Short Interest Figures, Insider Trading And Why Shorts Are Playing With Fire In These Patent Plays
Many people like to follow what hedge funds and institutions are buying, selling and shorting. So I began looking over some patent companies that have had changes in short interest. These companies are VirnetX Holding Corp. (VHC), Vringo Inc. (VRNG), ParkerVision Inc. (OTC:PRKR) and MGT Capital Investments (MGT).
Short interest is an indicator of what short sellers think about a particular stock. If short interest increases, then shorts are betting that the price of the security will be going down. However, if short interest decreases, then shorts are betting that the price of the security is coming to a bottom and will likely be going back up.
Many investors use short interest to make predictions about the direction of a particular stock and to measure the bullishness or bearishness of it. Below is a table of the short interest increases and decreases of the following companies.
| Settlement Date | VHC | VRNG | PRKR | MGT |
| 6/14/13 | 15,785,100 | 16,480,404 | 18,233,654 | 402,800 |
| 5/31/13 | 15,290,155 | 16,453,859 | 18,334,622 | 534,360 |
| 5/15/13 | 15,661,194 | 17,053,167 | 18,012,352 | 338,958 |
| 4/30/13 | 15,608,337 | 17,722,342 | 18,043,002 | 261,371 |
| 4/15/13 | 16,054,714 | 17,203,292 | 18,377,341 | 64,257 |
| 3/28/13 | 15,190,749 | 15,913,760 | 17,671,119 | 35,864 |
| 3/15/13 | 16,611,974 | 15,268,817 | 17,129,070 | 42,727 |
As you can see from the table above, short interest has been increasing in some patent stocks while decreasing in others. There could be many different reasons as to why, so a good question to ask yourself in this situation is what do the shorts know that you don't? Let's take a look at the companies to see what has transpired for the increase as well as the decrease in short interest.
VirnetX
VHC has a market cap currently of $1.01 billion with its most recent closing price of $19.67. VHC has over $38 million in cash and no debt. As of June 14th, 2013, VHC had short interest of 15.78 million, representing an increase of 500K since May 30, 2013. The short float now stands around 37% with the days to cover ratio at 27.7 days. Analysts have an average price target of $50.00 on VHC, which would reflect an increase of over 150% from its recent closing price of $19.67.
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* Values are in the millions
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One quote that I will never forget from Warren Buffett was when he said, "Be fearful when others are greedy, and be greedy when others are fearful." One way we can look into that is to measure the Relative Strength Index, or RSI. The RSI measures momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30 and is considered overbought if it surpasses 70.
Shares of VHC entered into oversold territory on Tuesday, when it's RSI reading came under 30. Investor's could take this as a sign that the recent selling pressure is winding down, and begin to look for an entry point on the buy side.
With such a high short interest, VHC has the potential to pull off a major short squeeze. Look no further than VHC's recent history and you can see the major potential it has. However, investors should be warned that not everything goes the right way. Just a couple of months ago, VHC lost a case against Cisco (CSCO) and shares dropped more than 50% over the next couple of days.
Vringo
Vringo has a market cap currently of $247.42 million with its most recent closing price of $2.99. Looking over Vringo's financials we can see that they have over $49 million in cash and no debt. As of June 14th, 2013, Vringo had short interest of 16.48 million, which represents a decrease of 500K or 4% shares since May 15, 2013. The short float now stands around 23% with the days to cover ratio at 16.28 days. Analysts have an average price target of $5.50 on Vringo, which would reflect an increase of over 84% from its recent closing price of $2.99.
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Last week I wrote an article talking about the recent insider purchase of Noel Spiegel and why shareholders of Vringo should feel confident in their investment. Just two days later, Chief Financial Officer (CFO) Anastasia Nyrkovskaya joined the party as she recently purchased 7,000 shares of Vringo at $2.93.
| Date | Company | Shares | Price | Total | Shares Ownership |
| 6-21-13 | Vringo | 7,000 | $2.93 | $20,509 | 32,000 |
| 6-18-13 | Vringo | 15,000 | $3.00 | $45,000 | 35,000 |
One of the main reasons why Ms. Nyrkovskaya was brought on board to team Vringo was because of her experience in structuring M&A transactions and partnerships. It didn't take long for Nyrkovskaya to make her presence felt as in less than a month of her hiring, Vringo and Microsoft reached a settlement deal.
