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Sloane...."Only that day dawns to which we are awake" eom.
AMC...glad you brought this up. I have, in many ways, tried to impress upon the members of this board, the unfair bias that short sellers and manipulators have in today's market.
Badger, I agree with you - longs are always on, always long (at least I am: ) whereas the apparent "wave" of shorted shares, even in the face of a short term price appreciation, seem to almost always precipitate an oncoming decline in SP....almost as if they are that much more the savvy or "in the know" if you will.....just my thought anyway
I'll try again: the main reason that the above phenomenon occurs is because when a long purchases a stock, the money for that purchase has to be delivered within 3 days. It does not matter if the long decides to sell the stock (even at a profit). The money for the original purchase still has to be delivered to the broker. If a short or someone who wants to contain the stock price sells shares that have not been identified and/or borrowed, they can repurchase those shorted shares before T+3 without the requirement to deliver any identified or borrowed shares that were ostensibly originally sold. It doesn't take a lot of imagination to understand what can be done with this inequity.
30 years ago, or so, "free-riding" was outlawed by the SEC. Wikipedia has a decent explanation of what free-riding is. But I'll give it a go here: A student, I believe at MIT or Harvard, had made several hundred thousand by putting in buy orders and then selling those shares before settlement (it was T+5 then). His account grew, I guess because he was pretty good at spotting short term trends. He never put up any money, just played with the house money! The SEC put a stop to this. However, what the shorts and manipulators are doing is just that: free-riding. It's the other side of the coin. They are making a transaction without ever having to produce, at settlement, what they purportedly sold.
OT Longinvestor 98...Okay, I'll bite.
There are unintended shorts who sold all their stocks and risk their capitals in Call option in hope to win the lottery. And there are professional shorts who nakedly short and use the capitals elsewhere.
How does one become an unintended short by selling all of the (presumably) long stock he has? I get the part about winning the lottery.
Sustained Naked shorting is not as prevalent as it was a couple of years ago. While Reg Sho is a pathetic attempt to halt the abuse of naked shorting, it does limit the amount of stock that can remain an FTD (Fail to deliver). In other words, large amounts of shorted stock cannot remain as FTD's. Therefore, the capital is not available to use elsewhere. On the other hand, naked shorting, of limitless amount of stock can be sold AS LONG AS it is bought back within T+3 OR long stock is delivered within that timeframe. I have harped on the unfair aspect of this (i.e., legal free-riding for short traders)) ad nauseam.
That's all the time I have for this discussion. Thanks.
Longinvestor 98.......If I could ascertain what it is you are actually saying, I might be interested in continuing a general discussion, but I doubt it.
The basis for my comments specifically has to do with the large short position in IDCC, how I believe they are attempting to manage it through the purchase of calls and the ramifications of same. Simple as that.
Paheka.....It is unlikely that the shorts are using calls to "profit" from any upward move of IDCC. It is much more likely they are using calls to (slowly) cover their over-sized short position. Given the "thinness" of the market for IDCC, this call buying in near months is their only chance at eventually getting out this hole.
However, as I have mentioned, someone is on the other end of that options trade. If they are selling naked (i.e., they own no underlying stock) they will be forced to buy stock on the open market which of course will have the effect that the shorts don't want: upward pressure on the stock.
Now that is what I call zero-sum.
To get back to the issue of the increasing short interest and the trading surrounding expiration of options last Friday...
Because there is a 10-day lag (and actually as much as 13 days due to settlement) in the reporting of short interest it is difficult to come to any reliable conclusion about the correlation of short term trading to the movement of the short interest number
That said, IMO the increase in the short interest is the accumulation of short-term short trades, made (often on downticks) in order to "shake" shares out, that are never covered and therefore have to be borrowed and, in turn, added to the short interest. In other words, the shorts are not saying "IDCC is overvalued so I think I'll short some more". The increase is due to these unsuccessful attempts to move the stock down.
On a parallel note, as I had mentioned after trading last Friday, I believed that the inordinate number of calls in the money most likely comprised a large amount of naked calls that would necessitate the buying of stock in order to deliver to the call buyers before Wednesday's close. (T+3). I believe that this was borne out in the actual trading that occurred: IDCC continued its upward bias even in a down market.
Pochemunyet....Absolutely could happen. I was not watching the stock at the precise moment of the spike however, it is obvious that very little stock is available for sale even on a bad day in the market. If those covering "saw" 130,000 offered at $1 higher, they may very well go up and get it, since they're working like crazy only able to pick 100 here, 100 there.
This anomalous trade may have given us some insight into the magnitude of the problem that the shorts now have. JMO
Romuluss. You may be right but to me it means that a lot of the calls that settled in the money last Friday were naked and are in the process of being bought in order to deliver.
Certainly, anyone who has followed the movement of this stock over time would agree that the drop in the market would have afforded the shorts the opportunity to really take IDCC down. This time it is different because the short trade is too crowded in this stock, given recent developments and the events that could emerge short term. IMO
DR......Gotcha..Thanks. eom
I find it curious that, at no time, does he mention that he is on the IDC Board of Directors. He mentions, several times, that he used to work for QCOM. Any thoughts why?
