Shorts are keen, page-7

Hi guys - just chipping in my two cents for what it's worth.

What the chart shows is that the total outstanding short position in the stock is 8.7% at 1st feb (i.e. 29.9m/343.0m).... what this means is that at this date, ~8.7% of the stock has been borrowed and sold on market by the borrowers. The way the borrower makes money is if the price of TFC continues to fall, the borrower will buy back the shares at a lower price than it sold it at. (e.g. hypothetically, if i was a short-seller and sold the stock a couple of weeks at $1.50, i received $1.50 at that time from the sale. If i choose to "cover" my short position today at $1.27, i buy the stock at $1.27. Hence i've made a profit of $0.23).



What it means is that these "short" positions (i.e. the 8.7%) will eventually have to cover/close out their positions. If the share price keeps falling (or they have a view that it will), the shorts will leave their positions open (because the more the price falls for them, the bigger the profit they make).

What will be interesting to see (and what i am personally hoping happens given i hold the stock), is if TFS announce good results end of the month/positive news. If this happens, one would expect the price to go up.... when the shorters see the price going up, they may feel the need to cover their position (i.e. buy the stock) and thereby drive the stock price up. In a low liquidity stock (which TFS is broadly), this has the effect of creating a situation called a "short squeeze" (where there is a rush from the shorters to cover their position, pushing the price up and up). IMO i this is an eventuality that will happen if, and it's an IF, positive news/company meeting earnings guidance is announced.



The above is a good reason why there is a lot of academica out there with the view that shorting causes increased volatility in markets (particularly thinly traded stocks).

The "0.05%" that RavingStark is referring to is the short sales for one day. What it tells you IMO is the sentiment on that individual day. For example, on the 25 Jan when the share price tanked and 3.8m shares were traded, 23% of the shares sold (870k) were short sales. This means that a lot of traders on that particularly day thought that the share price had further to drop (from $1.40) and hence sold the stock (which in turn drove the price down to a $1.30 close).

What we need to do is keep the amount of shorts in perspective - over the past month only ~5m shares were short sold (i.e.~1.5% of the total share capital = a very small proportion). These shorters will be stuffed when/if there is a change in sentiment to the stock as they will suddenly need to rush to close their positions.

Looking forward to the feb results which, assuming it is good/in line with/above market expectations, i am hoping will prove my above theory right.