Found this on the Yahoo board - for those who are concerned about info on shorts/puts/calls it's fascinating. I learned a lot from it, myself.
QUOTE:
Wrong!: Cramer Says Short Interest Figures Are Bogus Indicators
By James J. Cramer
9/3/97 11:46 AM ET
Bogus indicators lurk everywhere. Nasdaq short interest? Totally useless. Public short interest versus member short interest? Irrelevant. Put/call ratio? Meaningless. Yet people still swear by these things like they mattered.
Hey, wake up and smell the coffee. Stop deluding yourself. The short numbers that you see published are completely worthless. Same with the options numbers. That's because there is a whole other world out there, an off-the-board, big-boys-only, derivative world that is accountable to no one and knows no disclosure. And that off-the-board derivative world dwarves whatever you see in the paper.
People constantly email me about how I monitor whether a stock is overly shorted. They tend to be "scientists." They want to add up all of the puts and the common stock short, subtract out anything that may be a hedge against a convertible bond, and voila, arrive at a number that would show them whether a short-squeeze is in the offing.
Wrong!
At any given moment buy-side firms are negotiating with sell-side firms to go short or go long stocks in a fashion that will be hidden from all to view, except the participants themselves.
How do I know this? Because I used to buy and sell them all of the time. Heck, I even designed them. When I wanted to play all of the savings and loans that would get takeovers, I asked firms to design a basket that would allow me to capture all of the takeover upside. When I wanted to be sure to have the exposure to the telecommunications ramp, I crafted a basket that contained all of these stocks and bought calls on it. I bought baskets on Argentina and Japan. On cyclical stocks. On semis. On Donner on Blitzen -- well almost. Then I came to my senses about what ripoffs these baskets were -- but that's another story.
You never saw any of these trades, despite their relative humongo size. They were all done off-board. You never saw the concomitant shorting and hedging that went on. Yet, I can tell you that they would distort any of the public's figures about shorting, to the point of rendering them useless.
Similarly, many companies themselves have established giant put sell programs that create massive short positions that you will never see. Intel alone probably has sold more puts in a quarter, privately, than appear in the stock pages all year. To look at the public Intel short position and couple it with the public put position and arrive at a conclusion based on that is nothing more than alchemy!
So, how can you game whether something is overly shorted? Sorry, it is all instinct. You can only do so by measuring the thrust of a stock on the way up. If it seems completely ludicrous that someone is buying up 10 or 12 points, you can bet that the short has gotten out of hand. But there is no bloodless test. The numbers just don't mean a thing.
Do yourself a favor and stop relying on them. I have. I used to spend hours going over the short interest figures looking for clues about the market's direction. Now I treat them like those lists of names of inactive accounts at banks I never banked at. In other words, I turn the page.
This story was originally published Aug. 31, 1997.
c 1997 TheStreet.com, All Rights Reserved.
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