explanation please shorting, page-6

Unfortunately there are a few ways in the market to pound stock at the moment.

a) Put options - a person buys put options and the trader that sells you put options automatically shorts a parcel of stock commensurating with the risk associated with the premium that he receives. So the more puts you buy, the person which sells you the puts (assuming its a market maker not another punter) then sells a parcel of shares.

b) Put warrants - see the above

c) Borrowed shorting. You speak to a stock lending desk and trace a parcel of shares. You are expected to pay a certain percentage point for the borrow (of the total volume per annum), I have heard ranges between 1 - 8 pct. The higher cost of borrow, the more difficult the stock is to borrow. You then sell the borrowed shares, and stay short as long as you want, until the stock falls and you close it out and return the shares, OR you get recalled, in which case you have to buy it back to return to the lender, regardless of price.

d) Non borrowed (naked) shorting. People selling shares on the open market hoping to buy them back cheaper at the end of the day. This option is actually illegal, but still goes on for some weird reason. Perhaps they buy it back at the same day, hence the trade contras off and no failures are prevalent so no one notices, I'm not sure. But it would explain stocks falling fast and furious for the first 2 hours and bouncing fast and furious at the close.

e) Disclosed short positions. Certain stocks you are permitted to "naked" short. But certain rules apply. From memory, you CANNOT hit the bid, you have to trade on the last traded price. And I think there is a fixed amount of stock that can be actually "naked shorted" and it varies per share.

f) Finally, CFDs. Which is similar to puts. But when you are dealing with a market maker CFD instead of a DMA, you are assuming that the market maker will hedge himself like a put option/warrant, but I believe some cfd market makers take the opposite view.

So....if lets just say a major shareholder decides to get out of a stock. And this person who decides it gives an order to a broking firm to do it. The broker that gets the order to sell X amount of shares in the market would automatically know that this shareholder has X amount of stock, and would take a view that the shareholder is completely going to liquidate. (It's important to remember that it is NOT always the case, in some instances they just want to reduce their holdings)

If he takes that view, how many people do you think would be sitting next to him, watching him pound those shares?

How many people next to him would sit and watch him sell indiscriminately and recklessly?

How many people do you think they would call and tell about this "potential" full liquidation of a major shareholder?

How many people would act on it immediately by doing one of the above 5 methods of shorting?

How many people who are doing all the above, would correctly guess CFD stops and pound through them?

Thats what happens guys, when a major shareholder liquidates....run for the hills. 74 million shares is ALOT to distribute around.

Think of it as this way....

When you have paper cups stacked up like a pyramid....and you pour water slowly over the top....gradually ALL the pyramids get filled, but the lower ones get filled less, where else the higher stacked ones are full to the brim. That situation describes an orderly selldown of shares with the right distribution amongst the cups....top down.

BUT

When you turn a jug of water upside down in a hurry, ALL the cups collapse. It may be 3/4/5 cups are left standing in the end, but they would be ALL overflowing, and about to burst. This scenario is the one I would associate with OZL, and BGI's selldown last month.

And a full week after that selldown, you are still seeing distribution of shares between 190-200. This may be the range for awhile, as people who bought higher decide that 200 is the top of the range, and people who sold out at much higher levels believe 190 is the floor.

Of course I'm only speculating and passing on third party information from my conversations with various people who might be more familiar with the inner workings of shorting.

P.S. I think shorting is unethical, but thats just my view.