The bears are still piling in to Facebook (FB), the number of shares on loan to short sellers...


The bears are still piling in to Facebook (FB), the number of shares on loan to short sellers standing at 97M, up from 63M a month ago. One reason could be lockup expiration - an additional 2B shares will become eligible to sell between now and next May, adding to the current float of 421M.
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Comments (24)
  • Whitehawk
    , contributor
    Comments (3121) | Send Message
     
    Can't blame the shorts.

     

    From FT:

     

    Facebook tries to speed Instagram deal
    Facebook is seeking to expedite the payout of its Instagram acquisition before the deal closes by using an obscure California law to issue stock without registering it with the Securities and Exchange Commission.

     

    The tactic is intended to save the company time and money as it issues shares once valued at $700m to Instagram’s dozen employees and early investors in the photo-sharing application. Those shares are now worth $478m, with Facebook’s stock price off 45 per cent since it began trading in May.
    15 Aug 2012, 08:02 PM Reply Like
  • dieuwer
    , contributor
    Comments (2931) | Send Message
     
    It almost sounds like pulling off a legal scam.
    15 Aug 2012, 09:17 PM Reply Like
  • coolshaps
    , contributor
    Comments (48) | Send Message
     
    I am currently bearish on FB in the short term but believe that the Street will eventually respond positively to an upswing in ad revenue. If that does not happen this quarter, it may happen in the last quarter of the year.

     

    I think FB will convince multi-national corporations to invest in them as a platform equivalent to TV, outdoor billboards, and FB is the best strategy for internet advertising. I don't know any other website other than Google that gets as many impressions.
    15 Aug 2012, 08:16 PM Reply Like
  • chopchop0
    , contributor
    Comments (5215) | Send Message
     
    until that happens, the market cap still has orders of magnitude to shrink.
    15 Aug 2012, 08:21 PM Reply Like
  • montanamark
    , contributor
    Comments (1456) | Send Message
     
    the the last week there have been so many pitches to the little guy to buy now
    follow the big guys - ha; no thanks
    how are those lawsuits coming
    15 Aug 2012, 08:28 PM Reply Like
  • QuantRec
    , contributor
    Comments (404) | Send Message
     
    big hedge funds are still involved. if they thought it was that bad they could have sold all of it much earlier...
    15 Aug 2012, 08:32 PM Reply Like
  • montanamark
    , contributor
    Comments (1456) | Send Message
     
    big hedge funds with HUGE losses that is; and how much is UBS under? how about the other banks
    15 Aug 2012, 10:49 PM Reply Like
  • FARRARI
    , contributor
    Comments (26) | Send Message
     
    Just about everybody here in headquarters are selling at least half of our shares starting Thursday.....Most of us need the $s to pay for what we have purchased in the last three months......I got a house and a car
    15 Aug 2012, 08:44 PM Reply Like
  • Ted Bear
    , contributor
    Comments (703) | Send Message
     
    The quiet smart money is buying the shares. The dumb 'public' hedge funds are short massive amounts.

     

    Aren't the shorts going to be surprised when this 370MM shares doesn't come for sale, and they are suddenly looking for sellers to bail them out? Just because the lock up is off doesn't mean the holders are all going to rush to the exits. What happens if these shares now are marginable, and the owners use the margin to buy more shares at these depressed levels? Surprise, surprise. The public shorts think they are SO clever.

     

    Really, the news about the lock-ups expiring has been known since, and even before, the IPO. Anyone who is trading against it is reacting like a johnnie come lately. There is an old adage on Wall Street: Buy the mystery; sell the history...or Buy the rumor; Sell the news. In this case, it was short the rumor, and buy the news.

     

    My guess is that the shares are markedly higher before being markedly lower.

     

    And i am generally bearish. There are just some stocks which, at certain prices, shouldn't be shorted. FB is down 50% already; is it worth laying out a big short down here? The quiet money says maybe no.
    15 Aug 2012, 09:05 PM Reply Like
  • montanamark
    , contributor
    Comments (1456) | Send Message
     
    quiet smart money? really? FB is down for many reasons
    15 Aug 2012, 11:06 PM Reply Like
  • Wall Street Smart
    , contributor
    Comments (472) | Send Message
     
    I have not seen anyone on cnbc or wsj or ft or sa say anything remotely bullish about this stock
    15 Aug 2012, 09:32 PM Reply Like
  • Ted Bear
    , contributor
    Comments (703) | Send Message
     
    " I have not seen anyone on cnbc or wsj or ft or sa say anything remotely bullish about this stock "

     

    There is another old saying: opportunity is greatest in moments of extreme bleakness.
    15 Aug 2012, 09:45 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2863) | Send Message
     
    Its still a $40 billion market cap whose business model is "we're going to monetize a bunch of views on mobile pages somehow." Its hard to be bullish when they dont get any revenue off mobile.
    15 Aug 2012, 10:50 PM Reply Like
  • bdoeden
    , contributor
    Comments (63) | Send Message
     
    A great reason to BUY!
    24 Aug 2012, 04:51 PM Reply Like
  • Paul Price
    , contributor
    Comments (1529) | Send Message
     
    A short squeeze bear trap is set for tomorrow.
    15 Aug 2012, 09:50 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2863) | Send Message
     
    down 5% on heavy volume already
    16 Aug 2012, 09:59 AM Reply Like
  • chopchop0
    , contributor
    Comments (5215) | Send Message
     
    yup. Not even a whiff of bullish news to set off a squeeze. This is one nasty dog.
    16 Aug 2012, 10:14 AM Reply Like
  • User241885/(FAMCO)
    , contributor
    Comments (240) | Send Message
     
    There are two classes of short sellers. Those who believe the shares are going down in price and those who want to lock in a value constant to protect their investment.

