Fishing for liquidity Fishing for liquidity
Imagine being a farmer looking for water. You start digging a well. 10 meters deep no water, 20 meters deeper still no luck so you keep digging deeper and deeper hoping to find enough water to justify the investment and time spent digging. Now imagine a bunch of short sellers who sold millions of shares short and are digging/fishing for stop loss orders or people who will be forced to sell at a certain price (those who bought on margin and can't honour repeated margin calls for more cash as the price keeps going down…) that will allow them to cover their shorts. Short sellers will do anything to push, force or convince you to sell because they are sitting on millions of shares that they must buy to cover their short positions.
Imagine that I assume that there are enough shareholders that will be shaken out if the price is low enough. I sell 5 million shares short for $6 a share
A few months later I sell short another 3 million shares for $5 a share
A few months later I sell short 1 million shares for $4 a share
A few months later I sell short 500,000 shares for $3 a share
A few months later I sell short 300,000 shares for $2 a share
A few months later I sell short 200,000 shares for $1 a share At the end of this special operation (bear raid) spanning between a few months to a few years I would have sold short a total of 10 million shares for $51,300,000 at an average price of $5.13 per share bought by some 2000 retail investors. Will you sell to me for $1 please
You are faced with two choices :
1- Sell to me at the current price of $1 per share and realize your loss and allow me to cover my short position for a total profit of around $41,000,000 (after fees, interest and commissions…) or
2- See long term beyond the short recession dynamics and do not surrender to the forced capitulation attempt.