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Short Interest Figures, Insider Trading And Why Shorts Are Playing With Fire In These Patent Plays

Jun. 28, 2013 10:40 AM ETCSCO, MGT, PRKR, VHC, XWEL62 Comments
JG Investment Research profile picture
JG Investment Research

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.


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

This article was written by

JG Investment Research profile picture
I started investing at an early age and learned many valuable lessons along the way. One of those tough lessons was quickly learning not to blindly trust Wall Street analysts. Over the years and decades, I’ve used those tough lessons to better myself and to refine my research and stock picking skills. From a ‘boots on the ground’ approach, to crunching the data and interviewing CEOs, I enjoy covering a wide variety of industries and sectors and providing like-minded investors detailed analysis that they can’t find anywhere else. I have a journalism background – winning numerous awards – which helps me dive into the details and uncover things that many people overlook. I am a medium to long term investor and spend most of my focus on tech and growth companies. In addition, I also look to capitalize on trends such as investing in the ‘stay at home plays’ during covid which ran 100%-200%. I’m married with 4 kids and hold an M.S. degree from Liberty University and an B.A. in Communications from the University of Utah.

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Comments (62)

Thanks for the info, KP.

''I see you are on other SA stocks boards such as DSS, MGT etc. Are you invested in them? I just bought some DSS today".


Then you bought wisely, IMO. I'm involved in several stocks in the IP sector. I trade MGT off it's support points due to it's terrific float. I bought DSS over the last few days as I feel it's now found the bottom due to an over-reaction to the merger dilution, which I think was vastly misunderstood.

I've got a strong position in BCYP. I see it as having major upside as investors get run-ups to two Markman Hearing (AUG. 27th/NOV 7th) this year. They are suing everyone and their brother! So pending patent reform won't affect them. And they are currently priced at 1/2 of WDDD, which I feel is a pumped up hot air balloon that has already sprung a leak, with much dilution to come pre/post MH. I think once WDDD investors realize they are holding a stick-in-the-mud that could sink, they'll get into BCYP.

MARA is building a nice business model, but it's strictly looooooong-term. That float is too darn high.

There are others worth mentioning, but we can't play 'em all.
Be nice if VRNG added to the July 4th fireworks soon. But I'm not counting on it.

Personally, I don't see GG settling either, Justin.
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.
JG Investment Research profile picture

I share the same sentiment as you. GOOG is fighting this to the end there no doubt about it. However, If JJ gives VRNG a very favorable ruling, I do think GOOG would then come to the table for a settlement (after appeals etc).

I see you are on other SA stocks boards such as DSS, MGT etc. Are you invested in them? I just bought some DSS today.
Kevin Porter profile picture
Rick Berger

CAFC statistics say 9 months from the docket date which is 04/03 so Jan 2014 or 6 months from today
Few thought Japan would surrender unconditionally in WW2.
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.
JG Investment Research profile picture

I understand what you mean. However, just to be clear, I never said it was impossible for Google to settle with VRNG. I just feel that it is highly unlikely that they do. Two months ago Google said it has successfully "worked around" VRNG patents. This means they don't care if the royalty rate is 3.5% 5% or 7% because they won't owe VRNG money since their "workaround" falls outside the scope of VRNG patents.
As a VRNG shareholder, sure would be nice if VRNG gets to bank over a billion when all is said and done. I hope a RR award as high as 7% would bring GOOG to the settlement table. I've always said GOOG would most likely never settle but they may if 7% is awarded.
JG Investment Research profile picture

I don't think GOOG will ever settle with Vringo. They would have settled by now if they were going to in my opinion. They said they managed to "work around" VRNG's patents which means they won't owe VRNG very much $$$ if this is really true.
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.
Kevin Porter profile picture
7% is much more than 1B,
1.2-1.3B depending on the growth,
maybe even 1.4B
JG Investment Research profile picture

My bad... It is the billion dollar question indeed. Reuters figured that 3.5% royalty rate would equal around $635 million in revenue for Vringo. If VRNG were to get 7% RR that would be well over 1 billion dollars. However that is when Google's so called "work around" comes into play.

stockhawk profile picture
Justin and all: FYI, wanted to share an interesting observation I noticed Friday at 4pm and into extended hours. VRNG had traded 2.5 million shares right at the close. If you look at the final day volume of 9.8 million, that means 7.3 million traded in the after hours. Maybe this has to do with rebalancing of the R3000 etc... On my trading website the volume was all green indicating buying. I monitored the volume until 6:30 and noticed there was lots of selling also. What this means only time will tell, if V continues trading in the tight range it has been in maybe dark pools and more shorting will result. Could be the volume was more long term investment ? Don't have answers but we'll know over the course of time.
JG Investment Research profile picture

"Justin and all: FYI, wanted to share an interesting observation I noticed Friday at 4pm and into extended hours. VRNG had traded 2.5 million shares right at the close. If you look at the final day volume of 9.8 million, that means 7.3 million traded in the after hours. Maybe this has to do with rebalancing of the R3000 etc"

Yes, the sharp rise in volume on Friday had to do with the inclusion of Vringo into the Russell Indexes. The link below is of Russell's CEO explaining what happens on this day. Enjoy!

