With the surprise announcement of the merger between Baytex and Raging River short sellers attacked Baytex dropping the share price by just over 25%.
A surprisingly small amount from $6.00 to $4.50. As of July 2nd, Baytex is listed first, as the largest net increase in short position on the TSX. One would have thought this much shorting would have resulted in a drop of 50, 60 or even 75%. However with both WTI and WCS pricing in the profit range for Canadian producers actual shareholder selling has been low.
"The Glencoe Rumor Mill" has both companies releasing excellent numbers for the quarter ending June 30th. The company acknowledged this indirectly with its 1 billion dollar cash flow announcement. Further reinforcement can be seen in the massive amount of insider buying both at Baytex and Raging River.
The end result of a strong quarter without a short position would be a natural price increase with an opening trade after release in the $6.50 - $8.00 range reflective of earnings based on the price of oil. Previous quarters of similar results have seen .35 per share, annualized that is $1.40 a share at current oil prices and every third news article talks to oil disruption and $100.00 oil.
Now lets look at the short position. How will they cover with a positive quarterly result. Will the share price post earnings release open at the previous close. Likely not! Bottom line is they won't be able to cover easily, there was too much greed to late in the game. This happens with both longs and shorts. Rumors abound believe them or don't but look at the insider buying. The squeeze is coming and $10.00 plus isn't out of the question.
Now an earnings release may be weeks away but guidance could come as early as next week.
Disclosure: I am/we are long BTE.
Additional disclosure: with 30 000 plus shares