NYSE short interest +7% in a month

Discussion in 'Trading' started by DeepFried, May 21, 2007.

  1. basis

    basis

    What the market maker in my example does is irrelevant.

    And that was nothing but the most vanilla case. With all the capital arbitrage, securitization, derivatives, and liquidity capital in the markets today, short interest is MEANINGLESS.
     
    #21     May 22, 2007
  2. "Irrelevant?" Bullshit.

    I don't totally disagree with you but I do disagree that it is meaningless (in capital letters). If you want to crap your drawers getting all worked up about it though, go right ahead.
     
    #22     May 22, 2007
  3. Before jumping to conclusions... my personal thesis is that we have a lot more capital going short BY DEFINITION today than we had in the 90s or 80s. I am talking about hedge funds and 130/30 indexed products that are created for many institutional investors.

    a) Total funds invested in Hedge Funds has increased astronomically since the 80s. Today, you can read we have around 9,000 funds, with a total of $1.4 trillion under management. Through leverage, they control as much as $2.5 trillion in securities and typically account for 25 percent of the daily trading on the NYSE. A good part of this capital is invested in "Global Macro (If the fund does equities)", "Market Neutral", "Long/Short" or "Dedicated Short" funds which at any point in time will always (!) have 10-100% net short positions, regardless of the general market direction.
    (http://www.yaleeconomicreview.com/issues/fall2006/cautionary_hedge_funds)

    b) The emergence of 130/30 equity linked, indexed products for long-term investing institutions such as insurances or pension funds. I read many articles since 2004/2005 that pension funds were asking asset managers to engineer lower volatility products for them which have 100% net exposure to equities. So what they do is - based on whatever fundamental and technical criteria - go 130% long and 30% short and voila, you have 100% net exposure with (hopefully) less volatility and thus potentially a better Sharpe ratio than the SP500.

    Thus, I believe we have a larger net short position in absolute dollar terms today than 10 or 20 years ago which has nothing to do with bearish sentiment that could in turn be interpreted as a bullish signal. It's just capital that is trying to lower risk of volatility and tries to do so by going short against a portion of their long exposure.
     
    #23     May 23, 2007
  4. Mvic

    Mvic

    The big increase in options open interest over the last few months has been Calls and from what I've read calls are particularly cheap these days one a historical basis because they keep getting sold by the big boys. Not sure that that is bullish sign but with all the complex strategies out there these days I agree with those who say that it is hard to make any inference solely based on things like option open interest and short interest. Record free cash in brokerage accounts though would seem to support a dipster view of the market and should ensure fairly shallow dips until it is put to work/sucked in as the market goes higher.
     
    #24     May 23, 2007
  5. If the retail investor is nowhere to be found, then why does the market keep going up?
     
    #25     May 23, 2007
  6. basis

    basis

    A few comments:

    1. the "big boys" are generally always sellers of calls, as the "biggest" boys, the mutual funds, are always looking to squeeze yield out of longs

    2. yes, vol is cheap on a historical basis, but that's been true for almost five years now... and buying it hasn't worked out very well for basically anyone

    3. as far as irrelevance goes, i didn't mean to shout. should have used italics instead. however, i stand by my statement... many options trades go up hedged (that is, with an agreed-on amount of stock), and neither side is making a direct bet on the underlying; if the seller of stock isn't long, it adds to short interest
     
    #26     May 23, 2007
  7. Yeah, that bulging short interest is bullshit alright. It's a myth! It means nothing in the face of arbitrage. Nothing, I say!

    Yep, this rally is just an opportunity to add to shorts! Yessir!

    The short interest means nothing! It has no effect on this market meltup.

    Why it's plainly evident to any sophisticated market genius.



    Yeah, keep on shorting...you fucking dummies.
     
    #27     May 30, 2007
  8. Some interesting food for thought on even and odd-lot short interest ratios(source: TheAstuteInvestor.com):

     
    #28     May 30, 2007