Is it just ironic or a sign that short reports emerged once again and now the market rallies? Perhaps those are becoming the new CNBC Markets in Crisis indicator. I think it’s too early to say, but I’m growing a bit more optimistic the more short reports I see. Like so many other things in life, sentiment will drive certain groups to emerge from the shadows. It doesn’t matter if it is bulls, bears, crash callers (not the same as shorts), crypto HODLers, crypto haters, and on and on.
There was a lot of reaction to the Ginkgo Bioworks Holdings (DNA) short report on Twitter yesterday not too long after the report was published. In some cases, the reactions may have felt too quick for a 175-page report as Doug Kass pointed out, but I tend to disagree. The thing about these reports is they are done in almost a fifth-grade style presentation. Perhaps I’m being generous with that comparison. In the 175 pages, there may be 20 or 25 pages of actual material. These are written in presentation style, not investment research style. There’s a lot of big, bold letters. The same things, in this case the words scam and scheme, repeated over and over. There are lots of charts and graphs showing comparison doom and gloom from the past, often in unrelated manner. There are always the “we visited the site and took a picture of the address” pages but seldom are they followed up with actually going inside and speaking with anyone.
These are written to scare. These are written to sell. These are not written to educate. It’s the exact same marketing scheme many newsletters use to sell product from a diabetes “cure” to a super food to even financial products. So, no, it doesn’t take hours on end to parse through the 175 pages because many of the arguments are recycled variations of every other short seller report that has made its rounds. And the so-called interviews are softball question setups without a single challenge. I find it odd that no one would question those who question interviews on CNBC with fund managers.
When examining the put action on DNA between yesterday and today, I did notice something interesting. Despite the huge volume in October puts, there was very little change in the open interest. The October $7.50 has an open interest of 19,843 coming into the day, saw volume of 9671, and opened today with open interest of 19,924. It barely changed. The October $10 puts came into yesterday with an open interest of 12,675 contracts, saw volume of 13,984, and started today with an open interest of 13,470. Again, it barely budged. The $11 puts open interest rose by 1700 despite volume of nearly 8200. Only the $9 puts saw a big rise, but it was still only one-third of the volume.
This means one of two things.
One: there were a lot of day trades on these options.
Two: someone was unloading into new buyers.
While I’m sure option one accounted for some of the volume, I’m even more certain option two accounted for just as much if not more.
Keep that in mind next time you take immediate action on these short reports.
And I went ahead and closed those short November $5 puts from yesterday. Selling at $0.45 and buying back at $0.25 overnight is a quick flip worth taking in my opinion.
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