XpresSpa Group Inc (XSPA)

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Vringo's Short Squeeze - October 2012

I thought it instructive to reprise a short squeeze from Vringo's past as this will really be the only applicable data to suit this stock. Back in early October last year, the short interest was 7.99 million shares. Judge Raymond "Molasses" Jackson ruled against summary judgment. The stock rallied from $3 to $5.50 in two days. Here's a chart:

http://stockcharts.com/h-sc/ui?s=VRNG&p=D&st=2012-08-10&en=2012-12-03&id=p86624741239&a=311114542&listNum=3

Now we look as though we are on the eve of a major final ruling out of HJMJ. The stock closed at $3.54 and since rallied to $3.74. So what is the potential for Vringo to rally strongly assuming a favorable ruling?

Here are some contrasts between the two time periods of October and Today.

October 2012
1. Sentiment was wildly bullish with numerous posters predicting $12 - $32 for the stock.
2. Short interest was 7.99 million shares.
3. Call option open interest exceeded 150,000 for October+November. Hence, short interest likely hedged with calls to protect from upside.
4. Float approximately 15 million shares lower than today.
5. 3rd day after price explosion, Vringo announced placement of 10.4 million shares at $4.35.
6. Short squeeze started at $3.
7. Rally fueled as a relief that the lawsuit would not be dropped.

August 2013
1. Sentiment has been bearish until the last couple of days.
2. Short interest is 18.4 million shares.
3. Call option interest on Aug-September ~50,000.
4. Float 15 million shares higher than October 2012.
5. Short squeeze starting at $3.50(?).
6. (Potential) rally fueled by closure of Running Royalty Rate, defined apportionment and ending of post verdict.
7. Approximately 10 million shares of Vringo absorbed by Russell 2000 Index Funds.

Everyone can chime in here. As I see it, there are fewer people waiting to buy the stock today than in October, there were 15 million fewer shares in the float to trade and price expectations by longs are much lower now. Those are the negatives for a price surge.

Now on the bull side for a strong price surge. Shorts are not nearly as protected today as in October. The 18.4 million share short open interest was reported on the day Vringo closed at $3.05 (at $3.54, that's $9 million less in their pockets as of today). The news will have much more strength in it will answer the biggest uncertainty hanging over the stock. Though the float is higher today, those 10 million shares held by Index Funds are effectively taking those shares out of circulation. Lastly, those who bought the private placement at $4.35 were already lined up as you don't finance deals in 3 days or less. Hence, they may have shorted the stock to lock in profits of the share price higher than $4.35. There was more than enough volume to accomplish that.

Weighing the data as I have presented here, if HJMJ comes out with 5+% RR on 20.9% apportionment, then I believe a trip to $6.41 is possible in short order. I did not calculate that number. It came from the orifice that is facing my chair at the moment.