>> Short interest way up + 1,374,573 and I'm sure it's growing
> can someone here explain why that might be
There are many reasons why people might want to short a stock. And usually, the short sale is not made in isolation. Something specific is purchased with the proceeds of the short sale. Hedges are created.
The purpose of this post is not to confirm what the short interest might be. (I don't know what it is.) It's not to offer an opinion about whether it's going up or down. (Likewise.) It's only to answer your question about "why" the short interest might be going up. The answer is: Using the upcoming binary event to make money on other people's money.
In this hypothetical scenario I'm not going to take into account commissions, interest on the short position debt, or similar factors. However, you can presume that the pros in the business would pay much less to do this than you or I would.
1) Sell 100 shares of IMMU short, and pocket $4.30.
2) With those proceeds, buy IMMU August call options. For sake of example, buy 3 contracts with a strike price of 6 for 0.60 each (a cost of 1.80 total).
Now, let the binary event happen between now and August 21.
a) If the EMBODY trials do not meet their endpoints, what will the price of IMMU be? Below 2.00 ? As long as it is below 2.50 (=4.30-1.80), you can cover the short with the remaining cash and make a profit.
b) If the EMBODY trials succeed, what will the price of IMMU be? Above 8? Every dollar above 4.30 is a $100 loss on the short sale. However, every dollar above 6.60 is a $300 profit on the options (because you have 3 contracts). That is, break even is 7.75. If IMMU goes above 7.75 you can cover the short and STILL make a profit.
Not bad, eh?, considering that you didn't put up any of your money in the first place.
P.S. -- While you can lose money on this position, the lose is bounded. Worse case scenario is that IMMU goes to 6. Then you lose 3.50. |
