Knickerbocker Stock Continues Its Ascent

L.L. Knickerbocker stock continued to rise Thursday as pressure built on a small band of traders who had bet that the Orange County doll maker’s stock would fall.

At least one brokerage firm that had lent traders stock for the so-called short sales was expected to demand that brokers repay 10% of the company’s stock Thursday, but extended the deadline until today, market sources said. Other firms are expected to ask traders to repay even more of the company’s stock next week, brokers said.

In a short sale, traders borrow stock and sell it on the open market, betting that by the time they have to repay the stock, the price will have declined. That allows them to repay it at lower prices.

But when stock prices rise rapidly, nervous brokerage firms begin demanding that short sellers repay the stock loans. The scramble by short sellers to buy stock to cover their positions may drive the price even higher.

Rancho Santa Margarita-based Knickerbocker, whose collectible dolls are touted by celebrities such as Farrah Fawcett and Marie Osmond, saw its stock skyrocket from about $4 in mid-June to a high of $52 last week.

The company’s stock dropped 20% on Monday, but it has rebounded in the last three days. It rose $1.375 to close at $45.75 a share Thursday in Nasdaq trading.