     

    Taking the leap that everyone understands the first class, short sellers who come in when they view the shares as overpriced and ripe for a pull back, let's review the second class who invested early and want to make sure they protect their original investment and some amount of gain.

     

    There's a important legal distinction under SEC Rule 144 for restricted security sales that should provide some insight into the second class that no posters on this thread have mentioned, and who like most observes most likely do not understand.

     

    In the many early stages of private financing a new venture, many investors are happy to exit when they feel their shares have provided an acceptable return. This can happen at several events well before the IPO.

     

    As a result of having so many early stage investors, many of whom wanted to exit at various times well over the years before the IPO, had Facebook authorized any of those exits in the US, they would have been deemed to have run afoul of "public offering" guidelines.

     

    This was the position taken by both the banks and the regulators, that there was such a large universe of early stage investors that any attempt to exit their position would have been regarded as a public offering under the SEC regs.

     

    As a result, hundreds of millions in USD private placements were done away from US jurisdictions. This was all perfectly legal, but it created a record amount of restricted securities, all of which would ultimately convert to public but restricted shares once the company went public in the US.

     

    Under the SEC regs, there are two types of restricted securities, those owned by "restricted people" (officers, directors and affiliates) who are assumed to have inside information and therefore are restricted from trading the stock at certain times especially ahead of quarterly reports or extra-ordinary events like merger or takeover announcements.

     

    The other class of restricted securities are those issued as a result of "restricted transactions', like stock option exercises, long term vesting compensation awards and also overseas private placements.

     

    If you are an "insider" who obtained shares as a result of being a "restricted person," during certain times, you cannot undertake any transaction in your restricted securities. You legally cannot enter into a short sale, long position, derivative, or any transaction at all for that matter.

     

    If you have restricted securities as a result of a "restricted transaction" (unlike "restricted people") you may enter into a short sale providing the stock loan department of the "bank" will allow you to pledge your restricted security.

     

    It has long been the practice of 'restricted transaction' stock holders to sell short their awarded shares in order to protect value against volatility until the two year lock up ends when their shares can be freely traded. Given the record amount of "restricted transaction" Facebook holders, it should surprise no one that the short interest is as large as it is.

     

    While I have always been in the camp that says the IPO did not reflect the reality of how proper IPO economics and pricing mechanics should have determined, no matter what price the underwriters brought the shares public, there would have a record amount of shares sold short by people owning restricted shares as a result of their shares being obtained through "restricted transactions."

     

    Regardless of how you feel about FB's prospects, as a person who obtained shares through a restricted transaction, given the volatility of the market and your need to protect your initial investment during the two year lock up period, you would have been well advised to sell your shares short.

     

    FAMCO
    15 Aug 2012, 10:18 PM Reply Like
  • Ted Bear
    , contributor
    Comments (703) | Send Message
     
    However, it should be noted that the tolling period (two years, generally) is put on hold while the shares are not at risk...i.e., they are hedged (with, among other things, a short sale).
    16 Aug 2012, 08:38 AM Reply Like
  • User241885/(FAMCO)
    , contributor
    Comments (240) | Send Message
     
    TB,

     

    I am not sure I understand this comment "the tolling period (two years generally) is put on hold while the shares are not at risk". There are two parts to this statement that I question.

     

    First, the tolling period for shares acquired through a restricted transaction are never put "on hold." The actual physical certificates have a restricted legend printed in red ink that states the shares cannot be sold until a letter from counsel indicates the tolling period has expired.

     

    Secondly, you state that the tolling period is put on hold while the shares "are not at risk". There is no SEC enforcement mechanism based upon whether shares are or are not at risk that in any way mitigates either the lock up period for restricted shares or the tolling period for restricted transactions under the Rule 144.

     

    FAMCO
    20 Aug 2012, 08:19 AM Reply Like
  • jacobandersen72
    , contributor
    Comments (54) | Send Message
     
    I hope the FTC/SEC blocks Facebook from buying one of its strongest competitors -- Instagram. Instagram is a photo based social network that now has 100,000,000 users. its one of the strongest competitors facebook has seen to date. Facebook has network effects. Without network effects Mark and Co. would have had strong competition a long time ago. Instagram is one of the few companies that found a hole in Facebook's armour through its early jump on mobile platforms. It would be a shame to simply watch Facebook buy away the competition. Do the right thing FTC/SEC and block the buyout. Make Facebook compete.
    16 Aug 2012, 03:03 AM Reply Like
  • Mike Maher
    , contributor
    Comments (2863) | Send Message
     
    Instagram is another company with 0 revenue. Its hard to make a monopoly case when Instagram doesnt have a business model.
    16 Aug 2012, 08:57 AM Reply Like
  • remurraymd
    , contributor
    Comments (2274) | Send Message
     
    Peter Thiel the director of (FB) has converted 9 million shares to dump insider selling ALWAYS a bad sign.Forced employee tax selling will be fierce through novmber. (GRPN) the last to run the lock up gauntlet they never made it back.We are buying LOTS of puts expect (FB) to be beaten like a rented mule. Pump and dump
    over-hyped IPO of the decade for us.

     

    Think MySpace and PeopleSoft it could get that bad.
    .
    16 Aug 2012, 07:08 AM Reply Like
  • mjk0259
    , contributor
    Comments (980) | Send Message
     
    "We are in at 38
    ...We think it will outperform be better than (LNKD) up 135% this y
    ear better fundamentals.We forsee a trajectory resembling (GOOG) over time no
    insider is selling out some are selling up to 50% many way less some none.
    Everyone is in it for the long term so are we.""

     

    remurraymd 5/15
    16 Aug 2012, 09:20 AM Reply Like
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