Saturday, April 21, 2018

Anatomy of a Short Squeeze

If you have been paying attention, you know there's some good stuff coming.

It's been tough over the last years, which is a hallmark of being on the bleeding edge.

This company is in multiple places in multiple emerging technologies. They don't all have to hit home runs to make us rich.

Where else can you play Internet of Things, Mobile, Augmented Reality, Self Driving Vehicles, Robots, Personal Assistants, and LiDAR all at once? (-- and some other wild card.)

The notation about "low float" here is very significant. Right now there are 70.6 million shares of MVIS stock.

(If the request for an additional 50 million passes, then there's a *possible* 150 million.  -- if they have the ability to issue 50 million more, it doesn't mean they automatically will.)

So, compare this to the floats of our potential customers / partners: (Tier 1, probably not primarily a hardware manufacturer)

(sourced from Yahoo Finance, 4/21/18)

Stock# Sharestimes mvis float

So as a for instance, we get an announcement from Amazon(AMZN) that they are incorporating MVIS's technology into their products. Some of their investors are going to want to buy MVIS as well. If they sell a couple of shares of AMZN to buy MVIS, we're going to have a severe shortage of MVIS stock, and the price will rise dramatically.

[ Just as an aside there, let's say that some AMZN investors are intrigued:if 0.5% of AMZN shares are sold to invest it in Microvision. In round numbers that would be 2 million shares of AMZN....times the $1,500 price tag of AMZN -- resulting in demand for 3 billion dollars in MicroVision stock. Clearly at current prices there isn't enough supply to meet that much demand. Will they all try to buy it at good prices relative to today, or just get in? That's the big question.]***

Stocks are also subjected to the laws of supply and demand. -- and me, I'm not going to sell, and a lot of people I know aren't going to sell, so there's going to be a lot of investment interest chasing a very small number of available and being traded shares.

When that happens, the shorts will be forced to buy..... and there will be nothing for them to buy.

Short Pain Bot
"A Short Squeeze Often Has Forced Buying

Sometimes, prices go up so much that shorts have to buy back some stock to meet margin calls. Other times, shorts have to practice risk management and cut some losses when stocks go up by too much. Due to the fact that the shorts have to buy, prices sometimes go up, and that causes more buying and more short covering until the process ends. Some times there are no shares to borrow, and that could also cause a short squeeze.

Although short squeezes have occurred in large caps such as Volkswagen in October 2008, they typically happen more frequently in small cap stocks, particularly those with high short interest and low floats. If a float is low, any meaningful amount of buying could move the stock noticeably, and that buying could trigger more buying, prompting some risk management buying or margin call forced buying."

Event That Beats Those Low Expectations Occurs

Given the low expectations, an event that beats those expectations could prompt some shorts to cover, or for some longs to buy.

Those events include:

  • earnings report comes in way better than expectations
  • the company announced big contract win
  • the FDA approves a drug of the company’s
  • some external event happens that could lead investors to believe there could be more demand in the future
  • management announces a big buyback program that the market believes
  • management raises the dividend a lot
  • guidance blows out estimates
  • a bullish press release prompts pumpers to ignite a buying frenzy

Additional demand in $ if 0.5% of the company's stock is sold to buy MVIS.
It's hypothetical of course, but a potentially interesting way to look at the current situation, and a scenario terrifying to shorts. (their risk isn't measured in the Dollar value, but in the number of shares.)

How high could it go? Who knows. But I kind of feel like a redneck with home made fireworks.... there's a LOT of powder, an unpredictable fuse, and a lot of stuff thrown in there to make it look pretty. This is going to be great.

Stock# Sharestimes mvis float1/2 of 1%Recent Share priceAdditional Demand

No comments:

Post a Comment