Short Groupon?
November 14, 2011 9:12 AM Subscribe
Groupon went public last week. I've been eagerly anticipating this event for months now so that I can short the heck out of this dog. But now that it's arrived I find I'm unable to through my current brokerage Tradeking. I messaged their CS and they said it won't be available to short through them anytime soon. Does anyone have or know of a brokerage that is able to short it now? I would presume I might have better luck with a larger one like Etrade, but I'm not sure.
Yes, I'm aware of the risks of shorting. Don't worry, I'm not actually putting much money there. It's more for fun than anything.
thanks!
I believe there's always a delay of some weeks after an IPO before you can short the stock. Brokerages don't necessarily already have the shares to loan you and they probably want decent data to decide how to price the options.
And yeah, everyone and their brother wants to short groupon so puts are going to be stupid expensive.
posted by ghharr at 9:20 AM on November 14, 2011
And yeah, everyone and their brother wants to short groupon so puts are going to be stupid expensive.
posted by ghharr at 9:20 AM on November 14, 2011
Interactive Brokers doesn't have the borrow, and they're usually very good at finding borrows for hard-to-borrow stocks. (Obligatory disclaimer: I use IB and like 'em a lot.)
posted by The Shiny Thing at 10:43 AM on November 14, 2011 [1 favorite]
posted by The Shiny Thing at 10:43 AM on November 14, 2011 [1 favorite]
And yeah, everyone and their brother wants to short groupon so puts are going to be stupid expensive.
And that means it's a crowded short, a place you most definitely do not want to be, because if something good happens to Groupon, you're going to have a whole bunch of people trying to cover short sales at the same time.
This is how shorting a stock can nail you to the wall.
posted by eriko at 10:43 AM on November 14, 2011 [2 favorites]
And that means it's a crowded short, a place you most definitely do not want to be, because if something good happens to Groupon, you're going to have a whole bunch of people trying to cover short sales at the same time.
This is how shorting a stock can nail you to the wall.
posted by eriko at 10:43 AM on November 14, 2011 [2 favorites]
The issue here is that the public float is small. I think they sold to the public around 10% of the company. Typically, insiders who still own 90% do not hypothicate their stock. SO, finding a borrow is going to be real hard and there is a lot of competition for little available supply. If you are not a great customer with beacoup cash to back it up, unlikely your broker will find a borrow for you.
posted by JohnnyGunn at 11:09 AM on November 14, 2011
posted by JohnnyGunn at 11:09 AM on November 14, 2011
And that means it's a crowded short, a place you most definitely do not want to be, because if something good happens to Groupon, you're going to have a whole bunch of people trying to cover short sales at the same time.
This kind of pisses me off. Everyone wants a piece of this train wreck and the crowded short is going to sustain the stock price for longer than it should.
posted by Talez at 11:28 AM on November 14, 2011
This kind of pisses me off. Everyone wants a piece of this train wreck and the crowded short is going to sustain the stock price for longer than it should.
posted by Talez at 11:28 AM on November 14, 2011
the crowded short is going to sustain the stock price
Erm, what? Shouldn't short sellers lower the prices temporarily?
posted by pwnguin at 11:41 AM on November 14, 2011
Erm, what? Shouldn't short sellers lower the prices temporarily?
posted by pwnguin at 11:41 AM on November 14, 2011
If lots of people short a stock that has a small float that tends to put a floor, not a ceiling, on the shares.
posted by dfriedman at 12:20 PM on November 14, 2011
posted by dfriedman at 12:20 PM on November 14, 2011
Sorry let me explain my response above further: short squeezes occur when there are a large number of short positions and a relatively small float.
posted by dfriedman at 1:27 PM on November 14, 2011
posted by dfriedman at 1:27 PM on November 14, 2011
Best answer: I understand that you said you know a lot about shorts, I just thought I'd throw in this, based on this statement of yours: "Don't worry, I'm not actually putting much money there." This says to me, you may not be fully aware of what can happen.
I've done a ton of daytrading between 97 - 2002. All shorts are not made equal. When you have a very small number of shares actually on the market, they price is not being controlled by fundamentals, but by traders and not temporarily but for as long as the number of shares remains relatively small. It's therefore entirely wrong-headed to short in this situation based on fundamentals. I'm worried when you make statements like: "I've been eagerly anticipating this event for months now so that I can short the heck out of this dog", because it sounds like you are intending to short based on your perception of the fundamentals. I'm here to tell you, that in this situation, when a stock has just come out, a stock with a lot of trader interest, you are playing with fire, and fundamentals are entirely irrelevant, IOW, you may be 100% right about the fundamentals, and lose your shirt. All it takes is a few big institutional buys which deplete the small number of shares available, and the stock rockets, killing you - because there are so many shares already sold, not much remains to be sold if the stock is pushed up by the institutional buys. How is it possible that institutional buyers would buy a dog like this? Well, many institutions buy/sell based on formulas that have nothing to do with the fundamentals (such as index funds, though index funds generally avoid fresh IPO's). The bigger danger are hedge funds which may have all sorts of reasons for buying, again, nothing to do with fundamentals. When the number of shares is small relative to trader interest, this becomes an incredibly volatile situation and a small number of buys can really destroy a short. Shorts are safest when there are plenty of shares.
