thestreet.com take on AOL's short squeeze: (I know I am breaking copy right laws take it as a sample and go to www.thestreet.com for a two week free subscription, you may like it and sign up for good!
Wrong! Dispatches from the Front: Cramer Tells a Tale of Bears Gasping
By James J. Cramer
2/10/98 8:27 AM ET
Wow, now that's what I call a squeeze.
Of course I am talking about the 11-point ramp in America Online Monday. It's been awhile since I have seen such an unmitigated goosing; a veritable short-selling wedgie if there ever were one. How did I know? Because I was right in there. I came in long 1,100 February 90 calls, assembled all during last week's sell-off of the on-line company, and I followed every tick of the trading, as I peeled off 10,000 share increments (the calls were at parity or even with common, so it made more sense to sell common) on the way up to one tasty trade.
But let's not get ahead of the story. The stock started out up about a point, even though there was no news, and I felt gratified because sellers and short-sellers had been leaning heavily on the stock for days now. AOL is one of those stocks that either goes straight up or straight down; it never stalls or marks time.
Then the headline came out that Bob Pittman had been named president of AOL. Pittman, for the uninitiated and those who live on Uranus, is the pied piper of stocks. Just the mere mention of Pittman in relation to a stock sends portfolio managers into paroxysms of buying splendor reserved only for GE heirs and Wayne Huizenga, pre that auto thing. The idea that he would be president, well that's just a license to print stock!!!!
A few minutes later AOL announces that it is going to raise its price-per-month. The moment it came over I issued a "squeeze alert" -- that sounds a lot like the ooga ooga of a diving submarine. A price rise is the achilles heel of the short crowd, it's the thing that was never supposed to happen, the thing that destroys the bear case as sure as if you took away all of the picnic baskets in Jellystone National Park.
"They'll be forced to cover," I shouted to my desk. "Analysts have to raise numbers." Sure enough, no sooner are the words out of my mouth than it comes over the tape that Pittman is urging people not to raise numbers. "Even better," I said. "Pittman is going to engineer a massive bear trap," a giant-sized earnings surprise that is going to put whole ursine colonies out of existence. "The man is hunting for grizzlies with quad 50s!!!!"
Over the course of the rest of the day every single sell-side firm is going to reiterate its buy recommendations, I predicted to my trading desk. "Offer ten thousand shares every time the buy chorus breaks out." For the rest of the day, beginning at 105, up 6 points, each desk took a turn at boosting this stock. And for the rest of the day I offered ten thousand shares every time one did. Not once, not once, mind you, did I ever get the outrageous price I asked for. I always got a quarter of a point or sometimes a half of a point more than that!!!!
Only in true, honest to God short-squeezes do you find yourself selling stock for much more than you even ask for. A true short squeeze, if you won't mind another angler metaphor, is just like when you go night fishing for blues under that heavy September moon off of Block Island. You want to catch one fish, but the frenzied masses are so desperate for your bait that you end up reeling in two or three big ones on the same squid cocktail. They can't wait to get their heads handed to them.
Oh yeah, the shorts gaffe just as easily as the blues, too. The blood spurts faster and harder. And, the profits taste better, much better, even if you've cut the blues with milk, which I have found is the only way to get rid of that fishy taste.
After I had been taken on 80,000 shares in a feeding frenzy, I doubled up and offered 20,000 at $112 near the bell. My offering hadn't been out there for more than a few seconds then I got a strike. No fighting chairs necessary; these profits didn't even put up a fight.
What happens now? From the looks of things, at least one of the die-hard AOL shorts might have finished, a la Noxell, so glad that the pain was confined to one session. But there's plenty more short were those shares came from, and I found myself wishing I had held on to more than 10,000 shares.
But there are bulls, there were bears, and there can be pigs.
Yesterday I was just a bull.
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