Paul, I am not sure if the net shorting has increased that much, in the last two months the short position increased by about 150,000/month (the big increase was 600,000 shares total for the two moths prior to that). Even is you assume that the naked shorts are at 1.4 MM they are as stubborn as the bulls in believing they are absolutely right, and will not cover until the level of pain is impossible (except for those smart bears that are in it not for ideological reasons but for making money). So, you should not expect the naked short position to be less than 50% of its current assumed position of 1.4 MM shares after a massive rally (which, by the way, will probably be shorted as well).
Note that in the last 12 months, the short position has increased by 2 MM shares (from about 400,000 shares last Sep to about 2.4 MM shares this August). That covers the period of the first and second tranches of the convertible to CC. I doubt this is a coincidence. If you assume that both tranches are "hedged, then, you do not have enough of a short position to cover the floorless feature of the second tranche. It may very well be that the only naked shorts are those riding CC's coatails, like Bill Wexler and few other brave souls.
Of course, if a material event were to occur (where are those PO's), you could expect much more than the average volume we had recently, but the short position will sure provide some fuel for the advance if it were to develop.
Zeev |
