Flash Crashes

[mrmookie123]

Can someone with more knowledge of the Stock Market explain exactly what they are doing when they Flash Crash the
stock price as on 11/16 and 11/28 of this year. Simply to take out Stop/Losses or are there other reasons they would do
this Recovered each time, but I'm just curious on why this has happened twice in 2 weeks. Thanks in advance for any
insight !! Mook.

[robsacher]

Mook,

You hit the nail right on the head. They are taking out folks who have stop/loss orders and then they go back in and buy the shares at the lower price. It's an easy way to make 5% on a day when the volume is very low.

Longs can turn this strategy upside down by setting limit orders to buy when the p/s drops 5%, instead of setting stop/loss orders. By setting limit orders to buy, at say a 5% drop, shorts would be caught by not being able to find shares offered from stop/loss orders that did not happen.

I have written an article for Seeking Alpha about this strategy which may be helpful to you: seekingalpha.com/article/2603805-how-mannkind-long-investors-can-profit-from-short-raids

[spiro]

Robert,

Truthfully, I have no clue as to what the shorts are up to. Their recent bear raids appear to have been rather costly to them. On November 16, they drove the price down on 975,000 shares in several minutes, only to see it recover on a mere 150,000 shares or so. This repeated again on Nov. 28. MNKD went down on big volume and back up on much smaller volume. Meanwhile, as the shorts play out this questionable strategy, the short position keeps increasing and the share price has been firming up. The shorts have also been paying huge interest to borrow shares and have been seeing quite a few of their LEAPS expiring as money losers or even worthless. It is also obvious that the accumulating institutions do not appear to be bothered by this nonsensical maneuvering being conducted by the shorts. The institutions are probably quite happy with the 12.5% interest they are getting from their loaning shares. I for one do not believe that the shorts know something that Sanofi and their institution buddies do not know. It is my opinion that the shorts have gotten themselves into a very unfavorable situation at this point and are struggling to find an exit strategy. It's going to take quite a while for those 82 million short shares to disappear. I am annoyed by the insider selling at MNKD, but this happens with most small Biotechs.


Spiro

[robsacher]

Hi Spiro,

I have been following your comments for ages and always enjoy knowing your thoughts so it is an honor to speak directly with you today.

It is my belief that day trading shorts like to create a sort of avalanche of sales by shorting enough shares to trigger stop/loss orders. So, for example, let's say a short raid initially drops the p/s from 6.15 to 5.80, then the stop/loss orders are triggered and cause the p/s to further erode to 5.60. Then the shorts go back in and buy those shares at 5.60 which drives the p/s back up to 6.00 and which point they sell for a nice profit of .25 cents per share. That's a profit of around 4% for about ten minutes of work.

This is why shorts can afford a 12% interest fee. They make a lot more than that back in their flash raids. I counted four or five raids in November.

Also, this is why, I speculate, that the short positions are increasing.

This is a different strategy that holding shorted shares against the possible failure of Afrezza in the market place but having those shorted shares as part of the day trading strategy works in tandem with holding those shorted shares in the long run.

I have written about this in an article for Seeking Alpha and I implore folks to not use stop/loss orders. Rather, they should set limit orders to buy MNKD whenever the p/s drops 5%. The they should sell those shares when the stock has recovered 5% or 6%.

By buying shares when the shorts drive down the p/s in their flash raids, longs will keep the p/s from dropping enough for the shorts to make a profit. In effect, the longs would then beat the shorts to the punch. The longs would help support the p/s and make the short strategy more difficult to make a profit.

Best wishes,
RS

[spiro]

Robert,

Thanks for the kind words, but believe me, I am keeping a close watch on the weather in Siberia. I am wrong as often as I am right. If there are any smart shorts left, I believe they will take advantage of some of the expected year end tax loss selling and cover some of their shorted shares. The next 3 short interest disseminations dates of 12/10, 12/24 and 1/12 could confirm this suspicion, particularly the 12/24 and 1/12  dates. It would be nice if MNKD is working on a nice little Christmas present for the longs this month. We shall see, but don't hold your breath. 

Spiro

[kc]

Weird share movements today.  I know that the market was overall ugly today but there were some very strange share movements on Mannkind.  attached is a picture of shares over 10,000 units.  But look at this one big trade 
968,900 shares that were moved at 11:47 AM. Last price was 5.95, bid 5.93, ask 5.94
Normally you see trades like this in the AH averaged shares figures.  But today there were several large trades. 
Any ideas?

