Short Selling Ahead of an Offering. Secrets Revealed

Dont spread this link around; it will get you into trouble. (seriously) Securities and Exchange Commission v. Revelation Capital Management Ltd

defense was

Millenium concerns about rule 105

Rule 105 is prophylactic. Thus, its provisions apply irrespective of a short seller’s intent. Rule 105 is intended “to foster secondary and follow-on offering prices that are determined by independent market dynamics and not by potentially manipulative activity.” 45,094.

activity meant to obfuscate the prohibited covering

Click to access 34-76141.pdf

in the matter of Scott H Arenstein and SBA trading

This really helps put things into perspective. Before computers completely controlled most of the liquidity, floor traders played a much larger role on the exchange, and thus it was easier to differentiate when a market maker was and wasn’t engaged in “bona fide” (weird word) market making activities

Cboe Equity FLEX® Options

Have you ever tried holding a short position in a “hard-to-borrow” stock? If you are a small cap trader, you probably know them very well. Stocks like TLRY, OPTT, BYND, DRYS etc; those stocks that everybody knows are pieces of junk, but because they have such low floats, they attract demand from traders and algorithms.

TLRY in January of this year is the perfect example. Everybody knew the lock up expiry would significantly increase the available shares and thus eliminate all trading appeal, and a short position almost seemed like a no brainer at the time. It wasn’t that easy though. The borrow rate was also 900%, so holding for the long haul would cost you roughly 3% per day in interest. Just to put this into perspective, when S-3 partners, a Fintec company that provides short interest data, was interviewed by marketwatch, they said rates as high as 20% were “ridiculous”.

(Marketwatch) “On the whole, 20% is ridiculous,” said S3 managing director of predictive analytics Ihor Dusaniwsky. “It’s totally out of the ordinary, the normal fee for a general collateral stock — IBM IBM, -1.06% , General Electric GE, -0.24% for example — is 30 basis points.” Link

When you just sell stock without borrowing it..

Starting to make sense now?

Found this old article where the writer doesn’t understand how it works.

“CLASS ACTION. After the announcement, short-sellers knocked the agreement and unleashed a new burst of short-selling, which pushed Organogenesis stock down 25% in three days. It was accomplished with a technique called “married puts,” in which investors buy both the company’s shares and puts–options to sell stock at a specified price over a specified period of time–whose expiration would be a few weeks down the road in anticipation of a company announcement. When shorts want to stifle a rise in a stock price, they sell the shares they bought on the open market, which creates downward pressure on the stock price. This, in turn, forces all put investors, not just those involved in the ploy, to sell stock to limit their losses. If several investors use the technique at the same time, the market is flooded with selling, which can drive the price down even further. Sturza confirms that the married-put technique was partially responsible for the price drop after the Sandoz announcement”. (no link to the litigation release though) Link

New article I found on Oct.22nd, 2019


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