I hope you are aware of certain realities about the mechanics of trading. I'm sure you know that the upside of shorts is limited (to the stock going to $0), and the potential downside is unlimited (stock can keep rocketing for years). But do you know just how bad it can get? Because the upside may be MUCH more limited than you imagine - the stock may start cratering, and you're rubbing your hands anticipating how much you are going to make, only to see your short covered suddenly with you taking no action, and you earn very little. How can that be? The secret is in the fact that unlike being long, when you are short, you never owned the stock you sold - if the owner of the stock suddenly decides to sell, just as the stock is cratering, the brokerage will go to YOUR account, and give him back the stock so he can sell it. You've just had your short covered and earned nothing in the subsequent cratering of the stock.
Ask yourself, if you are prepared to gamble on a possibly incredibly limited upside of a short position that's infested with tons of shorts already (many inexperienced!), in a stock that has the potential to really do a number on you downside-wise due to the limited number of shares. Do the odds of gain vs loss justify gambling here given the potential size of the gain vs loss?
posted by VikingSword at 3:23 PM on November 14, 2011 [2 favorites]
I've done a ton of daytrading between 97 - 2002. All shorts are not made equal. When you have a very small number of shares actually on the market, they price is not being controlled by fundamentals, but by traders and not temporarily but for as long as the number of shares remains relatively small. It's therefore entirely wrong-headed to short in this situation based on fundamentals. I'm worried when you make statements like: "I've been eagerly anticipating this event for months now so that I can short the heck out of this dog", because it sounds like you are intending to short based on your perception of the fundamentals. I'm here to tell you, that in this situation, when a stock has just come out, a stock with a lot of trader interest, you are playing with fire, and fundamentals are entirely irrelevant, IOW, you may be 100% right about the fundamentals, and lose your shirt. All it takes is a few big institutional buys which deplete the small number of shares available, and the stock rockets, killing you - because there are so many shares already sold, not much remains to be sold if the stock is pushed up by the institutional buys. How is it possible that institutional buyers would buy a dog like this? Well, many institutions buy/sell based on formulas that have nothing to do with the fundamentals (such as index funds, though index funds generally avoid fresh IPO's). The bigger danger are hedge funds which may have all sorts of reasons for buying, again, nothing to do with fundamentals. When the number of shares is small relative to trader interest, this becomes an incredibly volatile situation and a small number of buys can really destroy a short. Shorts are safest when there are plenty of shares.
I hope you are aware of certain realities about the mechanics of trading. I'm sure you know that the upside of shorts is limited (to the stock going to $0), and the potential downside is unlimited (stock can keep rocketing for years). But do you know just how bad it can get? Because the upside may be MUCH more limited than you imagine - the stock may start cratering, and you're rubbing your hands anticipating how much you are going to make, only to see your short covered suddenly with you taking no action, and you earn very little. How can that be? The secret is in the fact that unlike being long, when you are short, you never owned the stock you sold - if the owner of the stock suddenly decides to sell, just as the stock is cratering, the brokerage will go to YOUR account, and give him back the stock so he can sell it. You've just had your short covered and earned nothing in the subsequent cratering of the stock.
Ask yourself, if you are prepared to gamble on a possibly incredibly limited upside of a short position that's infested with tons of shorts already (many inexperienced!), in a stock that has the potential to really do a number on you downside-wise due to the limited number of shares. Do the odds of gain vs loss justify gambling here given the potential size of the gain vs loss?
posted by VikingSword at 3:23 PM on November 14, 2011 [2 favorites]
Erm, what? Shouldn't short sellers lower the prices temporarily?
posted by pwnguin at 11:41 AM on November 14 [+] [!]
No, it will raise it, if anything.
Quick scenario: XYZ is at $100 right now. You decide to short it. You call your broker and he finds someone willing to take the other side of that bet. You give that person $3 as payment for him letting you borrow that stock. Now, you sell that stock for $100.
When it comes time to give that stock back, you are hoping that the price has gone down. If it has, you buy it and give it back to the person who loaned to you. He made a guaranteed profit of $3. If you were able to buy the stock back for less than $97, you win. If you are wrong, however, and the price of the stock has gone up, you lose. You have to buy that $150 stock and give it back.
So if a lot of people are on the market looking to cover their shorts, there is increased demand for that stock, and the price goes up. If other investors know that there are going to be a bunch of people looking to buy that stock to cover their shorts, they might buy some of it up when it hits a low, hoping to profit when the short sellers hit the market looking for stock.