Video: http://bit.ly/11SiJzI
Alan Brochstein, CFA profile picture
Justin, my estimate was about right about the impact: Mildly positive
JG Investment Research profile picture

While you were right about the "mildly impact" (however you want to define that) from the Russell Indexes... The long term impact of this for Vringo will be more than "mildly positive" in my opinion. It's hard to judge something like this so quickly. Let's see what happens over time.
Anyone think we get a ruling on the VRNG RR by Judge J before the end of this year? Or is that wishful thinking? Thanks.
JG Investment Research profile picture

That is the million dollar question....While nobody knows when the decision will come, based on my observations and analysis, I expect that Judge Jackson will likely make his decision between now and the next two weeks.
Alan Brochstein, CFA profile picture
>>>there is no way that the SGMS buy out of WMS will take place by year end without resolution of this lawsuit<<<

Can you point to any evidence of this??? I think the only hold up is regulatory.
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 WMS

I 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.
Alan Brochstein, CFA profile picture
Please! SGMS needs WMS...
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.
MGT continues to be hugely undervalued, and when balancing risk represents the best upside opportunity of any of these IP focused companies.

- They have a market cap less than 1/10 any of the others
- 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.
Flyonass profile picture
MGT continues to be a scam. Who would buy a stock that owns a percentage of a percentage of a Patent?

C'mon guys, is this Pennystock Hero? When is my flyer coming in the mail with this stock blown up about being undervalued?

Really enough is enough.
Vringodiner profile picture
really good info. thanks justin!
JG Investment Research profile picture

I'm glad you enjoyed it. Have a good one!
Situm profile picture
Those who short stocks risk losing everything as at least theoretically the stock can go to infinity. For this reason shorts are infamous for the due diligence theta put in. My invetor hero is Jim Chanos and almost every short case he outlines works. The point is: it's not the shorts who are playing with fire it's the longs. VRNG has been discussed ad nauseum. The case vetted and every angle pursued. If you think you know something more than the average nitwit on the yahoo message board talking of a RR of x% on y revenues I assure you this has been explored by every fund on the street equipped with patent attorneys, statisticians, CFAs and the like. It's not like the story is new. Price is truth and for now, for the last year, VRNG is worth 3 bucks. Never has so much been made of so little.
Alan Brochstein, CFA profile picture
It's like betting on the Super Bowl without knowing when the game actually takes place...
dcmorris profile picture
VRNG is a 50/50 gambling bet. There are no business metrics that one can pour over and no amount of sophisticated DD can change or hedge that fact. Patent attorneys, statisticians, CFAs and nitwits alike have the same opportunity here. All that can be seen is the downside risk of 3 dollars and an upside of(infinity)? The true winners at this point are the ones that played the hype and volatility, and the .50 swings. It is now in the hands of one man, 50/50. Place your bets.
Alan Brochstein, CFA profile picture
I actually had a dream last night that I spoke to the judge and he told me that he had not even begun to work on making his decision. This is way worse than the lights going off during the Super Bowl!
Nice piece Justin. The subject matter can be an informative barometer. Oh, and don't mind FLYONASS. He makes accusations out of his - - -. That's becoming well known.

MGT has been and will continue to be a trader's dream due to the miniscule float.

I'd also watch DSS. It's close to bottoming out after the key merger (due to dilution) and should have a decent run-up to it's October Markman Hearing.

Best wishes and a happy 4th.

Flyonass profile picture
MGT is a flat out scam. Walks like a duck quacks like a duck becuase it is a duck!

Percentage of a Percentage ownership in a Patent. Sounds shady because it is shady. What happens when the one patent gets shot down. Zero bid is what happens. Everyone loses money and Grandma can't pay the electric bill 'cause some Carney off SA hoodwinks her into buying this pos.

Sell MGT and get out.
JG Investment Research profile picture

Thanks! A happy 4th to you as well. Being an investor in Vringo has taught me many things. Because of this I have always kept a close eye on other patent stocks and how they react to certain events. Capitalizing on those events can make you a very wealthy person. I was actually surprised to see DSS fall as low as it did $2.
JG Investment Research profile picture

"To the sky by the Fourth of July"

Thanks! As for the fourth of July reference...I love it. Now we just need to put our rally caps on haha. VRNG has been trending nicely the last couple of days. This doesn't seem like a normal pump and dump situation to me. What about you? Are the tides finally turning?
Ziffy profile picture
28 Jun. 2013
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!

Thanks for your continued research and articles, they really are insightful and the information is always backed up with good facts.
JG Investment Research profile picture

Thanks for the compliment. I'm glad you enjoyed it. What are your thoughts about these patent companies? Are you currently holding any shares in any of them?

