Right or wrong, I have been buying stocks on dips for the last five months, and the past two weeks I started adding naked puts to the mix on down days.

In short (no pun intended), I am opening an option to sell a stock I do not own. These "naked puts" pay me cash on the first day to accept an obligation to buy a stock in the future at a predetermined price. If the stock is one cent or greater below the strike price, it gets "put to me" and I have to cover the position by buying the shares pledged.

With the market looking just plain awful these days, and with the theory of recession becoming more and more concrete as the dour days pass, the concept of shorting equities is gaining popularity, at least from a headline point of view. Here's an article that talks about utilizing ETFs to go short. My colleague Timothy Sykes also discussed shorting in a recent piece of his own. Both of these articles bring up excellent points, and like Tim, I don't feel there is anything unpatriotic about betting against stocks, whether they are rising or falling. We're a capitalist society, and the trading spoils should go to the winners, whether the winners be long or short.

However, I urge all individual investors out there to think before they short. Don't take betting against a company or a market average lightly. The problem with shorting now is that it might be too late. The time to have purchased, say, the Proshares Ultrashort Dow 30 (AMEX: DXD) might have been a week ago. Remember that shorting is not a long-term idea, no pun intended. Going long is, so you're essentially going to become a market-timer when you invest in a short fund. There is nothing inherently wrong about trying to hedge yourself in a downward-spiraling environment, but make sure you understand that you are making a guess about the direction of stock prices. That's a tricky endeavor at best.

One thing you must avoid doing is shorting individual stocks. I think it's safer to short averages than it is to short companies. Again, if you're really sophisticated, you can do what you want, but do you have the guts to short a General Electric (NYSE: GE) or a Coca-Cola (NYSE: KO)? Or what about a Newcastle Investment (NYSE: NCT)? A Citigroup (NYSE: C)? These are all stocks that I believe may be going lower in the short-term, but they all pay dividends, which the short-seller is still responsible for. Plus, at some point, the dividend yields will signal to investors that a bottom could be in. Besides, with short-themed ETFs around, there's really no reason to literally borrow shares and sell them into the market. There's also the method of buying put options to take advantage of a downtrending equity, so you're covered by that technique, too.

Short interest for stocks traded on the Nasdaq showed big bets that major tech stocks would drop. The figures are as of February 15 and compare with the numbers on January 31.

Short interest in Microsoft (NASDAQ: MSFT) jumped 22.6 million to 112.3 million, almost certainly a bet that the company will buy Yahoo! (NASDAQ: YHOO), a purchase many holders oppose as a distraction. Oddly, Yahoo! short interest moved up 12.7 million to 55.2 million. This may be because some portion of Wall Street believes that Microsoft could drop its price or walk away from a deal completely. As internet ad revenue slows this becomes more likely.

The hardest hit stock among short sellers was Level 3 (NASDAQ: LVLT). Its financial results for 2007 were poor and the company is loaded with debt. If the need for bandwidth does not spike up in 2008, Level 3's earnings may not recover.

Shares sold short in Intel (NASDAQ: INTC) and Dell (NASDAQ: DELL) also moved up sharply, a sign that investors do not see the PC and server markets doing well in a downturn.

All in all, Wall Street is turning its back on the big tech companies.

Douglas A. McIntyre is an editor at 247wallst.com.

The New York Times fingers hedge fund manager William Ackman for yesterday's down market. That's because Ackman has been a vocal pioneer of the idea that bond insurers lack the capital to back their bets on the solvency of the bonds they insure and they might lose $24 billion as a result. And the holders of those bonds are banks and insurance companies which will be forced to write-down the value of those bonds -- to the tune of $70 billion more -- if the bond insurers lose their AAA ratings.

I wrote about Ackman's bet against bond insurance last May. If you had followed my suggestion to follow Ackman's short sales of MBIA (NYSE: MBI) and Ambac Financial Group (NYSE: ABK) you would have profited from the respective 81% and 89% declines in these stocks since then. And as a protege of Harvard Business School Professor Michael E. Porter -- with whom I worked -- I admire Ackman's analytical skills and his willingness to put money into his bets. Moreover, Ackman pledged to give the profits from his bond insurance short sales to charity.

But Ackman's estimate of the losses from downgraded bond insurers is big and scary. His report yesterday predicted that MBIA and Ambac might lose $24 billion on the CDOs they guaranteed. That $24 billion is a significant percentage of the $1 trillion in municipal, corporate and mortgage debt that they insure with their AAA ratings. Unfortunately, ratings agencies like S.& P. and Moody's Investors Service may downgrade them due to a lack of capital relative to their potential losses.

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

Bally Total Fitness Holdings Inc. (Other OTC: BFTH), which I suggested shorting back in November, has filed for bankruptcy. According to Reuters, Bally listed $396.8 million of assets and $761.3 million of debts as of December 31. Its bankruptcy plan would wipe out common shareholders reduce debt by $150 million and provide $90 million of capital through a rights offering. Bally also lined up $292 million of financing to fund operations during and after bankruptcy proceedings. Today's announcement is confusing since it reportedly filed for bankruptcy in June, as well.

When I first suggested shorting Bally, I thought it was losing so much money that it would not be able to pay back its debts. It also had lots of accounting problems and was in violation of the terms of its lending agreements. But I was concerned that JPMorgan Chase & Co. (NYSE: JPM) had offered a rescue finance package and that hedge fund guru, Stevie Cohen was a big Bally investor.

But I turned out to be right and investors who had followed my advice and covered today would be 709% richer since Bally dropped from $2.59 to $0.32.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Bally.

The short interests in both Sirius Satellite Radio (NASDAQ: SIRI) and XM Satellite Radio (NASDAQ: XMSR) fell in May. At Sirius, it dropped 29.1 million shares to 91.3 million. At XM, the decrease was 6.4 million shares to 24.5 million. Sirius had the biggest drop in shares sold short in May than any other stock traded on the Nasdaq.

The shorts have made a lot of money on the two satellite radio stocks this year, and perhaps they believe that at current prices they are not likely to go lower. A look at the pattern in share prices show that this might be true. On January 16, Sirius shares were $4.16. They now trade at $2.80 but have been fairly flat since late April, so perhaps they have found a bottom.

XM is also trading sideways after a big drop. On January 16, the stock closed at $17.14. It has dropped to under $12, about where it traded in mid-April.

The euphoria over the merger of the two companies has evaporated as the FCC and Congress have shown some resistance to approving the deal. They are concerned that it would create a monopoly, which would raise prices to consumers. In addition, the first quarter reports from both companies showed that they are still losing money and burdened with debt.

Perhaps both stocks have found a floor because if the shares went much lower there would be nothing left to trade.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and I seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

Monday the Wall Street Journal noted that two of the worst performing stocks in the first quarter were NovaStar Financial, Inc. (NYSE: NFI) and Bally Total Fitness, Inc. (NYSE: BFT) -- both of which I suggested shorting last year. Looking for some new short ideas? Last month I was in Florida where the real estate market is tanking.

Reading about a busted residential real estate development there in the Sarasota Herald-Tribune gave me another idea for short stories: Coast Financial Holdings, Inc. (NASDAQ: CFHI). Although its market capitalization has tumbled 59% to $44.9 million in the last year, CFHI could file for bankruptcy. How so? In a nutshell, Coast lent money to Florida real estate developers who are going belly up. As a result it's at risk of not having enough cash to pay a $12 million portion of its long-term debt which is due this year.