Wednesday, October 29, 2008

4 AM OMG!!! Porsche screws share traders...

Drinking that last two cups of coffee at 7pm wasn't a terribly bright idea it seems. I can't sleep.

Anyways, nice to see that the market is having another bounce up. Anything is better than seeing more red ink in the stock market - which is about as pleasurable to me as seeing a person fall out of a building.

Some traders however get their profits through short selling. (I do it too, on occasion). But the big news recently is that the shorties got killed trying to short VW. Yes, Volkswagen.

Shorting stocks works like this - you sell the stocks in a company, then later buy it back at a cheaper price. If enough people do it - it has a snowball effect - a bit a group of people (not just one) screaming, "FIRE!!!!" in a crowded cinema.

When the Hedge Funds do it... mmm... that's like Goliath and his bad ass army coming to the cinema to scream fire. They've got the power to really manipulate the share price.

In this case involving VW, however, Porsche stunned the market by announcing that they now own 74% of the VW company. With no more free stock available, the shorties have now got to rush around trying to cover their positions. Problem is - there's none to be had except for now increasingly higher prices. Game OVER!!!!

At one stage, someone was trying to sell shares in VW at 10 times the asking price.

"We were joking before about the share price hitting 1,000 euros, and all of a sudden, it was there," said one Frankfurt-based trader. "This is perverse."

No, not perverse. Just market forces at play. The shorties weren't complaining when they were selling and driving the prices down. Cry me another river, mate.

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