I wondered who could sell RGR short, considering the short interest is 8.5 million shares, or about 1/2 of all the shares outstanding. In addition, 97% of the RGR shares are owned by institutions, who presumably don't trade a lot, and don't loan their shares for short selling. In other words, who is selling RGR short naked, without borrowing the shares?
First, I wondered if it were some kind of arbitrage trade. RGR is in one ETF, the DWAS small cap Invesco fund. Maybe somebody is buying DWAS and shorting RGR. But the fund has a market cap of only $20 million according to NASDAQ, and RGR is only 1% of its holdings, or roughly $200,000 worth of RGR shares. Not enough to account for the large short interest.
Then, I wondered if it were a government insider, who assumed public pension funds could be shamed into dumping their shares, and forcing the price to fall. But the only public pension funds I can find listed as major shareholders are Calpers and Teachers Retirement fund, who own less than $5 million worth of shares, against a market capitalization of almost $1 billion for Sturm Ruger. These couldn't affect the price.
Then I wondered about executives employed by the company, who might have stock options which they could convert to cash by selling shares short. The Form 4 filings show that insiders are selling shares, but these are in very small quantities, only about 5,000 shares at a time, which I consider normal behavior for executives granted stock options.
Finally, I was forced to conclude that the short-sellers are a hedge fund of wise guys who believe they have a deep understanding of the fundamentals of Ruger. I can't imagine what their theory is, and I can't find any good short story online. Just a note from KeyBanc that the price/earnings ratio is too high. Nothing at Barrons.
Rather than nearly all shorts being naked, perhaps the institutions actually are lending some of their shares. They can earn a lot by doing so.
With regard to a possible short squeeze, it is surprising to me that the out of the money call options are so inexpensive and trade in such small volume. I would think some shorts would try to protect themselves from a big squeeze with such a high percentage of the stock shorted, especially as the stock has run up during the past 30 days.
Note that at price of $55.61 or higher, every short is in a losing position (actually lower since $55.61 ignores any interest cost to borrow the shares shorts might be paying)
It couldn't, it shouldn't affect the price but in todays market that does not mean it won't. Look at all the shananagins that go on with naked shorts and the type. There has been this sort of thing going on for years in the silver market and they some how manage to wiggle out or lower the position without drivie the price up, don't know how that could be legal but it happens.
Since May shorts made about $50 MM my guess. They were cut back to single digits by $4.50 dvd and others. The "hedge fund" used a long position war chest to meet lower and lower bids driving the ask lower and cashed in their extensive open shorts. I guess they're down to single digit MM profit. Their war chest may still be large enough to drive price down. The short squeeze may be a ways off. Another big dvd or a buy out with a bonus could bury the shorts.
with almost half of the float shorted, what we are going to see is a short squeeze within the next couple of weeks that will rival the 08 Volkswagen squeeze... watch it happen. It is just ridiculous to short a company that is doing this well no matter what your beliefs about "responsible investing" is.