It's crazy to think that Nyrkovskaya as well as Mr. Spiegel of Vringo, with four months combined experience between the two, feel so confident in Vringo's future that they are willing to put down their own money.
Vringo's shareholders have to be ecstatic with what is taking place, as well as feeling some relief and reassurance about their investment in Vringo now. The fact that Mr. Spiegel has an astounding track record with his investments goes to show you that he doesn't just throw his money down the drain. He has proven that he knows what to do with his money when he feels that a stock is undervalued. Just look at the table below that shows Spiegel's return if he were to cash out on his investments right now. Not a bad return right?
| Date | Company | Shares | Price | Total | Return |
| 6/18/13 | Vringo | 15,000 | $3.00 | $45,000 | N/A |
| 5/4/12 | Radian Group | 10,000 | $2.289 | $22,894 | 558% |
| 11/22/11 | Radian Group | 10,000 | $2.20 | $22,000 | 578% |
| 8/26/11 | American Eagle Outfitters | 10,000 | $10.40 | $104,000 | 80% |
Over the years I have learned that some insiders trades are more important than others. Within a large company key executives like the CEO and CFO know more about the company than directors and such. However, because Vringo is such a small company, virtually all insiders are in the know about the company. That's why I find it meaningful that Insiders are purchasing shares at these levels.
It is also good to remember that one insider trade does not make a trend. Having a couple of insider purchases on the other hand provides a better indication that something good is in the works. With already two insider purchases over the last couple of days it wouldn't surprise me one bit to see more insider purchases come to pass. However, following the lead of insiders, will never replace diligent research that investors need to do before investing.
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* Values are in the millions
Vringo's short interest, has relatively stayed the same over the last two weeks. Some of the reasons why the share price hasn't moved is the fact that all eyes are waiting on Judge Jackson's ruling. While we don't know when that decision will come, based on my analysis I expect that Judge Jackson will likely make his decision between now and the next two weeks.
Another catalyst going forward for Vringo is the fact Vringo announced that it is set to join the Russell 3000 and Russell Global Indexes when Russell finalizes its U.S. and global equity indexes on June 28, 2013. While some investors don't think to highly of the Russell Indexes, I feel that the attention Vringo will receive from an even broader range of investors will help push its stock higher.
As you can see, Vringo has the potential to trigger a major short squeeze. Vringo has already delivered such an event last year for investors and looks to be gearing up to do the same this year. Shorts have played Vringo well shorting every pop over the last couple of months however, shorting Vringo at these levels isn't the brightest idea as there are many positive things going Vringo's way. I could think of countless other stocks to short right now that would be a better play than Vringo.
ParkerVision
ParkerVision has a market cap of $385.37 million with its most recent closing price of $4.36. ParkerVision also has over $17 million in cash with only 27K in debt. As of June 14th, 2013, ParkerVision had short interest of 18.23 million, representing an increase of 200K or 2% since May 15, 2013. The short float now stands around 21.68% with the days to cover ratio at record levels of 35.64 days. ParkerVision has a price target of $11.75, which would reflect an increase of over 170% from its recent closing price of $4.36.
ParkerVision's short interest has been rising for over a year now. Last time this year, ParkerVision had short interest of 9.7 million shares. Today ParkerVision's short interest has soared to over 18.2 million shares, representing an increase of over 9 million shares or 90%.
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* Values are in the millions
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From a technical standpoint ParkerVision looks to be trending higher as it looks to test the $4.50 range. Once it can clear that on some strong volume, shares should rise quickly to $5.00 and make a new 52-week high.
MGT
MGT has a market cap currently of $29.83 million with its most recent closing price of $4.92. Looking over MGT's financials we can see that they have over $2.68 million in cash and no debt. As of June 14th, 2013, MGT had short interest of 402K, which represents a decrease of 100K or 25% of shares since May 30, 2013. The short float now stands around 8% with the days to cover ratio at 3.7 days.
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* Values are in the hundred thousands
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From the charts we can see that MGT looks to be settling in the $4.50 -- $5.00 range. Investors who have a position in this range should pay close attention to volume increases or decreases as MGT could quickly fall back to the $4.00 level or rise back over $5.00.
