Proof of Hedge Funds Shorting Miners?

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#1 Tue, Jun 21, 2011 - 2:02am
bernard
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Proof of Hedge Funds Shorting Miners?

I understand a lot of respectable people have been throwing around the idea that hedge funds have been massively short silver miners, which is to blame for their under performance. However, I've checked out quite a few of these miner stocks, one of which (my favorite) SLW, only has a short interest that would take 1 DAY, that's one trading day, to completely cover.

Am I missing something? I have quite a bit of money in the miners, for obvious reasons, but really, I cannot seem to find any real data that backs up the myth that hedge funds are to blame for shorting the miners below real valuations...

any help?

Edited by: bernard on Nov 8, 2014 - 5:09am
Tue, Jun 21, 2011 - 5:05am
Zwipped
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hecla

I think SLW is not that heavily shorted. But when you look at Hecla for example (9% of free float is shorted).

This is just what hedge funds do. Go long something and short something different. Then leverage up.

Tue, Jun 21, 2011 - 5:16am
Phantom
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Shorting Miners

@bestever

The classic definition of shorting is to borrow shares to sell. And at some point in the future, they are covered lower by buying back the borrowed equity. From your statement, this I believe is your assumption, right? Well, this is usually true if you work for a firm which has no holdings in the equity.

Here's another method (The in-house method):

So let's say you work for a firm with a very large position in an equity, you can borrow in-house. The trade would be to buy OTM puts on that equity and in turn sell that very large equity position, or part of it, to drive the price of the equity lower and even cap the price below a strike you'd like. Covering your equity position loss with the now ITM puts. And probably extra profits from selling some calls. 

Therefore, the net short position in the equity doesn't increase because its internal. Hence, you can short, but exercise options at different strikes to cover. Meaning, you return the shares in-house.

If done properly you won't even notice the institutional selling. Never a tripped indicator. Institutions do this all the time when they are accumulating. So have patience you're in for some consolidation.

Hope that helps,

Phantom

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