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Article was from September 9, 2020, so it is a bit dated. I am a subscriber, and this is old news so ...
Mr. Kullamägi, who has been trading full time for himself for nearly a decade, was keeping an eye on smaller, more-volatile stocks for a potential opening to short. He found one in late July in shares of Eastman Kodak Co. The company, which for decades was a household name in photography, had received preliminary approval from the Trump administration for a $765 million loan to make pharmaceutical ingredients.
The stock had tripled, and Mr. Kullamägi thought that a new wave of day traders would push the shares up some more and that they would then fall. He intended to short 45,000 shares a few hours into July 29’s trading session but accidentally clicked the wrong button and shorted all of his 90,000 shares, a split-second mistake he decided to stick with. That proved costly.
Kodak shares rose sevenfold to roughly $60 a share intraday. The New York Stock Exchange halted trading of the stock more than a dozen times as it tripped so-called circuit breakers. Mr. Kullamägi was stuck for the ride.
He closed out his short after deciding he was unable to stomach the potential for further losses. The trade cost him $1.5 million.
“It was the dumbest thing I’ve ever done in my life,” Mr. Kullamägi said. “You never know when they’ll stop. You just have to get out.”
Mr. Kullamägi’s trade would have likely netted him a hefty payday if he had held on to his position. Kodak shares fell more than 50% in subsequent trading sessions and are down roughly 80% from the July 29 peak.
Samuel Pierson, director of securities finance at IHS Markit, said some Kodak short sellers were eventually able to profit from the stock’s fall. Short sellers in Kodak gained about $23 million for the week ended Aug. 3 and were up more than $160 million in mark-to-market profits in August, according to data from S3 Partners. Mark-to-market accounting reflects the change in value of an asset to reflect its current fair-market value.
Investors say opportunities for shorting have been scarce since the Federal Reserve turned on a stimulus spigot to support asset prices in the March selloff. Short sellers only had a narrow window to profit from the broad stock market selloff that dragged major stock indexes into their fastest bear market on record.
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The parts that I emboldened show the distortion in pricing caused by the government's meddling in the market. Covid "stimulus" spending created a bunch of couch potato day traders who drove prices of meme stocks beyond their intrinsic value.
Last edited by Lizap; 11-18-2023 at 11:59 AM..
Reason: Clean-up from deleted prior post
There can be legitimate cases of shorting that pays off - but it usually is the result of a lot of hard work. I recall an example in b school from many decades ago where an investor religiously read the Federal Register (maybe it was something else; it was a long time ago) and he saw an indication of a company that was going to lose its federal contract. He shorted the stock, and over the coming year he made a lot of money as the company's market cap declined. But that is an example of doing the work, combing for something in which to invest.
There can be legitimate cases of shorting that pays off - but it usually is the result of a lot of hard work. I recall an example in b school from many decades ago where an investor religiously read the Federal Register (maybe it was something else; it was a long time ago) and he saw an indication of a company that was going to lose its federal contract. He shorted the stock, and over the coming year he made a lot of money as the company's market cap declined. But that is an example of doing the work, combing for something in which to invest.
Really the best shorts come from inside information which can be illegal. Most professional traders are all pricing in the same information that is public and the stocks already reflect this. That’s why you only really have an advantage using inside information.
if you think about it , in all walks of life it’s excepted that some will be better informed, have better software , better analysts and better sources for things .
but for some reason when it comes to markets all that is supposed to go away .
it really is stupid in a way to make it a crime .
if i have better sources of information and i found the XYZ company may do something increasing its value and i buy it at 10 and sell it at 30 on its way to 50 ,whether i took advantage or not , its still going to 50 ..
nothing is guaranteed either . my info may have been wrong or it never panned out
if you think about it , in all walks of life it’s excepted that some will be better informed, have better software , better analysts and better sources for things .
but for some reason when it comes to markets all that is supposed to go away .
it really is stupid in a way to make it a crime .
if i have better sources of information and i found the XYZ company may do something increasing its value and i buy it at 10 and sell it at 30 on its way to 50 ,whether i took advantage or not , its still going to 50 ..
nothing is guaranteed either . my info may have been wrong or it never panned out
The logic behind it is that inside trading benefits the already wealthy Wall Street types who have access to the information at the expense of Main Street investors. This in turn ruins confidence in the stock market and perpetuates the theory that it’s “rigged.”
The logic behind it is that inside trading benefits the already wealthy Wall Street types who have access to the information at the expense of Main Street investors. This in turn ruins confidence in the stock market and perpetuates the theory that it’s “rigged.”
that is the point…it doesn’t come at the expense of anyone else .
as i said whether i profited in the stocks rise from 10 , with or without me it is going to 50 .
so it comes at no one’s expense .
pump and dump is illegal and a whole other thing..
but me simply having better sources of info affects no one else since the stock with or without me is going to wherever it is destined
Last edited by mathjak107; 11-19-2023 at 09:00 AM..
The idea of gambling being a better strategy with investment money doesn't resonate for me. Since I never know what the market will do, the easiest thing is to put the money into the market, in a broad enough fund, and then leave it alone.
Investing in high quality single stocks, for the long term, with the anticipation that there will be more highs than lows over a longer period of time, also makes sense.
For gambling, I'd rather go to Vegas, and then go see some shows.
Really the best shorts come from inside information which can be illegal. Most professional traders are all pricing in the same information that is public and the stocks already reflect this. That’s why you only really have an advantage using inside information.
Then explain how I - with no inside information - was able to make a good call to short PLUG (at $74) , on FCEL, on RUN, on BYND?
No, it's not about inside information - it's about doing your homework.
If you say so. Nope, I've been good with short calls and every one of those tickers I listed, I talked about on this board in other threads at some point in time, and/or actual trades are listed ....it's all there. I'm not anywhere near as good with calls to the long side, or having the patience that you need which is why I don't really make those calls.
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Nope, I've been good with short calls and every one of those tickers I listed, I talked about on this board in other threads at some point in time, and/or actual trades are listed ....it's all there. I'm not anywhere near as good with calls to the long side, or having the patience that you need which is why I don't really make those calls.