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  • alpha2735 alpha2735 Oct 17, 2012 9:16 PM Flag

    500 million shares in SHORT ?

    No one's answering your question so I hope mine will do for a placeholder until someone who can explain it better does so.

    Shorts sell high and buy low. The idea is to borrow shares, sell at a high price, then hope the prices fall so that they can buy it back cheap to return the shares borrowed.

    However if prices suddenly rise, shorts have to quickly buy in order to "cover their shorts" of they risk prices sky rocketing out of control. If an event, such as a good (or in NOK's case less worse than expected) earnings report comes in, the price will go up. The shorts, fearing it could go so high they would be buying to return the shares at a large price, get into a buying frenzy. This is a feed forward mechanism which in turn continues to send prices up as each short seller tries to buy before the next short seller. The shorts get 'squeezed' and the longs benefit from the price increase.

    Think a sell off in reverse, where people are all rushing to dump their stock before price drops any further. This in turn depresses the price.

 
NOK
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