Take care!
Have been holding VRNG for a yr now. Stock has potential but it seems everytime it wants to start taking off, the rally fades. Every. Single. Time. Never owned a more frustrating stock.

Thank you for putting this analysis together. Those are concise and clear charts of the short interest over time.

I really like your highlighting of the recent two insider buys of Vringo shares. I'm guessing that these two people both liked the Microsoft settlement and expect good things for VRNG soon.

We seem to be seeing the effect of the Russel add over Thursday and Friday as VRNG has risen in volume and by 6% in price.

Keep up the good work.
JG Investment Research profile picture

Thanks for the comments. I'm glad you liked the article. I think the insider buys are key for investors to watch. Obviously we are all waiting for Judge Jackson to give his final ruling no doubt about that however, many other things are happening as well (Russell inclusion, Insider buys etc) for Vringo.

Have a good one!
Patent Plays profile picture

Well done article with quite a bit of helpful data. I can appreciate the time spent, though the reward from SA will come no where near its value. Also good call on the Russell 3000. You were right about that, though the shareholder base "pre-Russell" lives for the moment and few are long term.

"I feel that the attention Vringo will receive from an even broader range of investors will help push its stock higher."

Here's a toast to welcoming those new shareholders!
JG Investment Research profile picture
Patent Plays,

Thanks! I completely agree. Some Investors think that it is so easy to do, yet they don't realize how long it actually takes, as well as working with publishing companies such as SA etc.

What would be your price range be if VRNG were to receive the 20.9% and 5% RR? Do you think it goes over $6, $$7 or $8?

Anyways, gotta love those big buys (MILLIONS) at the end of the day. Thanks Russell.... Welcome new VRNG shareholders! :)
Patent Plays profile picture

The 20.9% revenue share was what the Jury heard and I see no reason why Jackson would alter that. I've written extensively of the impact, and devalued it accordingly by 50% factoring an acceptable Appeal loss probability.

My numbers come up with the $6 to $8 range (5-7%)AFTER the fury of the news well and into the Appeal wait.

I fully expect MM's to take advantage pushing the stock beyond the normalized range I offered. Could we see swings to $10? Absolutely possible. However you can bet the shorting at that range will be out in full force.
JG Investment Research profile picture
Patent Plays,

I always look forward to you replies. I have been thinking along those same lines. With a royalty rate of 5% - 7% I feel that shares of Vringo would be worth somewhere in the $6-$10 range. Because Vringo has such a high short interest rate shares would probably hit the $10-$14 range before settling back down.
User 8331091 profile picture
I'm not so sure VRNG shareholders are as "ecstatic" as you make them out to be. Most of them seem disgruntled, frustrated, and impatient having waited for over 7+ months for the litigation with GOOG to be resolved. All the while the price of VRNG has traded flat to negative over this period while many other investment opportunities, including the broad market index, were up significantly.
JG Investment Research profile picture

"I'm not so sure VRNG shareholders are as "ecstatic" as you make them out to be. Most of them seem disgruntled, frustrated, and impatient having waited for over 7+ months for the litigation with GOOG to be resolved."

You are taking my words out of context. Please read it again. I said, "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."

When you read the article you can see that I was referring to the VRNG insider trades and how investors should be happy with what management is doing. Putting their money where their mouth is. Plain and simple!
User 8331091 profile picture
I am not taking your words out of context. I am explaining to you that long time VRNG shareholders who have seen a loss with their investment are NOT going to magically be ecstatic because a couple of insiders bought a few shares and displayed some confidence.

At best it represents a silver lining and a gleam of hope. Moral victories don't get you anywhere when investing in speculative stocks and high stakes litigation companies. After the pain VRNG shareholders have undergone the last 2 or 3 quarters, the only thing that is truly going to make them "ecstatic" is capital appreciation and a reversal of fortune.
Flyonass profile picture
It amazes me that Seeking Alpha would allow such a strong endorsement of MGT, with less than 100 million dollar market capitalization.

We have a gift shop across the street from where I live that does twice the sales of this PUMP and DUMP stock scam, and makes money!

You would think that after GOFF and the SEC lawsuits that followed people would learn.

The big question I have is whether Pennystocknewsletters or Penny stock hero's is involved here. Is their a promotion going on Justin?

Avoid this stock and get out quickly.
New Investor25 profile picture
Author made a good observation and I am glad her shared. I will buy and ride this up while the shorts cover. Nothing wrong with that.
JG Investment Research profile picture

I have no idea if there is a pump promotion going on. The only thing I have written about MGT is when I have included them as part of my short interest articles. Nothing less and nothing more.

Why should investors avoid MGT? Can you please enlighten us with your observations? You said, "Avoid this stock and get out quickly."
How ironic that today, MGT closed the day up more than 7%.
JG Investment Research profile picture
New Investor,

MGT had a nice end of the day run today. With a market cap of around $31 million, MGT is very tempting stock for speculative investors.
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