Novell vs. SCO [LWN.net]

Novell vs. SCO

Posted Aug 13, 2007 19:02 UTC (Mon) by Max.Hyre (subscriber, #1054) [Link]

Another amusing aspect of the chart is the trading volume (bottom of chart).

Novell vs. SCO

Posted Aug 17, 2007 16:12 UTC (Fri) by giraffedata (subscriber, #1954) [Link]

What's amusing? Trading volume reflects shifting perception of the stock. On Monday, investors spent the day changing their minds (in both directions) about the stock based on Friday's news. In the following days, some investors changed their mind based on previous days' trading, and perceptions gradually settled out.

Volume is always that way -- when information comes out, different people interpret it differently and shares exchange hands. When nothing changes, people hold their positions.

What's amusing is when people try to equate trading volume with value. A cold call broker once told me I should buy a certain stock because its volume had recently tripled -- "and it's all buying." I usually don't bother to argue economics with salesmen, but I couldn't let that one go. I said, "So from whom are they buying it?" He then explained that the statement was an oversimplification and what it means is that not counting market makers (such as his company), it was all buying. IOW the companies that know the stock inside out and make a living off of it are selling, at triple the usual rate!

Innocent enjoyment

Posted Aug 17, 2007 17:26 UTC (Fri) by Max.Hyre (subscriber, #1054) [Link]

What's amusing is the flat activity line through the previous week, when a bunch of people apparently thought the stock was worth owning, then when the judicial system pointed out the flaw in that reasoning, they all scurried around trying to be the first to sell. Reminds me of a hill of alarmed ants.

So I'm easily amused.

Innocent enjoyment

Posted Aug 17, 2007 21:03 UTC (Fri) by giraffedata (subscriber, #1954) [Link]

then when the judicial system pointed out the flaw in that reasoning, they all scurried around trying to be the first to sell.

The main point I wanted to make consists in the fact that an equal number of people scurried around trying to be the first to buy, believing that people had overreacted to the news over the weekend and the price they were asking was too low.

I suppose I could be amused over the volume in that it probably means that the people who held the stock speculatively (hoping for a longshot court ruling) have conceded the game and turned it over to people who hold stock for the basic value of the business.

Innocent enjoyment

Posted Aug 23, 2007 14:09 UTC (Thu) by Duncan (guest, #6647) [Link]

> [A]n equal number of people scurried around trying
> to be the first to buy, believing that people had
> overreacted to the news over the weekend and the
> price they were asking was too low.

That's not necessarily the case. Remember, SCO was very heavily shorted.
What I'd like to see would be a graphic of what it was shorted vs. what
it's shorted now. I'd bet that a lot of that buying was simply people
covering their shorts. If they'd "borrowed" stock to sell at two or even
three dollars, a sudden drop to 50 cents might seem a very good time to
cover their shorts.

In fact, IMO that's pretty much the only thing that explains that much
volume even at 50 cents a share, given that as everyone has already
pointed out, there must be a buyer for every seller, and a seller (even if
shorting, borrowing from someone to do so) for every buyer.

Posting from the viewpoint of nearing two weeks after the original event,
it's also worth noting that the stock is still pretty much flatlining at
between 40 and 50 cents, tho it has gradually risen about 10 cents from
its low of 35 cents, to ~46 cents. It's going to be interesting to see if
it can climb above 50 cents and stay there, tho I imagine that's the
near-term goal at SCO.

What's really amusing is seeing the last change as I'm viewing ATM,
+0.006, as +1.33%. The effects of sub-dollar prices on volatility are
well known and a big reason NASDAQ delists if stocks stay that way for too
long... tho it takes several months sub-dollar to get delisted, so SCO's
not in any immediate danger of delisting from price after only a couple
weeks or so. Another 1-for-4 or stronger reverse split, taking the stock
to nearly $2 again at current values, seems likely if SCO wishes to stay
listed and a steep rise doesn't come its way in the next few months. That
can't go on forever, obviously, but from the analysis I saw previously,
SCO still has a bit of room to maneuver in that area, to 1-for-8 or so
IIRC. Keep in mind however that reverse splits often lose much of their
increased per-share value in the weeks after such an event, however, so
SCO would be wise to go at least 1-4-5 and 1-4-8 may be it.

Assuming they don't just decide to let it go, now, off NASDAQ and off the
big RADAR.

Duncan

Innocent enjoyment

Posted Aug 23, 2007 15:24 UTC (Thu) by giraffedata (subscriber, #1954) [Link]

>> [A]n equal number of people scurried around trying
>> to be the first to buy, believing that people had
>> overreacted to the news over the weekend and the
>> price they were asking was too low.
>
>That's not necessarily the case. Remember, SCO was very
>heavily shorted. What I'd like to see would be a graphic
>of what it was shorted vs. what it's shorted now. I'd bet
>that a lot of that buying was simply people covering their
>shorts. If they'd "borrowed" stock to sell at two or even 
>three dollars, a sudden drop to 50 cents might seem a very
>good time to cover their shorts.

Those buyers asked the same question as the ones who don't owe anyone stock: Will the SCO share price fall today? Answer: no.

But I agree that it's a good bet that a lot of the buying was covering short positions, because I don't think volume like this is really the result of a shift in perception of expected value, but rather a change in the risk profile. Different investors like different kinds of gambles. People who shorted the stock, more than people who simply declined to buy it, were gambling on that one court decision. Now that it's played out, they'll move on to a similar gamble on another stock. It's important to realize that those people planned to buy after the decision regardless of which way it went.

Novell vs. SCO

Posted Aug 21, 2007 12:03 UTC (Tue) by ekj (subscriber, #1524) [Link]

That's sorta like people who honestly believe that speculation, as in trying to outguess the market, creates net wealth.

Like you point out, for every share bougth, there is always exactly one share sold.

But similarily, one person can only "beat the market" exactly as much as other people underperform the market. It's a zero-sum game. Sure, some individuals are lucky or know something the rest don't, and come out ahead. But that value ain't created, it's matched precisely, cent-to-cent by other people being having investments that underperform the market.

Put easier, you can only buy at a "good" time, if I sell at a "bad" time. The two match. Which 90% of day-traders haven't realised.