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Arena Pharmaceuticals, Inc. Message Board

  • iago4466 iago4466 Mar 2, 2013 12:01 PM Flag

    The trapped shorts myth

    One of the stupidest and most persistent myths on this board is that millions of shorts are trapped under water (some of them at PPS below 3, or even 2). Ignoring a few retail idiots with their 100-1000 share short positions (folks like chapman, todzun etc), this is just not true. Indeed, I think shorts are presently in the money, having taken out their positions well above 9 and perhaps even in the 10s. Every professional trader (and I have several friends who are) I speak to on this point is absolutely consistent: No institution/HF EVER permits large short positions to go heavily into the red, because the potential losses are so serious. There are VERY strict stop-loss criteria that are rigorously applied, just as there are on long positions. The pros make money because of their discipline in avoiding major mistakes. Sure, mistakes do sometimes happen, but he pros do what they can to avoid it. Shorting is a dynamic process; positions are covered, for a profit, and new positions are taken out. Large short positions were taken out in double figures in January, when the trading volumes were in the tens of millions for a few days and massive numbers of shares changed hands. To ignore all of this is just plain silly. There are NO significant short positions left that were taken out in the 2s, 3s, 4, 5s, 6s and probably not even in the 7s. You cannot look at short share numbers without looking at the dynamism of the process. Let's make an analogy: In my village, in the year 1900, there were 100 people alive. In the year 2000, there were 200 people alive. So, therefore there must have been 100 people born in the period 1900-2000. Right? Errrr, no, there were also a lot of deaths... And basically none of the folks alive in 1900 were still alive in 2000. There were 200 living humans in 2000, but they do not overlap with the 100 alive in 1900 (bar the rare survivor, like chapman or todzun, clinging onto life).

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    • its fun to say 3 dollar trapped short though. I look at it as mostly just banter among foes. The other myth is that YMB's drive price action. And some folks post like it does. I think its just the typical anonymous internet chat that you see anywhere. People trolling, wanting to get under another's skin for the sport of it. I'm not sure why people bash nor pump for that matter. I'm sure they have their reasons... perhaps to just make themselves feel a little better about their investment.

      As for the short squeeze, its only going to happen if the stars all line up accordingly. that is either stellar sales out of the gate or a buyout. though the squeeze on a buyout is not really a squeeze since the first trade after an announced buyout is going to be for roughly what the terms of the deal are, but i'm sure it will feel like a squeeze to anyone caught short. I think you are right about shorts being in the money right now also; at least on this leg, I'm not sure how they are doing on their overall ARNA strategy over the last 12-24 months though. I suspect not well. But that doesn't concern me. I'm all about me and my position. I could care less if someone shorted from 13.50 down to 7.00

      With that said, I think there are probably more people "stuck" short at a low pps and have added to that position as the share price rose than you think. Whether they are professionals or retails, I don't know. I've just know a lot of people will stick to their convictions and keep adding to a position as it slides away. Is it the majority of the shares short? doubt it. Half? doubt it. 25% or 15%? perhaps, or maybe even lower. But what their average price is, who knows, and that is really all that matters. But based on the action in the minutes after FDA approval I suspect a tremendous amount of short positions were opened and added to at or around $13.50 which would be great for any "stuck" short.

      but 55 million or whatever is, is a lot of shares that need to buy at some point.

    • edimartino Mar 2, 2013 9:47 PM Flag

      Iago and hedge risk let's get something straight. The first 70 millions shorts who had the in on the fake rat cancer should not be worshipped. They are hieves plain and simple just because they were not caught does not mean they did not rip off all ARNA shareholders. So if you want to glorify your friends have a great day as they are simply put thieves with out the need of a gun . God bless the SEC as they are asleep at the wheel.

    • hedge_risk Mar 2, 2013 9:40 PM Flag

      Thank God for you, Iago. Maybe someone will listen to you. It IS EXACTLY how it works.. GS lost money on 10 days in 2012. TEN DAYS!!!!! They made money every other day. Professional institutions don't do this by not effectively managing risk.

    • I'm just skimming the board and ran into your post. Once again, I couldn't have said it any better. You're spot on Iago. One thing though, I never think of Todzun being short..he's just a VVUS loser who's wanting to be a pest on ARNA longs side. I would first suspect bearofbleecker being short with high degree of certainty before I suspect Todzun. Having said that, Bearofbleecker's posts to me were very helpful and give me a contrarian logical thoughts to what I believe in ARNA. Too bad he was chased away, mainly because he keeps denying he's not short despite the time, energy and effort he spent on arna board considering he has no investment interest in this. To me, that's just not humanly possible to post like that for "amusement". Our time will come as early as next week, though I'm not too optimistic for monday that there will be an earth shattering news, at least DEA is any day now. Good luck to us.

