Monday, July 16, 2007

Possible Bear Trap Squeeze

June 29, I wrote a little piece "Harvesting the Shorts." I pointed at KB Homes as a target. It might just be in the works for this week, only the stock chosen has changed.

Notice how last week the rumor, of Warren Buffett buying Hovnanian Homes, got set off with the purchase of a lot of, "out of the money" calls?

There are 62 million shares of Hovnanian Enterprises outstanding and 34 million in the public float. The June 15, WSJ short position for HOV was 18.6 million. This looks like a full blown bear trap. Somebody seems to be following my outline.

If a bunch of wealthy people got together and tried to squeeze the shorts, they would end up like Martha Stewart. Now if they formed a Hedged Fund LLC. . . Hmmmmm.

There was one bear trap back in 1929 that was very successful, I can't remember the name of the stock. I think the stock was halted when it hit $700, but the shorts ended up settling for $100 per share (they were let off rather easy).

Nah, I guess it's my imagination acting up again, but it looks so obvious, I just can't help myself. I can be wrong once in a while, can't I??


Anonymous said...

Wrong? Da! May be time to learn a little hubris, Mr. Short Squeeze. Want to bet a nickle on where HOV is 6 months from today? I'm game.

Jim in San Marcos said...

Hi Anon

You're missing the point. If enough people buy and send the stock to $800 the shorts have to cover. Even if it files bankruptcy the following Monday, that still doesn't help you. As a short, unless you ponied up the difference between your short price and the Friday $800 dollar value, your broker bought the stock and settled your short account.

You would now owe your broker the difference between your short price and the settlement price your broker executed at.

If you read your brokerage contract, you'll find out that they don't even have to ask you before they buy your short shares back in the market. They can do it if they feel it was necessary.

Ask yourself where the shares you shorted came from? Ans, From some one else’s brokerage account, that has them in street name.

Common sense isn't worth a dime in the stock market, just look at Google