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Molycorp, Inc. Message Board

  • stephen.chu stephen.chu Nov 26, 2013 6:07 PM Flag

    Serious question, only smart people respond please

     

    Why is it that if you visit ANY message board, people are nudging...warning...indirectly begging the short sellers to cover, and claiming that THEN the stock will go up and up and up? It's like this everyday, with every stock! Logic and reason holds that the short sellers do not control price action of company stocks, but the people posting messages seem to believe that they are 100% at the mercy of short sellers! Why is this going on?

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    • Human nature. They sleep better if they do not hold themselves accountable for losing their and/or their family and/or friends money. Just blame the boogeyman short sellers (who were on the right side of the trade) rather than admit they messed up betting on a sheety company, sheety board, sheety CEO, sheet management, sheety balance sheet, sheety income statement, sheet cash flow statement, sheety margins, sheety product mix, sheety inventories, sheety product price trends, sheety stock trend, sheety debt, etc.

    • Covering short shares is buying. That demand raises the price.

      It is impossible to tell the price after covering. Say there are 100 shares of a company, all in the market. Say there are 25 shares borrowed and sold short. There is actually demand for 125 shares of ownership at that market price. You could argue that the investment long dollars stay constant during covering ... so if the shares are at $10, there is a $12,500 investment interest in that company. When the shares short are covered, that $12,500 would correlate to a $12.50 per share price. Of course the buying of 25 shares (and removal from long hands) is demand, and who knows what the actual price of 100 shares is after the 25 are returned.

      It isn't rocket science. A short position generates new shares. In one account (a margin account) the shares are bought and held. The account manager lends the shares to a short seller who sells the shares. Now the shares are in 2 places, the new account, and the original account. Both accounts own shares. The same shares in fact. The process can continue, with margin accounts always being loanable shares. Selling short is dilution. Since covering the short position takes shares back out of the market, it is share count contraction, and should raise the price.

 
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