Jim... Will do. eom.
To All: If you have not already done so, I highly recommend going to deepcapture.com and read the piece "Michael Milken Redux...." for further color into this "insider trading" scheme.
Yes.....that's why I still expect heavy buying before market close Wednesday. If we don't see it, then chances are a large holder wrote options to scale out of the stock.
Nuke.... Very good and reasonable analysis. I agree that there should be a marked upward pressure in the stock early in the week with or without any news or decisive move, up or down, in the market.
It's impossible to accurately decipher what is going on in the stock but, my sense is that, all of the recent maneuvers that have been initiated to collar the stock are only adding to the pain of their being wrong. IMO.
Thanks.
if I understand this correctly)
the shorts probably sold call contracts to protect their profits.
there are over 8500 november 33 call contracts out there.
then there will be an effort to close this stock under $33 today so those contracts will expire worthless and the contract sellers keep the premium they received for their sales without having to come up with the stock.
is that about right?
doctor d.... No, in this case the shorts more than likely bought the 33 calls as a way to cover an amount of shares (maybe 850,000) that they could not otherwise buy without a major spike in the stock. It is the writers (sellers) of the calls that are most likely "naked" and would benefit from the stock closing at 33 or under (keeping the premium). If this happens the writers (sellers) will not have to buy stock to deliver (to "the shorts"). If it does close above 33 and the writers are indeed naked, they will have to come up with as much as 850,000 shares. Hope this helps.
dndodd......Another way to arrive at a stock price around 80 is to look at return on investment that a private equity firm or another company (potential acquirer) in the industry would be looking for:
5% after tax return: 20 (PE) X $3.50 (earnings) = enterprise value ($70). Add cash ($14)=$84
At a 10% after tax return: 10 X $3.50 = $35. Add cash+ $49
Of course this gives no consideration to rate of growth but IMO, the stock is worth somewhere between these 2 numbers. $49-84. All IMO.
It seems there is a very strong correlation between the volume of complaints about insider sales and the performance of the stock price on any given day.
The number of options at the 33 strike represent over 800,000 shares. IMO, a large number of these are not covered (by underlying stock), meaning a close above 33 will necessitate the purchase of these shares. A concerted effort began yesterday, in the face of a strong market, to move IDCC stock price toward that strike. Today, it looks like the market will be soft and the mission will be completed. Look for an effort to close at or slightly below 33.
I suggest that the anger expressed toward the management of this company be redirected toward the fact that this manipulation is allowed to happen in our markets. I think, in the long run, it would be more constructive. JMO
Nhill....Yes, IMO we can be. However, the short term actions that are being taken to peg the stock at expiration will have to be unwound early next. Or, they will have to add to the short interest. Either way, I think the jig is up, particularly if the market stays strong. In this case, there is a chance for a melt-UP. all IMO.
nokiashill....Yep! Makes a lot of sense (tic). I wonder if there is anyone left on this board who believes the stock is not manipulated.
IMO.. IF the market stays strong today and tomorrow, the "swing monkeys" will be faced with a dilemma. At what strike price do they try to "peg" the stock? The higher the stock closes tomorrow, the more shares will have to be bought to deliver on however many calls were naked. The last thing they want is traders competing with them to buy shares. (Open interest between 30 and 35 comprises an underlying 1.4 M shares.) If they try to cap at 33 or 34 (with a strong market) they will have to short a lot of shares which, if not bought back within T+3 will have to be borrowed and delivered, thereby increasing the short interest.
Let's hope we get to see which way this will go.
GLTA
OT... Don't be so hard on yourself. You've been playing against a stacked deck for several years now.
poch (this has become OT).. That's not bad. Although it's about 3% per year. if you are a short-term trader, I'd say better than "not bad". Anyway, go IDCC! Good luck.
pochemunyet... How is that strategy working for you? eom
Warbil....agree 100% on organized crime in the market. I also believe there are off-shore entities, unfriendly to the US, that are milking this corrupt system. Very sad.
Wilco... thanks for that piece on the mini-flash crash on DNDN. This phenomenon is very germane to what some of us have been discussing in the past few days.
This extreme swoon in a stock price is nothing more than a magnification of what goes on day after day in thousands of (predominately OTC) stocks. It is the new normal.
Some here will accuse me of beating a dead horse, but I am compelled to continue to try to explain why the market is not an even playing field and that it is much more common (and easy) to manipulate a stock down.
This ability to control, manage or otherwise manipulate prices is firmly rooted in 2 major changes to what we used to think of as a fair and free market. They are:
1) The ability short on downticks. (Removal of uptick rule)
2) The very loose rules concerning the location, borrowing and delivery of stock that is shorted.
That's it. Very simple. All it takes is a little thought and imagination to understand what is going on in our markets.
Jim.... I agree and posted similar thoughts when we first heard of the dividend with no amount or date payable. I hope you are right.
Sloane... That might work in a zero-sum environment. Unfortunately, as you know, I don't believe that is what we are dealing with. Although I find it very difficult to think like a criminal, there are others who, armed with the loopholes and lax enforcement that exist today, would find a way not only around this ploy but somehow use it to their advantage.
