I want to return to the BlackBerry (NASDAQ:BBRY) short interest argument, because I have the sense that investors think BlackBerry short sellers are really big winners. The data I will present will show they are neither big winners and at the same time in imminent danger of being on the wrong side of the trade soon.
Below is a chart of BlackBerry's stock price vs.short interest. I think this is a new feature of YCharts and one that is extremely powerful and helpful (thanks YCharts).
As you can see from the chart, BlackBerry short interest ranged from around 15-66 million shares between the period 2004-2012. Something else very interesting to note is that even when BlackBerry was over $100 a share after 2008, short interest did not increase! In fact, even when BlackBerry crashed from $140 all the way to the mid 40's, short interest was flat.
This is important for several reasons:
The market did not short in bulk even when BlackBerry was a bubble of biblical proportions
The market did not see what was coming
The market, as far as short interest is concerned, was wrong (something not common).
Now let me show you a close-up chart:
As the above chart shows, the market was not shorting BlackBerry when it was a bubble, but instead decided to short every single share it can find when the stock started falling below $12-$13 a share. In fact the only real winners, as I can see, are those who shorted at the $13 mark all the way down to about $7.5 and covered. Because if they did not, they are in the red (most of them).
From about July 2012 to February 2013, short interest increased from about 75 million to about 133 million, while the stock was on the way up and reached about $18 a share. In other words, all short sellers were in the red big time if they had not placed a stop-loss.
From about February of 2013 short interest increased by a lot, however how many people shorted at the $18 mark? Very few if any. Most of the short interest since then was below the $15 mark.
As I see it, with the exception of the short interest before 2012, the only true winners are the short sellers who managed to cover at the bottom and those who shorted above $15 a share. See, BlackBerry's stock today is trading around $11. That's not much of a cushion if you're one of those who have shorted those 150 million shares.
And the reason for this is because of all the BlackBerry takeover talk these days. See, even if BlackBerry is taken out at $15 a share, there are very few that can say that they have made money shorting BlackBerry. And if for some reason the buyout price is anything higher than that, then there might be no current short sellers in the black at all.
So will BlackBerry short sellers be running for cover? That remains to be seen. However as the case of the buyout of Nokia (NYSE:NOK) by Microsoft (NASDAQ:MSFT) proved, buyouts usually happen at premiums and not at rock bottom prices, even for a company like Nokia, that had an overleveraged balance sheet with almost no cash, where BlackBerry has no debt and plenty of cash.