For balance let me say why I think holding a short position is also a highly risky strategy.
Even though I respect the people behind the massive short interest, it does not follow that they will all be successful in their investment. Because they are essentially waiting for a bomb to drop in the form of news damning to PLMD, they have a problem regarding time-frame. As everyone saw in the case of AMZN and other internet companies, the stock market may take years before "it" decides to recognize the underlying fundamentals of a company (which always, in the end, determine value and stock price).
PLMD's published fundamentals are currently strong, so the short's case rests on these fundamentals being flawed. They are banking on some news coming out that will radically alter these fundamentals. But with every quarterly report and no bomb comes reassurance that the company is not in trouble. The shorts are therefore subject to doubts regarding their thesis, and resulting periodic squeezes as some of their compadres keep to a stop-loss discipline.
The thing about a squeeze is that they are just like the crash we saw in March, in reverse. Trading like that has its own rules and "rational value" isn't one of them. Big institutions are certainly diversified enough to absorb a PLMD squeeze that puts the price over 40, but many private investors or traders might not be able to handle something like that, especially if they succumb to the often irresistible temptation to add to their position as it goes against them, fueling a margin call. This is a considerable risk and it's why I have no desire to join the shorts in their long-term position.
Partisans are typically unthrilled with traders who operate from the middle of the road, or dead-skunk territory. But when the traffic is screaming by in both directions, there's only two safe places to be: off the road, or in the dead center, and only one of those is thrilling (i.e. profitable). |
