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Herbalife (HLF) up 23% premarket following in Carl Icahn's Valentine's Day Massacre of Bill...
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Friday, February 15, 7:28 AM ETHerbalife (HLF) up 23% premarket following in Carl Icahn's Valentine's Day Massacre of Bill Ackman. Kid Dynamite notes Icahn has an economic interest in 13% of HLF, but does not own all that stock. Instead he has a combination of long stock, long calls and short puts. His exit strategy for the position is in question, but it's clear Icahn's goal is to create a short squeeze. Grab the popcorn.
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This news story has 15 comments:
I've been waiting to use the Blue Horseshoe line...not sure how many are familiar with it.
What is going on at USC? Lane Kiffin has a job but everyone else is shown the door? Might be time for a new AD.
Have a good one.
This is only one day's profit, but I am not closing the positions here as the short squeeze has just started. Just wait until Ackman and the shorts are actually forced to start closing their positions. If he doubles up on it he risks blowing up.
Sometimes, although not often, this is just too easy.
I usually don't write here about specific trades, but I did write about the Herbalife tussle and how I intended to profit from it with long leap year calls without having to take a large risk. It is paying off handsomely.
...I have to do the same...
Long or short, someone has to be bearing the risk, if it isn't him, then "an institution," as you call it would have it. Nevertheless, that's unlikely for to basic reasons: Ackman wants to be short. That's his play. Further, why would anyone else relieve him from the downside risk of his short position unless they wanted to be short themselves?
Ackman could be partially hedged (I am sure he is) and that would limit his gains and losses. The bottom line is that if he is net short, which I believe he is, he can, by definition, get squeezed.
If you don't think that's the case, please tell me how.
In reality, contract or not, the owners can always ask for their stock back, and if the stock moves up hard, in all likelihood they would.
Frankly, I don't know what to make of this, as if this were to be the case, it would benefit the long positions not the short ones. Usually, people refer to a stock not being sufficiently available only in relation to not being available to borrow and hence, not being available for someone who wants to short the stock directly (not through options). I other words, the stock is hard to borrow, so it is difficult to short. The company and the long holders are, therefore, protected from others trying to build a large short position.
By definition, though, the stock is always available for whomever wants to buy it, what changes is its price. So, if one puts a huge market order and there aren't many sellers, the stock's will go up and up picking off all available offers to sell. Either the order is fulfilled or the stock will continue to go up. By the way, if this happened, chances are that even the institutions who have lent the stock to others so they can short it, would ask for the stock back (so they can sell it and profit), forcing the shorts to unwind their position. That is the classic short squeeze.
So, "a lack of supply with a strong demand" would send the stock price higher, not lower, which would be harmful to the short position. The bottom line is that the scenario you have described would probably be the worst possible outcome for someone who is short.
Maybe you mean something else, but I can't see what.