I said before that the I have made an estimation about the ave. sale cost of shorts in LTR. I think it should be around $1.60. Then I have made more detailed calculation by using LTR's price chart and Shortman's chart last week. I will give it to you now.
The calculation of shorts for me was important for this week because I thought we would see a big price movement upward this week or after because the shorts were going to be in big loss if LTR could keep going up. Over $2 there might be a big action. (we are not there yet IMO).
I have overlapped both charts on Photoshop (see below). The result tells me that the ave. cost of sales by shorters should be even $1.50.
It was clear that the shorters was in big loss over $1.50 as long as they keep their short positions.
How much they lost if their ave. shorting cost is $1.50 and covering (buying back) of shorted 80m LTR shares at $1.90 ave. cost?
Simple: 80m shares x $0.40 ($1.90 - $.50) = $32m.
32m loss just in LTR
How the shorting work is not well understood by many people. It means you are allowed (by your broker, but not all brokers do that) to sell a stock without having it. Then you should buy it back. You must pay a deposit (depends on the stock) for that stock but not the whole amount. That deposit is called as "margin". Say you sold a stock at $1.50 and 30% deposit. If the stock goes down and you buy it back at $1.00 then you made 50c profit for each. That is called short covering. But if you are not buying it back (covering short) and it goes up, then you are in loss. Say you bough it back at $2.00. Then you make 50c loss for each. The danger here is, when the stock goes up if your deposit is close to your loss, the broker makes you a "margin call", says add more deposit in your acct. If you can't put more deposit in your acct, then the broker immediately buys the stock back on market by using your deposit in the acct. The market sees a big upwards movement in stock price in that case.
Shorting of LTR (and many other stocks) started on April 4. The chart shows how the shorts increasing in the stock.
When the shorts in April 4 was: 0.70% of 15.4m of all shares (of 2.19 billion), it reached to 4.64% or 101m shares on June 1.
Then I have done some work on price chart of LTR and overlapped the shorting chart on it. The blue line is the shorting ratio, when it goes u it means the shorted stocks are increasing.
Most of the shorting happened between April 4 and June 1. As you can see on the chart, they increased their short after the mid point (green) then covered 30m shares. But after July 12, while sp was going up they ere still shorting it. On Aug. 8 the shorts reached to 4.25% when the price reached to $1.60.
I saw that their problem was big in LTR. However there is another perspective to look at this situation.They can compensate big losses. They short maybe 100 stocks. So they most probably keep a record of it in a spreadsheet kind of thing (in a software) and looking the whole balance. Btw they also put some levels (a trigger point) in the software for each stock to cover the shorts. I thought they would start covering their shorts after $1.90 as it appears to be happening today.
These kind of operations managed by a software by the big guys. The software is doing everything by itself and it considers world news, exchange rates, and a lots of things itself depends on different algorithms (pre defined scenarios) which is chosen by the human manager. Most probably the shorters are in big profit in the balance of whole of their shorted portfolio.
In our current conditions, I think because the world markets are choppy the shorters were still keeping their belief that the stock markets might or should come down. Therefore the shorters might be still waiting for it or the short covering points to be triggered which appears to be $1.90.
I don't think they are confident about a particular stock though. They may even not have any idea about LTR. As long as we are confident for our stock it doesn't matter for us.
As a result I tried to find out ave. cost of their short and how much they are in loss. That might give us an idea about their short covering point. I said friends last week that that was close to $2.We were getting close to it by strong buying pressure we saw on LTR last week. I said that next week would be interesting that's why I have done this work.
LTR Price at posting:
$2.01 Sentiment: Hold Disclosure: Held
(20min delay)