Fog.....That is actually not a bad idea, although trading on the listed exchanges is not without abuse. Case in point, while it was totally a different situation, being listed on the NYSE certainly did not stop the wholesale naked shorting of Bear and Lehman into oblivion. Not sure if the cost associated with the move would match the benefits gained.
What else you got?
Fog... Yes I am familiar with the role MM's play. How would any company, as a subject of this abuse, do anything about it?
Fog... The crux of the problem is this: although IDCC (or any other company) has X number of shares issued and outstanding, the current "rules" allow for abusive short-selling to the extent that purchases of stock, in aggregate, can add up to much more than the actual shares outstanding in the company.
With regard to reporting of institutional ownership, the shares owned are a percentage of the company's outstanding shares as opposed to the number of shares in the system.
Confusing isn't it.
Jim... no doubt about it. Shares that don't exist were shorted to achieve a more-than-100% ownership. A few months back Overstock reported that it had something on the order of 6000 shareholders and that the largest 60 holders own 106% of the company! This underscores how broken our markets are.
It doesn't take a lot of thought to understand the ramifications on a stock price when this is allowed to happen.
OT...Sloane, there was further discussion about this on the board yesterday. You might want to check out some of those posts. I think I see where you are "coming from! I'd prefer not to discuss this issue any further with you. TIA
Sloane... Please tell me where i am "wrong again". And yes, I have.
olddog... Thanks for that cite.. It is condition #ii that I was referring to: ......or, has "reasonable grounds to believe that the security...".
The retail investor, as pointed put by Jiff, must locate actual shares before shorting. Since it is the brokers responsibility to do so, the broker simply adheres to rule #i because the individual is usually effecting a small trade and the broker almost always has long stock sufficient to cover any amount. In addition, the documentation is easily produced.
It is for the big money that the brokers are willing to rely on condition #ii in order to get the more profitable trade. It should be obvious to all that when regulators specify rules relying on Wall Street to do things in a "reasonable" fashion, a situation occurs where people push and often exceed these flimsy boundaries.
While I don't have the full text of REG SHO in front of me, I believe that one will find, in the full text, that provisions are made for shares that are sold and not delivered: If the shares are not delivered at settlement (T+3), the broker is required to buy-in the shares on the fourth day. Of course this rarely happens because the intent of the short seller is to manipulate the price on a very short term basis. They simply buy back (the shares that they did not borrow) before the end of the 3rd day.
This is the very same thing (only the other side of the coin) as "free-riding", which is outlawed by the SEC. Please see attached site: www.investopedia.com/terms/f/freeriding.asp
Jeff.. that would be a great start if, as you say, the SEC follows through. As I have said before, reinstatement of the uptick would be great but requiring a "hard borrow" before shorting would be just as welcome and effective. Here's hoping. Thanks for the info.
Jiff....You are right. If you are a retail investor the stock does have to be located. I know, I was a broker for 20 years. But it's not the retail investors who are manipulating stock prices. The basis of my points have to do with hedge funds and large institutions having their way with the market.
sloane...In any event it is still required that you boroow stock BEFORE executing a trade.
I respectfully beg to differ. If you are saying that actual, identifiable long shares need to be located and borrowed BEFORE executing a trade, you are wrong. The closest thing in the existing rules to locating and borrowing prior to shorting is something to the effect that "the short seller needs to have a reasonable expectation" that the shares can be identified and borrowed before t+3.
It is this very loophole (along with the absence of an uptick) that allows the profitable "management" of stock prices.
Sloane..I may have misunderstood your post. Are you aware that the uptick rule, enacted in 1934, was rescinded in 2007? Also, in what way is it "more difficult" to short today? TIA
Jeffree....What are the new rules to be enacted that will level the playing field? TIA.
DShos... You make some very good points about high-speed computers gaming the system. I'd like to add some thoughts:
Yes, the days of the "short squeeze" are essentially over except for the occasional instance when the computer is "tilted". (Good analogy)
Make no mistake, ultimately there are people behind these computers raking in the dough.
MOST IMPORTANT: we need to look at the factors that enable these algorithms to exist.
1) The market used to be a zero-sum game. I.e., certificates had to be delivered by settlement day (long or short sales). Thereby the system inherently recognized the amount of shares actually issued by any given company. The DTCC (wikipedia gives a decent history of its evolution), which was originally set up by the exchanges and the major brokerage firms for the purposes of settling and clearing, for whatever reason, has no mechanism to check and/or track the net number of shares of a company that are represented in the system.
2) The removal of the uptick rule (2007) was a major facilitator for these programs. Imagine how much of a problem waiting for an uptick in order to short would be. (the "flash crash" could not have occurred with an uptick in effect)
3) Currently market makers, on their own or on behalf of a seller, can short an unlimited amount of shares as long as they either a) buy the shares back within T+3 (this is the obverse of "free-riding") or, b) locate and borrow actual shares within that timeframe.
Tough to make money as a traditional "investor" in this environment.