The time to short a stock is when "the market" thinks the stock will be going up. Like in horse racing, you are betting against the other betters as much as you are the outcome.
posted by gjc at 4:47 PM on November 14, 2011
posted by pwnguin at 11:41 AM on November 14 [+] [!]
No, it will raise it, if anything.
Quick scenario: XYZ is at $100 right now. You decide to short it. You call your broker and he finds someone willing to take the other side of that bet. You give that person $3 as payment for him letting you borrow that stock. Now, you sell that stock for $100.
When it comes time to give that stock back, you are hoping that the price has gone down. If it has, you buy it and give it back to the person who loaned to you. He made a guaranteed profit of $3. If you were able to buy the stock back for less than $97, you win. If you are wrong, however, and the price of the stock has gone up, you lose. You have to buy that $150 stock and give it back.
So if a lot of people are on the market looking to cover their shorts, there is increased demand for that stock, and the price goes up. If other investors know that there are going to be a bunch of people looking to buy that stock to cover their shorts, they might buy some of it up when it hits a low, hoping to profit when the short sellers hit the market looking for stock.
The time to short a stock is when "the market" thinks the stock will be going up. Like in horse racing, you are betting against the other betters as much as you are the outcome.
posted by gjc at 4:47 PM on November 14, 2011
This article cites 90-100% annualized rate to borrow Groupon shares.
posted by mullacc at 9:48 PM on November 14, 2011
posted by mullacc at 9:48 PM on November 14, 2011
The stats are not yet available, but here is a link to a Yahoo site that will tell you % held by insiders, short % of float, and the like. There are other ways to mimic being short without having to actually borrow the shares. Options started trading on the stock today. You could buy a put and sell the call of the same strike price and create a synthetic short. It would mimic the risk v reward of actually selling the stock short.
At some point in the future if the stock is added to an ETF or an index, you could by every stock in the ETF except GRPN and short the ETF and get the same short as you would if you had actually sold the stock short.
If you are not time sensitive and can afford to be wrong for a while in terms of time and for a lot in terms of price then a short squeeze will not be effective on you. Sit tight and wait for it to go to zero. Not sure if they changed the tax laws, but at one point if you were short a stock that went to zero and you never purchased it back, you had no capital gains tax, just the cash from the short sale. In effect, you had your profits without tax implications because there was not a purchase against the sell short that would establish your gain.
posted by JohnnyGunn at 10:55 PM on November 14, 2011
At some point in the future if the stock is added to an ETF or an index, you could by every stock in the ETF except GRPN and short the ETF and get the same short as you would if you had actually sold the stock short.
If you are not time sensitive and can afford to be wrong for a while in terms of time and for a lot in terms of price then a short squeeze will not be effective on you. Sit tight and wait for it to go to zero. Not sure if they changed the tax laws, but at one point if you were short a stock that went to zero and you never purchased it back, you had no capital gains tax, just the cash from the short sale. In effect, you had your profits without tax implications because there was not a purchase against the sell short that would establish your gain.
posted by JohnnyGunn at 10:55 PM on November 14, 2011
gjc: "No, it will raise it, if anything."
I get that covering the shorts will probably cause a jump in the price, I just figure all things being equal the jump should cancel out a previous drop. I suppose the point was that a squeeze will prolong the uncertainty in the market, and certainly the volatility (with consequences in the options market). Or that maybe a squeeze will result in a higher equilibrium than had noone ever shorted in the first place?
posted by pwnguin at 11:18 AM on November 15, 2011
I get that covering the shorts will probably cause a jump in the price, I just figure all things being equal the jump should cancel out a previous drop. I suppose the point was that a squeeze will prolong the uncertainty in the market, and certainly the volatility (with consequences in the options market). Or that maybe a squeeze will result in a higher equilibrium than had noone ever shorted in the first place?
posted by pwnguin at 11:18 AM on November 15, 2011
Response by poster: Wow, lots of great input from metafilter, as usual.
You all have successfully discouraged me form shorting Groupon anytime soon.
I didn't realize the borrowing costs would be nearly that high, and I don't think I had a full realization of the dynamics the limited float creates.
Thanks everyone! (gratitude subject to retraction if Groupon plummets 100% in the next month)
posted by grammalvsu at 3:30 PM on November 15, 2011
You all have successfully discouraged me form shorting Groupon anytime soon.
I didn't realize the borrowing costs would be nearly that high, and I don't think I had a full realization of the dynamics the limited float creates.
Thanks everyone! (gratitude subject to retraction if Groupon plummets 100% in the next month)
posted by grammalvsu at 3:30 PM on November 15, 2011
This thread is closed to new comments.
http://www.bloomberg.com/news/2011-11-10/groupon-stock-among-most-expensive-to-short-data-explorers-says.html
http://seekingalpha.com/article/307259-groupon-options-puts-likely-to-be-very-expensive-compared-to-calls
posted by mullacc at 9:18 AM on November 14, 2011 [1 favorite]