Attachment Deleted

[ashiwi]

It may have something to do with the same amount of the Feb 4.5 call contracts that traded today.
Perhaps the shares were sold to lock in profits (or losses) and the shares were covered by buying the calls.

[ashiwi]

Rob, question for you. With the price dropping over 5% today, did you have your order filled.
This was not a flash crash, sort of long drawn-out and painful. Does your trading plan work in this scenario.
Do we bounce back tomorrow or drop another 5% as shorts push for their last hurrah?

[EveningOfTheDay]

Dec 1, 2014 16:25:29 GMT -5 kc said:

Weird share movements today.  I know that the market was overall ugly today but there were some very strange share movements on Mannkind.  attached is a picture of shares over 10,000 units.  But look at this one big trade 
968,900 shares that were moved at 11:47 AM. Last price was 5.95, bid 5.93, ask 5.94
Normally you see trades like this in the AH averaged shares figures.  But today there were several large trades. 
Any ideas?

Can't quote me on this, or rather you can quote me, but obviously there are another number of possible explanations, but in summary (round up to thousands),

Shares bought: 2,708,000
Shares sold: 1,222,000
Not specified: 643,000

It would seem share price is being pushed down and then larger blocks of shared being bought. The real question is, how can these bigger blocks be bought without causing a rise on the pps?

[Deleted]

Fwiw, I'm pretty sure the 970k share purchase today was used for the large call activity like someone mentioned.

They bought 970k shares for 5.7mil then wrote 9700 or so $4.50 feb calls for $1.45 and collected $1,400,000.

I'm struggling with the why part? In order to maximize profit they would want it under 4.50 by feb so the shares don't get called away then expect it higher than 6 after?

Or is this a hedge against a huge short position?

Anyone have ideas?

[EveningOfTheDay]

Dec 1, 2014 20:20:15 GMT -5 @fugacity said:

Fwiw, I'm pretty sure the 970k share purchase today was used for the large call activity like someone mentioned.

They bought 970k shares for 5.7mil then wrote 9700 or so $4.50 feb calls for $1.45 and collected $1,400,000.

I'm struggling with the why part? In order to maximize profit they would want it under 4.50 by feb so the shares don't get called away then expect it higher than 6 after?

Or is this a hedge against a huge short position?

Anyone have ideas?

Well, that certainly would explain why shorts are not covering. Perhaps the expectation is that this will drop heavily right before it reacts to sales and goes up.

[trenddiver]

Dec 1, 2014 22:05:46 GMT -5 EveningOfTheDay said:

Dec 1, 2014 20:20:15 GMT -5 @fugacity said:

Fwiw, I'm pretty sure the 970k share purchase today was used for the large call activity like someone mentioned.

They bought 970k shares for 5.7mil then wrote 9700 or so $4.50 feb calls for $1.45 and collected $1,400,000.

I'm struggling with the why part? In order to maximize profit they would want it under 4.50 by feb so the shares don't get called away then expect it higher than 6 after?

Or is this a hedge against a huge short position?

Anyone have ideas?

Well, that certainly would explain why shorts are not covering. Perhaps the expectation is that this will drop heavily right before it reacts to sells and goes up.

[trenddiver]

Just wondering, would the investor be able to lend out the shares
and earn the 12.5% in addition to selling the puts?

[robsacher]

ashiwi,

If you set a limit order to buy shares at a particular price, it does not matter how quickly the shares arrive at that price. The order should be filled once the p/s reaches that price. However, sometimes there can be exceptions if there are a huge number of orders in line to be filled and if the p/s has changed very rapidly. 

For more information about limit orders I recommend that you speak with your broker or find the information at the broker's web site. It's easy to set a limit order. There are also other types of orders that can be set in advance to buy or sell shares. 

I recommend that a person do this with 5% of their investment used for MNKD and see how it goes. 

Regarding a bounce back, unfortunately, I never know how MNKD will move on a day to day basis. 

Best wishes,
RS

PS: There was another flash crash, a bit smaller, today around 9:45AM which drove the p/s from 5.75 to 5.52 in seconds. That was over a 4% drop and it bounced back quickly.

[robsacher]

Spiro,

I do not really know much about the mechanics of when shorts need to cover. All I do know is that shorts are in play and have been in play a lot in MannKind land. I hope you are right about them needing to cover their shares.

RS