Short Interest-What % is hedge & What % real bear sentiment

[harshal1981]

Since short interest is steadily climbing and now I think it is about to grab the tittle of biotech with highest % short interest outstanding, there is one question that really puzzles me. In my opinion, one can divide the short interest in to two buckets - 1) People who genuinely believe MNKD is going to tank and they subscribe to bear sentiment and short the stock. 2) People who believe MNKD will be success but they prefer to hedge at least part of their risk rather than going all in. And hence, they short stock as a hedge against their low cost shares or call options. Of course there is a third kind who wants to take advantage of daily/weekly ups and downs however, I do not believe they are significant portion of 58mil short interest that we have out standing on MNKD. 

My question is what % of 58 million short interest falls in type 1. Because they are the biggest concern to me. Since total short interest is almost 40% of float, if majority of them are type 1 then, we have very huge number of so called "smart money" subscribing to bear sentiment. 


Any thoughts/comments? 

[babaoriley]

Without anything but my overall sense, I would say no. 1 is by far the biggest type. This one has failed twice at the FDA, and shorts have made big money, why not come back for a trifecta? Also, harshal, since it's apparent at this point that there will be no partnership prior to FDA decision, the shorts are betting that they won't get killed even on approval. Not a crazy bet, IMO, just hope they lose that one, too.

Do you think the fix is in for the benefit of the shorts? Cuz if you don't, even the smartest shorts don't know any better than the smartest longs whether we'll get approval or not. Are some of the shorts getting info from big Pharma that has taken a real close look at MNKD over the past few months courtesy of Greenhill? Maybe.

[harshal1981]

My thinking is that shorts are betting big on mixed out come of AdCom. And on top of it, FDA announcement pushing PDUFA by couple of weeks. That will give shorts ample opportunity to make money.

If your assertion is to be true that powerful shorts are getting inside scoop of trail data from big pharma companies who got to see it as a part of partnership negotiations, my thinking is that it is real bad news. How would rather let it out, the pharma co that reviewed the data and decided to pass the opportunity because the data was bad? Well at this point certainly all we can do is speculate. I would be honest, this high short interest is making me bit worried.

[alcc]

I would assume that all out of money puts have corresponding shares sold short when written. That's easy to count, if you are interested. Other than that, I have no idea why or how one can hedge by selling short. Maybe someone can explain that to me.

If potential partners saw bad data that somehow the company failed to publicly disclose, the company Ds & Os will be in a heap load of legal trouble, including possible jail time. Why would Al et al do that? Makes no sense. I wouldn't worry about that.

[spiro]

Every time we get a hit piece and the share price softens a bit.. the longs get rattled and start the "what if" crap. I think Vanguard and the other institutions that probably own oner 80,000,000 shares by now, have made the opposite conclusion to that of the shorts.  Upon FDA approval the institution ownership will probably get to over 100 million shares rather quickly. Why would one think that the river boat gambling shorts know more than the conservative thinking institutions? Just about every promising biotech has a rather large short position. Retail investor fatigue really seems to fit here.  Let's get this crap over with and start getting ready to celebrate in April. 

[harshal1981]

spiro... you should periodically write such posts! helps! :-)

[babaoriley]

Feb 28, 2014 13:51:41 GMT -5 alcc said:

If potential partners saw bad data that somehow the company failed to publicly disclose, the company Ds & Os will be in a heap load of legal trouble, including possible jail time. Why would Al et al do that? Makes no sense. I wouldn't worry about that.

For example, a potential partner enters into negotiations with MNKD, they hear and see this and that.  They come to the conclusion that they are going to pass on the opportunity to partner with MNKD.  Some clown in the potential partner camp has a "buddy" or is approached by someone that likes a little "action" on biotechs, and for a price, the potential partner guy tells the action guy that his company didn't like MNKD all that well and gives the reasons why.  That kind of crap happens all the time, certainly not only in biotech, but these big time shorts (and longs) have their paid informants, and every now and then, one gets caught.

Spiro has the right attitude; if you get too scared, you will likely make the wrong move.  It's best to decide on your strategy when everything is relatively calm, but then stick to it, notwithstanding days like today, or days when the stock is up a similar amount.  Shorts are known to throw bear raids in, even at the last minute, which we are rapidly approaching.  They are trying to persuade and panic people into thinking the "smart" money is short.  There is more long money than short money out there, and there are plenty of smart longs and shorts and dumb longs and shorts, too.  At this point, there is no smart money, only the "lucky" money, we've got the best of it, but upsets happen in all facets of life.

I honestly do not think anyone who posts on this board can possibly see this whole thing objectively (certainly not me), thus, the common thought is that the shorts are nuts.  And many of them are!  I would love to know the true odds of FDA approval and of AdCom recommendation, but will never know that.  I am confident that my odds of FDA approval are likely better than the true odds - goes with the territory.  

[alcc]

But your scenario is nothing more than your short basing his trade on his "buddy's" opinion/interpretation of the data, not on access to some undisclosed, adverse data, which was what I was responding to. As you said, we are all basing our decisions on our individual opinions. Can't blame a guy (even a short) for that.

[mnkdfan]

Thanks for the positive reminder Spiro.

