Understanding the short game.....When I first started investing in the capital markets (some guy whose named was Jeebus I think, he was out riding horses) all I really understood about shorting stocks was that it was a "bet" that a stock would decline in value. I didn't understand the mechanics of a short sale, and when I talk to new investors some don't even understand that much.
If you already know, skip this :-)
Let's say you knew a friend who owned a Toyota before all the news about their acceleration problems came out, and you knew the news would hit in a weeks time. Knowing the news will adversely affect the value of your friend's car you borrow it and sell it before the news come out. You take it to a dealer who gives you $15,000. A week later, after the news is out and nobody is buying Toyota's you offer the dealer $10,000 to buy the car back. If the dealer accepts it, (then in this hypothetical example) then you would have made $5,000 selling something you never even owned.
So...what's this have to do with Potash or AAA?
The news that
Uralkali was quitting the Russian cartel, it wasn't 'news' to everyone. I'm sure the decision wasn't made over breakfast...."WTF, let's quit the cartel and grab market share by undercutting prices". I am certain that careful thought and planning went into the decision and how to go about announcing it.
In other words, some knew the announcement was coming before the news hit.
Let's look at the short interest in AAA at FP's site:
https://www.financialpost.com/markets/company/profile/index.html?symbol=AAA&id=20683725
From 295K to 532K month over month, and given that the data is old I won't be suprised to see a substantial jump when the numbers are updated.
Pulling a number outta my azz, let's say it swells to 1,000,0000, and that the average price AAA was shorted at is 50 cents.
That's $500,000 that would have been generated, which if covered at 40 cents would equal a $100,000 profit.
Might explain why some have been cheering for a drop below .20 cents here.
N.B. I have nothing at all against short sellers, nothing at all. They are essential part of the market, providing both a check against unbridled and unreasonable bullishness and for liquidity.
On top of that short players need cajones made of cast iron. While the potential profits for a long are theoetically limitless, with losses capped at the amount invested...a short player is faced with a fixed maximum profit and losses that can explode exponentially.
Happy investing trading everyone, cheers.