About shorts and shorting.
This is not from a pro, so if I get anything wrong, please correct me. Frankly, I've made more off this stock short (last Feb) than I have long, so I do know something about shorting. Since shorting and trading on margin are considered banking functions, they are actually governed by rules set by the Federal Reserve Board, not the SEC, although the SEC is the enforcement body. All shorting must occur with stock held in margin accounts, not cash accounts. Non-taxed accounts, 401k, IRA, etc. are all cash accounts.
To short a stock you borrow it (say 100 shares) from another client of your broker and sell it to a third party. Several interesting things occur here. First, you have increased (inflated) the "float" (shares held unrestricted to trade) by 100 shares because now you have two owners of 100 shares where previously there was only one. This is why, if you are short a stock and a dividend is declared, you have to pay the dividend to the person who bought the borrowed shares from you. The company will pay their dividend only to the original "holder of record" but the person who bought your shares expects a dividend, too. A "short squeeze" accelerates the increase in price because it is actually a deflation or shrinking of the float.
Second, the Exchange cannot tell if any shares traded are regular or borrowed. They only count the transactions. Therefor every month on the 15th day, all brokers report to each Exchange how many shares of each stock are borrowed and outstanding short. Since a stock that is not marginable cannot be borrowed, it cannot be shorted by retail customers, but can be shorted by market makers, who also must report short interest to the Exchanges. This is how a non-marginable stock can have an outstanding short interest. The important thing to remember here is that the short interest figures you see are updated only once a month, on the 15th, because the data is collected only once a month.
Any report you see now on the "current" short interest of VVUS is actually the short interest that existed on December 15 and we really don't know the real time short interest for January 3rd. January 15th will be the next expected update.
The WSJ publishes short interest on the third or fourth Thursday each month, as I recall from my days of following info in print rather than on line. I now get short interest on NASDAQ stocks from viwes.com where you can also get a list of the top stocks that have been looked up there. I suppose many of you know this site, because VVUS is the top inquiry at this site for the past 5 days!! (YHOO is second)
For a more complete version of this explanation, and a schedule of when the Short Interest data on the NASDAQ will be released for each month, go to nasd.com.
Hope this helps
Zebra |
