Weird question - would a hedge fund ever go short on a stock to keep price down...

[CocaColaKid]

...while building a long position?


Not even sure the question really makes sense, but not familiar with all the ways shorts are used. I've seen a weird short by Voleon, on a stock which is about to release a stream of sales and partnerships news. Really looks like it will be pretty big over the next few months.

Either way it's a pretty risky stock to short, has too much cash coming in and growing monthly. Now I've noticed a hedge fund recently started shorting it and even increased the short yesterday as the price got higher.

I know why many shorts are taken out - bad company, likely to have share price fall, or hedging generally in a market with a long/short strategy. But what about shorting companies that look to have excellent short to medium term growth. Why not wait for those to really max out their share price, then go short. What tactical reasons could there to use a short?

 

[Scataphagos]

Unlikely. Hedge fund wouldn't be playing a stock so small that its shorting could affect the price enough to be worthwhile.

 

[CocaColaKid]

Unlikely. Hedge fund wouldn't be playing a stock so small that its shorting could affect the price enough to be worthwhile.

It's a pretty small company, maybe 200 mill market cap?

 

[Scataphagos]

It's a pretty small company, maybe 200 mill market cap?

Too small to mess with for anybody with more than mini-money at play.... which should exclude hedge funds.

 

[CocaColaKid]

This stock is behaving weird.

Today it closed at 4% down, then at uncrossing jumps up to over 2% up. Okay UT a bit higher or lower is normal, but 6% isn't. Then it stays at 2% up after closing auction.

Big plays happening in background and I don't get it.

 

[maxinger]

what foolish idea.

The whole purpose of hedge fund manager (and we professional traders) is to earn tons of money and to trade with trend..

If trend is up, fund manager would long the stock.
If trend is down, fund manager would short the stock.

 

[CocaColaKid]

what foolish idea.

The whole purpose of hedge fund manager is to earn tons of money and to trade with trend..

If trend is up, fund manager would long the stock.
If trend is down, fund manager would short the stock.

Right, this stock has been strongly uptrending for over 6 weeks, and the news the market is expecting on sales is coming. Also the company surprised the market with a whole bunch of news about govt. partnerships and developments etc. The price is likely to be significantly higher by end of August than it is now.

Why on earth would you place a risky short at that point, instead of waiting for the market to jump on it, see it overbought then short it. At the moment it's being slowly walked up, no large spikes or anything.

 

[smallfil]

Exactly. All a hedge fund needs to do is follow the trend and keep its position till it reaches the very top and is distributed to rank retail traders chasing after the stock. Then, short the stock as it falls down. Then, rinse and repeat. Retail traders do not move the stocks, big boys (hedge funds, mutual funds, banks and brokers) do.

 

[JSOP]

...while building a long position?


Not even sure the question really makes sense, but not familiar with all the ways shorts are used. I've seen a weird short by Voleon, on a stock which is about to release a stream of sales and partnerships news. Really looks like it will be pretty big over the next few months.

Either way it's a pretty risky stock to short, has too much cash coming in and growing monthly. Now I've noticed a hedge fund recently started shorting it and even increased the short yesterday as the price got higher.

I know why many shorts are taken out - bad company, likely to have share price fall, or hedging generally in a market with a long/short strategy. But what about shorting companies that look to have excellent short to medium term growth. Why not wait for those to really max out their share price, then go short. What tactical reasons could there to use a short?

If a hedge fund goes short, it must really believe that the company is going down. It wouldn't do it just to keep its price down. A hedge fund doesn't usually have that much market-moving ability to affect a stock's price.

 

[CocaColaKid]

Alright, what about this.

Say we have a stock where volume has turned really low, and has had a huge selloff lately, scaring off the market. Small cap.

Stock reverses say at 200p, and for the next 6 weeks you slowly build a position up to 300p. Walking it up super slow and careful, making it look like it's not performing, anytime price spikes up, you sell into it to kill sentiment.

Market barely notices the stock is going anywhere, mildly uptrending, but nothing exciting. Investors see value, and are buying, but not wildly. No TR1's needed on this stock either so market can't see a fund buying it up.

Near 300p, you start building a short position. And keep increasing it now as the market has woken up a bit and are starting to buy in.

What do you do next? Selloff your long position and start a bear raid.

Close your short down in the low 200s again.

Win/Win

What you think?