Dumb question, I know. Be easy. ;)
Can you provide a hypothetical example?
The reason I ask is could we see shorts having to cover in order to pay off margin calls?
they might not have a chance at a margin call. If the data is great and the share price opens high enough they will be automatically liquidated. Some reatail investor who shorted this stock is going to open up his account and see it gone, a zero balance. Their brokerage firm can and will liquidate ones account to cover any loss.
Let me explain something everyone is overlooking. A margin call is something you get when you need to put up more cash to cover losses on a positon that currently exists and is losing money. Anyone can get a margin call, on a long or short position.
That being said that is NOT the major problem that will occur tomorrow if there is a short squeeze.
Let me explain.
The shares sold "short" are borrowed from someones account, with the promise of returning them when they are needed back, by the brokerage who lent them to you. They lent you the stock and you sold it. That is how you get short. Got it?
The big problem for shorts occurs when everyone wants their stock BACK and they don't have it to deliver. The shorts can't put up more money. They need to go out to the open market and buy this stock back AT ANY PRICE, and return it.
Now, there are 28 million shares of open call options in Celsion, and 7 million shares of stock sold short. There exists only 35 million shares (rough numbers) of outstanding stock available for trading.
So do the math. Many people like you and I own and hold out shares, and we will not sell them right away, will we?
The call options, on good data, may choose to EXERCISE, or ask to have their stock delivered if the price goes up. The combination of longs holding on, call options being exercised, and an already 7 million share short position will create a condition whereby the brokerage firms will need stock to deliver to their accounts asking for it. They will call the shorts and ask for the stock BACK. The shorts must return the shares they borrowed. They MUST go out and buy them.
This is called, being 'bought in'. Also, if losses mount fast enough in a short account, the brokerage has the right to just go out and "buy you in" at their discretion, at any price, to protect themselves.
This is what creates a short squeeze.
I will go one step further for you. Those numbers I wrote above.....Hypothetically it is possible for move stock to be called in than actually exists!!!
In a situation like that the shorts are said to be "trapped", and they cannot deliver the borrowed shares. In this situation, the brokers' market makers will continue to drive the price higher and higher to any price necessary, until a REAL long position finally sells to them. Then they are able to return the borrowed stock. In this scenario, the sky is the limit for price. It decouples from reality, and the market becomes pure supply and demand.
The most famous case of this was the Porshe Volkwagon short squeeze several years ago, where Porsche cornered the market on Volkswagon shares, through options. They ended up driving the price of Volkswago shares up so high, that in just 2 days it became the most expensive company in the world! You can read about it in the New York Times. Just google "porsche volkswagon short squeeze". Porsche is estimated to have made 40 Billion dollars. And many hedge funds went bust.
Not since that squeeze have I seen a setup like that again, UNTIL NOW, in Celsion.
Celsion has the potential to be "cornered" by the options holders.
The catalyst will be good data, the driving force will be short sellers trying to cover as call option holders exercise, and as brokerages demand stock be delivered. The only thing that will stop the rise will be WHEN, WHEN the real longs finally decide to sell and give back some real stock to the market place.
I hope that helps everyone understand what COULD happen here. Of course, we first need the good data report to get the ball rolling. After that, the sky is the limit.
Good Luck tomorrow.
As a add-on;
Shares held in an acc which are subject to loan-out ( margin),, can be frozen in place,, to prevent others from using the shares for the sly tricks that have been happening of late.. Just put all your shares for sale at $95.76 ps.. Day sales only,, placed at the start of each day..
If you want to buy some shares,, just free up the same number of shares..
PAY BACK TIME,,,
f course it will. The low float is key. It's all numbers of supply/demand. On the demand side, you have regular new investors(heavy demand), the shorts to cover, and the naked calls. The shorts are 8 MM, and according to others the Naked calls are 28 MM. The supply side is simple, it's the float, which are the shares available for trading. Celsion's float is 30 MM, so the demand is greater than the supply already, just by the shorts and naked calls.Like the law of gravity, when demand exceeds supply, the price must go up. This could be REALLY INTERESTING if the news is great.
Sentiment: Strong Buy
Hedge funds that are short will cover first, and lick their wounds. They have to before it gets out of hand. It's the individual investor that may not have imagined such a strong upsurge that will probably get run over, particularly if they are hoping against hope that the price will come back down.
Margin call but if the cost to cover exceeds a certain % of account value, many brokerages brokerage will automatically cover by liquidating other positions. They would not usually allow the short to remain open when the cost to cover to exceeds the account value. AF, Brean Murray and others will do the needful to make sure that the pool is kept muddled while the shorts cover before it fully takes off. And dont forget some of the more disciplined shorts are probably hedged with calls.
Absolutely. Shorting a stock simply means you SELL the stock first, and then BUY IT BACK LATER. Of course, your betting that when you buy it back, the price is lower. In any brokerage account, you have "mark to market" which keeps track of your losses and gains. If there's not enough to cover your losses, you have a margin call. If you can't meet that margin call quickly, your broker can liquidate the position and collect from you. IT IS A VERY DANGEROUS BET!! The reason why it is so dangerous is that THERE IS NO LIMIT TO THE UPSIDE. When you're long, the most you can lose is your capital invested, if it goes to zero. When your short, your potential loss theoretically is limitless. Practically speaking, you can lose however any multiples the stock rises. If I were a short and there's good news, I'd be covering at the open, no matter what it is. Oh man, I would hate to be short.
Sentiment: Strong Buy
Now there is a pragmatist I can get behind! First, let's hope it's the shorts and not the longs that are squeezed. Second, short squeezes are pretty rare, notwithstanding how much they are discussed on message boards, but if results are good there's a chance to see one in action. Shorts are generally far more trading savvy than longs, the pros will likely NOT cover right away, they will wait for a pullback caused by longs selling for profit.