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Nektar Therapeutics (NKTR) Message Board

  • thegunnerab thegunnerab May 1, 2012 2:42 PM Flag

    Tried to Short

    I tried to short 10K shares at 7.8 today via my TD Ameritrade account and was informed:

    "Sorry, this stock is not available to sell short"

    Very interesting...

    The Gunner

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    • >>The shorts sold the May 6 calls for 40c when the stock was trading in the low 4s...

      So basically, they shorted at $6.4 vs $4.2 where the stock was trading at that time...

      By selling the calls, the MM had to short the stock...<<

      Thanks for the laugh, gunky, but ya got it all backwards. A call writer covers by buying the stock. A put writer covers by shorting the stock. If a call writer is short the stock, he is doubling his risk. And selling May 6 calls is in no way equivalent to shorting the stock. The most the call writer can make is the 40 cent premium and the upside risk is unlimited.

    • "By selling the calls, the MM had to short the stock..."

      gunner - You assume that it was the market makers on the other side of the 4.5 million share options trade. I do not believe that is the case. We've gone thru your "then the market makers shorted the stock" theory previously, and it too makes no sense. And please don't put words in my mouth that I did not say, such as that the stock should be at 6 according to my explanation. What I suggested is that the calls were bought by shorts as a way to cover and sold by one or two large institutional holders. This would suggest a plunge in short interest during the second half of May and a corresponding drop in holdings during Q2 by large institutional shareholders.

      We'll see soon enough.

    • Multi,

      You don't get it.... It won't be the first time...

      The shorts sold the May 6 calls for 40c when the stock was trading in the low 4s...

      So basically, they shorted at $6.4 vs $4.2 where the stock was trading at that time...

      By selling the calls, the MM had to short the stock...

      According to your theory, we should be at $6 by May expiration...

      The Gunner

    • The theory that gunnerab had put forward was that shorts sold May 6 calls for 40 cents and that the buyers were marketmakers. This did not make sense to me, and the more I think about it the less sense it makes. As things stand, the shorts would be on the hook to come up with 4.5 million shares that they don't have when the options expire next week. Gunnerab agreed that the trade could have netted the shorts 40 cents per share against a potential loss that is theoretically unlimited. Reasonable people would agree that this trade makes no sense.

      What does make sense is that the shorts were buyers of the 4.5 million calls, not sellers. This would allow them to use the options market to cover some of their shorts. As for who wrote the calls, it makes sense to look no further than to who owns 4.5 million shares. A few institutions fit the bill, and it makes sense that one of them wrote the calls.

      The strength in the stock this week has been welcome. I'll be happy when next week is over and we can put this massive May options position behind us.

    • "Exactly. That's exactly opposite of what we'd expect if all the shorting you talked about had occurred"

      Multi,

      You just proved me that you are a moron...

      NKTR share price rose rose from 4.2 to 8.5 while the short interest rose from 15M to 22M...

      According to you, it does not make sense...
      But guess what? It is exactly what happened.

      The Gunner

    • "Multi, You got it all wrong... The stock went to 8 if you recall..."

      gunnerab - Exactly. That's exactly opposite of what we'd expect if all the shorting you talked about had occurred. My scenario makes much more sense - the May 6 calls were bought by shorts as a way to cover. If this is true, short interest will take a sizable drop when the end of May numbers are reported on June 10.

      I've established that your scenario makes no sense. So what are you really up to?

    • Multi,

      You got it all wrong... The stock went to 8 if you recall...


      I'm very long and not aligned with the shorts at all.

      The Gunner

    • "Someone sold the MM 10,000 May 6 calls when the stock was trading at 4.5 for 40c. The Seller collects 400K as premium. The MM shorts 500K shares, equal to 5,000 contracts, at 4.5."

      gunner - You used unlikely examples of the stock going to either $2 or $8, either of which has a very low likelihood. But what if the stock went to $6? In this case, the MM loses $400K for buying worthless options plus loses $750K for shorting a stock that goes up $1.50. Instead of a maximum loss of $400K, you've created a maximum loss of $1.150M. Under your example, the MM's have almost tripled their worst case loss.

      I think you are wrong on this one... and I'm starting to think you are aligned with the shorts.

    • Multi,

      The MM will short shares, not 1 to 1, when you sell him calls.
      The MM will buy shares, not 1 to 1, when you buy calls from him.

      Otherwise, he will be exposed...

      Now lets take your example.

      Someone sold the MM 10,000 May 6 calls when the stock was trading at 4.5 for 40c.

      The Seller collects 400K as premium.

      The MM shorts 500K shares, equal to 5,000 contracts, at 4.5.

      The stock goes to $8, the 400K the MM paid is worth 2M, and his 500K shares short at 4.5 are in the red for 1.75M.

      Basically break even.

      Now, lets assume the stock falls to $2.

      The MM paid 400K for the May options are worthless but his short position is up 1.25M...

      I hope you get it now...

      The Gunner

    • "They forced the MM to short at lower prices."

      gunner - The numbers just don't support what you are suggesting. If the MM's bought call options on 5M shares with a 6.00 strike price at $0.40/share, they would have a total exposure of $2.0M. If they then shorted 5M shares at $4.50, they would potentially have $9.5M at risk (worst case is the stock closes at 6, so they lose $2M on their worthless calls and $7.5M on the shorts that went $1.50 against them. So shorting shares at a low price doesn't lay off risk, but increases it. In this example, the only way the MM's make money on the pair of trades is if the stock is below $4.10 at expiration. Anything above $4.10 and the MM's would lose money. I seriously doubt the MM's would put themselves in this position.

      I still think that shorts bought out of the money calls as a way to cover at 6.40, and the calls were covered calls written by a large inst. owner. We'll see when the numbers come out.

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