Corus Bankshares Shorts Are Getting Creamed

by: Lou Kurrelmeyer

Corus Bankshares (CORS) shares closed at $15.70/share yesterday, up $1.42 or 9.9%, off its high of $16.10 or 12.7% on heavy volume of 1,633,123 shares. The shares are up $3.28/share or 26.4% since last week's low of 12.42 last week. Demand for shares has risen sharply in the past few days, and the share price is back above its $14.55 book value but still languishing at a 4.7 P/E ratio. The upward trend started two trading sessions before the FOMC rate drop and during a period when there was no news on the company. Given the lack of other explanations for the steep rise in price, I conclude the most likely explanation is the shorts have started to cover and are bidding up an extremely small number of available shares.

Short interest, as reported by ShortSqueeze.com, was 18,701,300 shares; which is 32.9% of the shares outstanding and 96.95% of the float. Short interest was up from the prior month's total of 18,408,700 or 32.4%. The share price reached a multi-year low of $12.42 on September 7th and 10th. Since then, the closing price of the stock has risen sharply to $13.28 on September 14th, $13.69 on September 17th, and $14.28 on September 18th on volume below the YTD average. Since the FOMC rate drops, the price increase in Corus shares has continued. Today, the stock closed at $15.70/share after hitting a high of $16.10/share on volume of 1,633,123 shares, which is 89.4% higher than the YTD average of 862,291 shares and 135.2% higher than the 1 month average of 694,312 shares. The last time Corus shares were this high was August 17th. The last time this volume level was reached was June 22nd.

Using yesterday's closing price, the short positions value at $3.28 less per share than at the low of $12.42, a loss of 26.4%--totaling a paper loss of $61,340,264; although, there probably are not still 18,701,300 shares short. With the backstop of the FOMC rate cuts, I don't see any reason why this stock would drop back to its recent low. The remaining short holders must want to cover at this point in time.

The question in my mind is, "How many shares remain short"? The shorts had been increasing for months and the share price had been dropping for months. If one assumes the shorts did not start covering until the price began rising on 14th of September, the shorts would have to be at least as many shares as the former total less the number of shares traded since. On that premise, there were 18,701,300 shares short and volume since the price started to rise has been 790,025 shares on September 14th, 762,463 shares on September 17th, 848,032 shares on September 18th and 1,633,123 today on September 19th. leaving a minimum remainder of 14,667,657 shares short. It is clear in my mind that many millions of shares remain short and the shorts are losing big money with each price increase. It will take weeks to cover the short positions.

It will be interesting to see what influence the coming options expirations have on the share price.

Disclosure: Author has a long position in CORS