I thought that I understood shorting but now I realise I don't
What I thought was - that the shorter's borrowed shares and sold them - in the belief that they could buy them back at a lower price. Their profit would be the sell price - the buy price - the borrowing commission. No problems.
Buying back at a lower price could occur because of a gamble, due diligence, knowing something that the general market doesn't or forcing it down by the shear weight of shorter selling. I gather from these threads and my own work that the STX share price is now considerably below what they should be worth - but still the shorter's persist.
Many on these threads have expressed the belief that the shorter's are pushing the price down so that a predator can make, and succeed, with a low(er) ball takeover offer. Let's assume that this true.
What's in it for the share lenders? They lend their shares, receive a commission and get their shares back but, in a takeover scenerio, their shares are now worth less than they would have been if they had not lent them.
What's in it for the shorter's? I can accept that those that sold at 20C+ could still make a tidy and quick profit if they bought in again now. This does not appear to be happening. Indeed, they are still selling. Do they believe that the price will go still lower? In my mind this is extremely unlikely. Adding up what Gina paid for her 50% share of WE, - to the producing Waylering asset, - to the future peaking plant at SE and to - the future prospects at OH, it comes to much more than what the company is currently valued at. (Yes I do place a value on OH. It is what I think they might prove up, - multi[plied by the probability of proving it up - multiplied by the price of gas in the ground - minus the cost of proving it up.. Clearly this is not zero).
So what happens if a predator makes a bid - which, if it is to make any traction, will have to be considerably more than the current share price. The share price will immediately rise to somewhere near the offer price
The lenders will make money on the shares that they have recently lent out but will make an overall loss on what they would have had if they had not done any lending - which, as previously state, is what many, including myself, believe has lead to the share price depression.
The shorter's who bought early and have since bought back, will have made their profit. The shorter's who have sold recently and who have not bought back, will get a hair cut.
None of this makes sense - unless - the predator has got into bed with both the lender's and shorter's. It would then become a win, win, win.
The lender's and shorter's are guaranteed a profit by the predator and the predator gains by getting the company for much less than they otherwise would have. I take it that this would be highly illegal and thus, I am not suggesting that it would happen.
What am I missing?
STX Price at posting:
18.3¢ Sentiment: None Disclosure: Held
(20min delay)