One Step Ahead

[USC-Trader]

Wildest short squeeze post:

http://www.ragingbull.lycos.com/mboard/boards.cgi?board=OMOG&read=180969


Wildest Short Squeeze I have ever seen. I mentioned on this board Friday, that I might post the wildest short squeeze I have ever seen over the weekend. The reason I didn’t was because of the stock action here, I didn’t (and still don’t) want anyone to misconstrue what we are trying to do here. I suspect that some sort of squeeze will be in the cards here, but if so, it is not the reason that me and many of my friends accumulated this stock starting back in May. We are here to help build an oil company. Plain and simple.

Anyway the story:

Back in the fall of 1977, right after I left Merrill Lynch along with two associates to start our own stock brokerage firm, we were temporarily officing out of an EF Hutton office waiting for our licensing to be approved. That was the year that New Jersey was having their referendum on legalizing gambling. There was a company who owned prime property on the boardwalk at Atlantic City, Resorts International, that had its stock trading on the American Stock Exchange. At that time Atlantic City was in a major decline and Resorts had a lot of debt attached to these properties. Their stock had been trading in the mid to low single digits with only 1.1 million total shares outstanding for quite some time. Back in those days, the average daily volume on the NYSE was around 25 – 30 million shares a day, so you can see that 1.1 million shares for an AMEX issue wasn’t that small.

Early that year the stock began to rise “betting” on the possibility of gambling coming to the Jersey shore. When it got above $10 a notorious “brilliant” hedge fund operator, Bill White started shorting the stock. He kept averaging up his short until the reported “short interest” reached just under 500,000 shares and the price of the stock was in the mid $20’s.

Well, you guessed it. Gambling was approved by the slimmest of margins. The morning after the vote to approve came in, the AMEX “halted” trading, “imbalance of orders”. The “Street” was abuzz with rumors of a single hedge fund being totally “bagged” on the short side. Back in those days, we didn’t have easy access to news like we do today by just looking it up on your terminal. The news and stock info would come over the “Dow Jones News Ticker”. Kinda like a printer with a continuous roll of paper “ticking away” all day long with news and stock specific items. There was very little activity in the Hutton “board room” that day. All eyes were on the AMEX electronic lighted scrolling ticker tape that was mounted on the wall in the front of the board room. Periodically, new “indications” of the opening price of Resorts stock would scroll across. While not open yet, the indications kept getting higher. Finally about mid day, the stock opened in the 50’s on only about 15,000 shares. The balance of the day the stock just kept climbing, with end of the day volume being about 250,000 shares and the stock close above $100 a share.

The next morning another delayed opening, and the stock eventually opened around $130 a share again on just 20,000 shares of so. The stock got up to around $200 and the volume finally started picking up a bit and ended the day just below that level with volume around 350,000 shares. Now since the AMEX doesn’t have much “double counting” many had thought that a lot of the short had been covered. But it became apparent the next day, that it wasn’t true. What was happening was that other hedge funds smelled “blood in the street” and were also buying the stock. And they were buying using an institution only option called “Delivery versus purchase”. Which means that they do not have to pay for the stock until they get delivery of the certificates. Since the short was still so big, there were not enough “certs” available and “cert” buy-ins were happening as well.

On the third morning the stock opened up in the low $200’s. And was trading some pretty good volume. But after lunch the volume slowed down and the average trade for only a few hundred shares was showing five and ten dollars jumps, up and down. The stock ended that day with just a couple of hundred thousand shares volume in the low $300’s.

The fourth morning the stock opened around $320 on only a couple of thousand shares. The stock volume had slowed down considerably as the price climbed. About an hour and a half before the close, the ticker all but stopped. By now, none of the brokers were getting anything done. We were all staring at the tape wondering what was next. A $22 uptick on 3200 shares traded at $389 and then no other trades for 20 minutes. The next trade floored us all. 13,900 shares at $511! It never even traded in the $400’s! About 100 thousand more shares traded by days end and the stock closed at $554. After the close the company announced a 10 for one stock split, effective the next week. The stock traded pretty good volume until the split in the low to mid $500’s until the split. Then spent the next months after the split in a $40-60 range.

Bill White and his company had to declare bankruptcy, and their main clearing firm Paine Webber got stuck with most of the damages and almost broke them. At that time, Brokerage firms did not have near the financial strength they have today.

Needless to say that was a memorable day in the market.