      • 1 Reply to jmontana0629
      • Agree with all you say, jmontana, including about Monday. I expect decent updates, nothing too amazing, and an end, very soon, to DEA. My guts tell me that if there was a serious chance of anything bigger being on the cards for Monday, the market would have reacted strongly up on Thurs/Fri. I take your point re Todzun. And for my part, I don't think Bear was a short, although I fully understand why he could be thought to be!

    • I would like to just point out I have not nor ever have shorted ARNA. I'm just taking a sincere fascination in the folly I believe an investment in ARNA to be at these levels. All my experience across multiple disciplines and thought tells me this launch will flop in the short to mid-term at the very least. Am I smarter and wiser then ~1000 to ~2000 ARNA long retail investors across many walks of life? I beleive I am, and can't wait to be tested by the objective measure of the market place. Here we go! What fun!

    • As per usual, iago, I admire what you say and how you say it. Well done. I am not counting on a short squeeze - if this stock is going to move as I think it is, it will be primarily (in my newbie opinion) the hard way. Through the way the business is conducted and the success of the product (and the partner(s) ability to move it. So yes - buy-out, short squeeze, stampede on Walmarts - all are possible (I guess) but not necessarily probable.

      My question, however, relates to history. While I am anything but a scholar or Wall Street maven (I admittedly don't understand much of what I read here, even) I understand that there have been classic and massive short squeezes in the past. Maybe fairly recently. I understand that it's rare (and thus improbable) but it's not as if major mistakes have not been made by great big gobs of pros, hedge funds, etc. My own, uninformed sense is that there's a revolving wave of shorts that have been playing the range...Whether the ARNA situation contains the same or similar elements to these other situation, I just don't know enough. I don't understand enough to confirm or deny whether there are large positions that have been stuck pre-FDA, I guess I'm an agnostic in the foxhole of investment.

      I note, however, that the explosive up thrusts on heavy volume are fueled by something. That the movements are not substantially sustained for an appreciable length of time only indicates that "news and/or revenues" were not in the fuel mixture. Maybe it's panic buying - people wanting to leap in before the train exits - if hedge funds and pros were so intelligent, why would they be engaged in "panicked" anything? But I think on the other hand that the volume indicates that it is more than us hardy band of retail mouthbreathers. A plausible and simple alternative is that it's panicked covering. a

      • 2 Replies to toltec4321
      • Hi toltec. I am also not a scholar/maven on these issues. But I think small short squeezes happen every month or so, leading to 50-100% pops in the PPS within a day. They are generally triggered by unexpected good news, like amazingly good results in a clinical trial, or the FDA giving a surprise thumbs up. But the REALLY big ones? Few and far between. For one to happen to ARNA I could see two triggers, both of which would in effect blindside the shorts and give them no chance of an orderly exit.

        1) A buyout offer out of the blue at a substantial premium to the current PPS;
        2) Absolutely top of the line, well beyond WS expectations, early sales, leading to an inrush of new longs and a burst in the PPS that short-covering would immediately amplify.

        EMA is another possible trigger, but there the dates are better known and the surprise is less.

        Could these events happen? Sure! Will they happen? Ah, there's the rub...

    • Well said iago. A very high % of the hype and bash are posters working for the hedge telling us where this is headed in a contraian way as they try to create fear or greed. They will be here until the Institutions are positioned and will regularly return whenever news is creating a tradeable event such as Monday's CC.

      • 1 Reply to camperhappy95
      • Absolutely, camperhappy. And, let's be clear, any ARNA long who truly believes Belviq's sales will be at the upper end of the possible range should be THRILLED there is such a large short position. Shorting amplifies price movements, up and down. If the sales are excellent, the shorts will cover and the longs make more money. Of course it works the other way if sales are poor.

    • He seems to forget that most of the shorts here are stupid. When there were 47 million shorts before the adcom they all covered and jumped back in before the FDA approval, then they all covered again and jumped back in just because....? They had already lost twice and were going for three times. Now there are 55 million that are going to be slaughtered by the buy-out news Monday. They should have terminated those 200 villagers when they were born.

    • But it's such a nice fairy tale.

    • Very nicely done.

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