers." He grinned at Johnny, and leapt in the air to slamdunk an imaginary ball, shouting, "And Freakboy's up... and it's good! He SCORES!!"

While Freakboy dribbled in the sand, Johnny walked down the beach to settle his thoughts. His BSA boots sank deep into the shoreline. A raucous laugh carried on the wind. He looked back toward the wood-shingled house and saw Lily in an upper window, staring sadly out over the open water.

'A broker who simmers,' Johnny hummed. It almost clicked. But the tune was incomplete. "Doc's squeezing Roman. He's got him in a box. But why?"

What's the difference between shorting against the box and a short squeeze?

1) Investors are forced to short against the box in a rising market

2) Shorting against the box is a voluntary market strategy

3) A short squeeze is a voluntary market strategy

4) Only large institutions may short against the box

The correct answer is 2) Shorting against the box is a voluntary market strategy.

The term is used if an investor sells an owned security short, normally in order to carry a profit on the security into the next tax year. Delivery may be made by using the owned shares, or by purchasing new shares in the market.

Wonder what effect a large short coverage has (generally) on the stock's price? Generally, heavy buying increases the price while selling decreases it. Assuming the stock's price has been steady, or climbing, many shorters attempt to cover their losses, and this affects the price.

In investment parlance, this is a "short squeeze." When a number of short sellers all try to "cover" their short at the same time, that does indeed drive the stock up.

The Foolish approach when shorting is therefore to avoid, in general, stocks that already have a hefty amount of existing short sales. We try to set ourselves up so we'll never get squeezed.

Short squeezes can be the result of better-than-expected earnings, or some other fundamental aspects of a company's operation. They can also be the result of direct manipulation. That is, profit-seeking individuals with large amounts of cash at their disposal can look on a large short position in a stock as an invitation to start buying, driving up the share prices, thus forcing short-sellers to cover. This in turn drives up the price, and before you know it, the share price has soared!

Johnny Dark stared up at the house, and at Lily. He didn't like any of this, not one bit. The time had come to take a stand with Doc. He turned and looked out over the water. A thick fog was rolling in.

"Freakboy!" he called, and strode up toward the house.

*************************************

Meanwhile, at a bank in Bledford, Bill Roman sat across the table from the flustered bank manager, who was trying to arrange for a cash withdrawal of $10 million.

Tomorrow: The Dark Ages -- Episode 4

The Fog

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