Innocent enjoyment

Innocent enjoyment

Posted Aug 23, 2007 15:24 UTC (Thu) by giraffedata (subscriber, #1954)
In reply to: Innocent enjoyment by Duncan
Parent article: A bad day for the SCO Group

>> [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.

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