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Peter,
I wasn't referring to a true short squeeze with individuals actually shorting stock but rather an "MM Short Squeeze" (MMSS). This occurs when an mm sells shares to someone buying when they don't have it in inventory.
Suppose HRZG (1 of the 2 mm's in KOSS) receives an order from an individual to buy 1,000 shares of KOSS at 13 3/4 when the bid/ask is at 11 3/4 x 13 3/4 but they don't have any in inventory. At that moment, HRZG is "short" 1,000 shares of KOSS. They're hoping for people to come along and sell shares to them at 11 3/4 so they can cover with a full 2 point spread.
Since they're "offering" to sell at 13 3/4, they must honor that price even if they don't have it in inventory because they're an mm. Let's suppose this occurs 10 more times during the day. At the end of the day, HRZG is short 11,000 shares of KOSS unless anyone has sold some to them.
At some point, they must decide either to raise the bid above 11 3/4 (but below 13 3/4) to try and get someone to sell them shares or they will raise the ask higher to discourage buyers. Hopefully, for them, they will be able to buy the 11,000 shares they're short before the bid reaches 13 3/4 so they can have a profit.
I believe that is exactly what has happened over the past week or two in KOSS. The mm's thought there would be people selling them stock so they kept honoring the requests to sell to other people stock they didn't own. After a while, they became nervous about their position and hence the MMSS.
Even if I'm right, these "short" numbers would never show up on any report because the mm's are in a different category than true short sellers. But the effect in a thinly traded stock is the same. If a market maker sells stock they don't own (which they are obligated to due as part of keeping the market liquid), they are technically short that stock.
BTW, Peter, I calculated that there were more shares SOLD than bought yesterday. I do this by looking at the transaction price and the inside market at the time it was done. Then, assuming there's no "free lunch" on Wall Street, I am able to tell (when the spread is this large) where the activity was. For example, if the bid/ask is 12 x 13 1/2, a trade executed at 12 1/4 is most likely a sale to a mm from an individual trying to get a little better price than the bid. A mm would never sell stock at that price to an individual unless they strongly believed the price of the stock was headed much lower quickly.
Conversely, a transaction at 13 is probably a purchase by an individual who is trying to get a little better price than the ask. Again, a mm is not likely to buy stock at 13 when the market is 12 x 13 1/2 UNLESS, they have an immediate buyer lined up at a price higher than 13 so that they have no market risk.
I apologize for a long explanation but I think it is pertinent to understanding what is happening in KOSS. This type of activity is only visible in a thinly traded stock with a large spread. Otherwise, it's too hard to sort out mm activity and motives.
Any other comments on this theory? |
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