NYSE & NASDAQ Short Interest Total
Looking over a couple of stocks will not tell us the whole story of what is going on in the market. So let's take a look at what is taking place over at the Nasdaq. From the updated short interest numbers, we can see that short interest has increased to 7.57 billion shares as of June 15, 2013 compared to 7.48 billion back on May 30, 2013.
The New York Stock Exchange Group, Inc. based on information received from its members and organizations, had short interest increase as well to 13.88 billion as of June 14, 2013 compared with 13.41 billion on May 30, 2013.
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Looking over both the Nasdaq and NYSE figures we can see that short interest is back on the rise again. I wasn't really surprised to see this as many investors take the 'sell in May go away' theory to heart. While May turned out to be better than most expected, June has been quite the roller coaster ride for many investors amid the global uncertainty.
Conclusion
Because these are speculative stocks with a high percentage of short interest, investors can be sure to count on lots of volatility and wild price swings. News of any sort can send these stocks flying or sliding. Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.
Disclaimer: The information I used in this article came from the Nasdaq, CNBC, Yahoo! Finance, Scottrade, Finviz and The Wall Street Journal.
Disclosure: I am long VRNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Comments (62)
Be nice if VRNG added to the July 4th fireworks soon. But I'm not counting on it.Rick
But things can change in time. Let's say JJ finally makes a decision unfavorable to GG, and they are granted grounds for appeal, as is VRNG for Laches and/or correcting jury damage reward figure of 15.8 mil.In a year or so, on the doorsteps of the courthouse so to speak, a deal is struck in that GG agrees to the RR in exchange for VRNG dismissing their appeal. This could very well happen, but as things stand NOW, I do agree with you.
But two bombs later...GG will do what they have to. The rope they've been given by JJ can easily end up around their necks in time.
In response to my question, I think you meant that is the billion (not million) dollar question. LOL. One can wish VRNG gets a billion dollars, right? I am not sure if a 7% RR ruling would push the damages to the billion dollar mark as I guess it depends on how much GOOG revs increase over next couple yrs. Anyway, have a good one.
The only evidence needed here is common sense in my opinion. The MGT lawsuit was not identified as a material risk by WMS when the deal with SGMS was consummated. However since the deal was signed it has clearly become a material risk.- WMS failed to get prima facie dismissal of the case
- WMS failed to get the venue of the trial changed
- The Markman date has been set
- MGT just announced a second patent that has been awarded further strngthening their position against WMSI have seen huge deals fall apart at the last minute on much less than this. Given the premium that SGMS is paying for WMS, it is in WMS's best interest to resolve this pending lawsuit with MGT on a timely basis.This is not like VRNG or VHC or PRKR where the best interest of the defendants is to drag things out. Here the primary defendant has an obvious motivation to settle.
At $1.4 billion, SGMS is already over paying for WMS. I seriously doubt that SGMS's reaction to the pending WMS lawsuit with MGT is "please we need WMS" regardless of exposure to a lawsuit that could bring damages to WMS as high as $1 billion on the extreme high side.Clearly you are not a believer, but the next 6 months will tell who is right. I expect a settlement.
- They are the only one with impetus from the defendants to resolve their pending litigation in 2013 as there is no way that the SGMS buy out of WMS will take place by year end without resolution of this lawsuit
- They have management that does not dilute their shareholders (very unusual amongst these IP focused companies)
- They have established new operating businesses in extremely fast growing nascent business segments - online daily fantasy sports & mobile online gaming with wagering in States where allowed.In comparing the business prospects and relative valuation of MGT to the other three, this stock should clearly be trading over $10/share now. By year end it very likely will be.
I'm sorry to hear your frustration, but as an investor in Vrng ever since their lawsuits began flying, I have actually done quite well with this zig-zagging stock . . though timing is/was the key as to when to get in and out. I AM ecstatic about where Vrng looks to be right now, because I have recently bought again a bit below $3. This has obviously proven not to be a get in and out quick, BIG money-maker . . but I am proof that good money can be made if one is willing to get in and out often enough. . .I like the author's reference to "sell in May go away", but be sure to get back in on a dip! How's this reference Justin . . ."To the sky by the Fourth of July??? : ) . . good work . . and good call on being listed on the Russell!
How ironic that today, MGT closed the day up more than 7%.