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Posted On: 03/24/2018 5:01:06 PM
Post# of 72443
I think most of these shorts sellers are actually net longs working the trades. Take this sample IPIX portfolio:
100K core long position
30K long trade position
30K short position
I suspect they are long term bulls so they are comfortable being long 100K-130K at any time but they will take a 30K short position when they think a temporary peak has been hit and then cover when it dips down. This means they can make money trading the volatility, lowering their cost basis, and still be guarenteed a 100K long position in the even of a big announcement. The short position is not ever at risk because the 30K long trading position cancels it out.
On a stock like IPIX, which has declined steadily the past three years, it would have been a very wise strategy to use. Since the short interest is miniscule (less than 1% of the OS), the borrowing costs would be quiet small as well.
This of course neglects any sort of naked short position hiding under the water but the premise holds the same regardless. Only an idiot shorts something like this without a hedge.
Wish I was smart enough to do this.
Go IPIX!
100K core long position
30K long trade position
30K short position
I suspect they are long term bulls so they are comfortable being long 100K-130K at any time but they will take a 30K short position when they think a temporary peak has been hit and then cover when it dips down. This means they can make money trading the volatility, lowering their cost basis, and still be guarenteed a 100K long position in the even of a big announcement. The short position is not ever at risk because the 30K long trading position cancels it out.
On a stock like IPIX, which has declined steadily the past three years, it would have been a very wise strategy to use. Since the short interest is miniscule (less than 1% of the OS), the borrowing costs would be quiet small as well.
This of course neglects any sort of naked short position hiding under the water but the premise holds the same regardless. Only an idiot shorts something like this without a hedge.
Wish I was smart enough to do this.
Go IPIX!
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All my posts are my own personal opinion and speculation. They should not be used as the basis for any investment decision. No, I am not Scottsmith.
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