The Short Story of DELL
By James J. Cramer, TheStreet.com
10/8/99 1:48 PM ET
Let's get behind the scenes at Dell (DELL:Nasdaq) so you can understand what is occurring with this lone tech stock that is up on my screen. Two nights ago, Dell held a dinner with the sell-side. Before that dinner, everybody, including people on our site, presumed that Dell would guide numbers lower. There was a massive amount of put-buying and short-selling of the stock, betting that this one would crack and crack big. More than 75,000 puts were listed as open interest just in near-term strikes.
But nothing happened. The dinner went fine. The meeting went fine. Michael was fine. The server business was fine. The laptop business was fine. It was a fine session.
Now all of those hedge fund guys kind of hoped that when they got back to their desks, someone would downgrade Dell and create some supply. But nobody did. Why should they? Michael Dell said everything was fine.
So, what do you do if you have the puts? You blow them out. What happens when you blow them out? It creates upward pressure on the stock. Soon, very soon, you have a counterintuitive buying panic. I mean, let's think about it, with IBM (IBM:NYSE) down 4, Hewlett-Packard (HWP:NYSE) getting clocked and Sun (SUNW:Nasdaq) down big, shouldn't Dell be going down?
Compounding the woes of the shorts is that hair-trigger people put more Dell out short today when they saw it didn't go down while the others did! That creates even more stock to buy.
I used to short stuff like this all of the time. In the past few years, however, I got tired of the gang-tackle shorts. They always end up being a prisoners' dilemma where you have to hope that nobody blinks, that they all just stay short.
But somebody always blinks.
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