Harshal, like you, the large short position has bothered me for the longest time as well. It was'nt until recent discussion that showed the hedging strategy that help put my mind somewhat at ease (right or wrong but made sense). The other thing I noticed is that obviously the buying interest is more prevalent than the shorts for the past 12 months for the stock to climb back up from 3.38 to 6.00. Thus the majority of the sentiment for the stock is on the long side (in a few weeks we'll know for sure). If you look back at the shorted shares of 40Mil on 3/15/2013(stock price @ 3.38) and compare that to the 58mil today, it's only an increase of about 18mil shares. This compares to significant more long shares purchased over the same period to bring the bring the stock price to over $6.00 today. This is why, it is my opinion that the hedging strategy makes up a larger portion of the shorted 58mil shares.

Latsly, the call total open interest for just the month of 1/2015 represent about 20Mil shares. One could also say that the shorters could load up on puts to make money but the put volumes do not show that to be the case.

Just my opinion, comments?

Thanks

[babaoriley]

Feb 28, 2014 16:51:17 GMT -5 alcc said:

But your scenario is nothing more than your short basing his trade on his "buddy's" opinion/interpretation of the data, not on access to some undisclosed, adverse data, which was what I was responding to. As you said, we are all basing our decisions on our individual opinions. Can't blame a guy (even a short) for that.

alcc, I thought you were responding to my comment above, "Are some of the shorts getting info from big Pharma that has taken a real close look at MNKD over the past few months courtesy of Greenhill? Maybe."  I was not referring to adverse data that should have been disclosed by MNKD, but the kind of thing I elaborated on in the subsequent post.  Big Time Shorter has developed a relationship with some due-diligence BP Scientist, BP Scientist goes to check out MNKD on behalf of BP and decides to pass for whatever reason or reasons, perhaps they think Afrezza won't be approved, perhaps they think even if it's approved it won't be a big deal, maybe they interpret some of the data differently than MNKD, and that the FDA will interpret it as not as favorable as MNKD does; that's all on the up and up.  What's not on the up and up, is BP Scientist tells Big Time Shorter (for an under the table fee, of course) that based on his review of MNKD, MNKD is not such a hot thing to own.

I definitely think that the big money players pay for information, and by that, I don't mean Feuerstein's opinions!  There are plenty of people with the kind of background FDA members have, suppose a big money player hired one of those, and that guy's job was to follow a couple of biotechs like MNKD, and to render an opinion as to what the FDA decision will be.  My guess is that there are more than a handful of biologists out there that would have a very good track record in predicting the FDA's decisions, gosh, if a person could get 2/3 of them right, that would be worth a lot of money to someone.

Objectivity is the key, without it, you need a little luck.

I certainly do not think that MNKD is holding back information that they are legally obligated to disclose.

[spiro]

Mnkdfan,  i do not think the shorts are hedged as much as everyone believes.  If you add all of the available call options together, it comes to somewhere around 30 million shares. Believe me, retail investors control a sizable amount of those shares. Heck, I own 410 of those contracts myself and know of 3 other investors who combine for another 1000 contracts. I would be surprised if the shorts were more than 50% covered with options and warrants. Some of these shorts are in a pure river boat gamble, with the deck stacked against them.  Take another look at Minimed the day it was bought out. I haven't been able to locate what the short interest was that day on Minimed. 

articles.latimes.com/2001/may/31/business/fi-4587

[alcc]

That's an expensive hedge. Using today as an example, at the money May 14 calls cost about $2. So if the stock goes to zero you make $4. If the stock takes off to the moon, you lose $2. A 2:1 bet best case. Lousy hedge.

Option pricing is run through insane mathematical models on supercomputers. For a retail short to think he can use options as hedge to his advantage is sheer idiocy.

[alcc]

Edit.

[mnkdfan]

The part I am still struggling with is why did the shorts not cover back in October 12 right after Al diluted the shares to raise money for the trials. The stock dipped below $2.00 and yet the shorted shares were still about 30mil. How much meat is really on a $2.00 bone so why would the short not cover at $1.80? Then as the stock slowly recover, the short volume slowly climb to the current 58Mil.

Take Intel for example, the current shares shorted is 209mil (one of the highest for a nasdaq stock) albeit only 4.2% of the float but still a boat load of money with intel at $24.00/share. I don't think we'd asking if someone have inside information regarding an impending doom processor chip on the horizon for Intel and have placed a $5B bet for the stock to tank in the coming months. I would contend it is more likely part of a complex hedging strategy by one or more investment house.

The more we debate this topic, the less concern I have about some unique insider knowledge or BP corruption committee insider (hope I am right). You see, before the trial was complete there was 5/31/13-46Mil short shares. So a total of just 12Mil more shares shorted over almost 1-year span after the positive trial results reported. This relatively small increase does not scream crappy trial results or corruption for me but more inline with a hedging approach.

finance.yahoo.com/news/nasdaq-stocks-largest-short-positions-152557066.html


Very much enjoy the discussion

[alcc]

"I would contend it is more likely part of a complex hedging strategy by one or more investment house."

I am lost. Please explain to me how selling a stock short can be a part of a complex hedging strategy. Hedging against what?