NYSE short interest +7% in a month
- Thread starter DeepFried
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Before jumping to conclusions... my personal thesis is that we have a lot more capital going short BY DEFINITION today than we had in the 90s or 80s. I am talking about hedge funds and 130/30 indexed products that are created for many institutional investors.
a) Total funds invested in Hedge Funds has increased astronomically since the 80s. Today, you can read we have around 9,000 funds, with a total of $1.4 trillion under management. Through leverage, they control as much as $2.5 trillion in securities and typically account for 25 percent of the daily trading on the NYSE. A good part of this capital is invested in "Global Macro (If the fund does equities)", "Market Neutral", "Long/Short" or "Dedicated Short" funds which at any point in time will always (!) have 10-100% net short positions, regardless of the general market direction.
(http://www.yaleeconomicreview.com/issues/fall2006/cautionary_hedge_funds)
b) The emergence of 130/30 equity linked, indexed products for long-term investing institutions such as insurances or pension funds. I read many articles since 2004/2005 that pension funds were asking asset managers to engineer lower volatility products for them which have 100% net exposure to equities. So what they do is - based on whatever fundamental and technical criteria - go 130% long and 30% short and voila, you have 100% net exposure with (hopefully) less volatility and thus potentially a better Sharpe ratio than the SP500.
Thus, I believe we have a larger net short position in absolute dollar terms today than 10 or 20 years ago which has nothing to do with bearish sentiment that could in turn be interpreted as a bullish signal. It's just capital that is trying to lower risk of volatility and tries to do so by going short against a portion of their long exposure.
a) Total funds invested in Hedge Funds has increased astronomically since the 80s. Today, you can read we have around 9,000 funds, with a total of $1.4 trillion under management. Through leverage, they control as much as $2.5 trillion in securities and typically account for 25 percent of the daily trading on the NYSE. A good part of this capital is invested in "Global Macro (If the fund does equities)", "Market Neutral", "Long/Short" or "Dedicated Short" funds which at any point in time will always (!) have 10-100% net short positions, regardless of the general market direction.
(http://www.yaleeconomicreview.com/issues/fall2006/cautionary_hedge_funds)
b) The emergence of 130/30 equity linked, indexed products for long-term investing institutions such as insurances or pension funds. I read many articles since 2004/2005 that pension funds were asking asset managers to engineer lower volatility products for them which have 100% net exposure to equities. So what they do is - based on whatever fundamental and technical criteria - go 130% long and 30% short and voila, you have 100% net exposure with (hopefully) less volatility and thus potentially a better Sharpe ratio than the SP500.
Thus, I believe we have a larger net short position in absolute dollar terms today than 10 or 20 years ago which has nothing to do with bearish sentiment that could in turn be interpreted as a bullish signal. It's just capital that is trying to lower risk of volatility and tries to do so by going short against a portion of their long exposure.
The big increase in options open interest over the last few months has been Calls and from what I've read calls are particularly cheap these days one a historical basis because they keep getting sold by the big boys. Not sure that that is bullish sign but with all the complex strategies out there these days I agree with those who say that it is hard to make any inference solely based on things like option open interest and short interest. Record free cash in brokerage accounts though would seem to support a dipster view of the market and should ensure fairly shallow dips until it is put to work/sucked in as the market goes higher.
A few comments:
1. the "big boys" are generally always sellers of calls, as the "biggest" boys, the mutual funds, are always looking to squeeze yield out of longs
2. yes, vol is cheap on a historical basis, but that's been true for almost five years now... and buying it hasn't worked out very well for basically anyone
3. as far as irrelevance goes, i didn't mean to shout. should have used italics instead. however, i stand by my statement... many options trades go up hedged (that is, with an agreed-on amount of stock), and neither side is making a direct bet on the underlying; if the seller of stock isn't long, it adds to short interest
Yeah, that bulging short interest is bullshit alright. It's a myth! It means nothing in the face of arbitrage. Nothing, I say!
Yep, this rally is just an opportunity to add to shorts! Yessir!
The short interest means nothing! It has no effect on this market meltup.
Why it's plainly evident to any sophisticated market genius.
Yeah, keep on shorting...you fucking dummies.
Yep, this rally is just an opportunity to add to shorts! Yessir!
The short interest means nothing! It has no effect on this market meltup.
Why it's plainly evident to any sophisticated market genius.
Yeah, keep on shorting...you fucking dummies.
Some interesting food for thought on even and odd-lot short interest ratios(source: TheAstuteInvestor.com):
This particular indicator is a ratio of odd-lot short sales compared with odd-lot stock purchases. It is an attempt to measure the sentiment of smaller, unsophisticated investors.
This is a five-year chart of weekly postings showing the S&P 500 in black and a 16-week moving average of odd-lot short sales/odd-lot purchases in red. The green lines relate to the three-year average of this indicator and the corresponding standard deviations.
The first thing to note is the tremendous increase in the ratio over the five-year period. Odd-lot short sales have increased dramatically, while odd-lot purchases have remained relatively static.
The puzzling thing is that I would think hedge funds would generally trade in round lots and wouldn't have much effect on this indicator. But the more I have studied this, the more I have to conclude that there has been enough of an increase in hedge fund shorting to move this indicator in a major way (perhaps because they are placing odd-lot orders in conjunction with their round-lot short sales, i.e., 250 shares). So, in a way, this indicator has changed and will probably not decline again to levels reached in 2002. There is no clear high or low value now.
The other thing to notice is how shorting picks up dramatically with every market correction. The level of this indicator goes to new highs with every new small decline. It is as if these short-sellers use any market weakness to put on short positions for a major market decline.