Shorting SNAP

[gzz]

Logged on a few days ago to short snap, uber, and lyft. Uber and lyft no shares were available to short. I stopped checking since this doesn’t look to change anytime soon. Snap had plenty of shares to short and no interest charge.

All three companies have scary income statements.

Snap is losing money hand over fist, but doesn’t have the excuse of rapid growth anymore. User base is flat, declining slightly in North America. They can keep trying to monetize their users with more and more ads, but seems like a vicious cycle to me, people will only tolerate so many video ads. And the overall background is declining online ad rates. And then their biggest competition is facebook owned instagram!

I actually shorted SNAP after its IPO for similar reasons and got out (for a nice profit) when they started charging 18% interest to short it.

[gzz]

Uber can now be easily shorted.

Their quarterly report shows weak rideshare revenue growth and their largest loss from operations ever.

Good enough for me to short.

The only bright spot I saw was Uber Eats, but it is still small and lots of competition.

Loss from operations just in Q1 was a record 1.03B. Total losses since founding of 8.87B.

I do like the company, but the stock at $40 per share and $67 bil market cap seems crazy to me.

I shorted today half of what would be the largest position I am comfortable with. Will add to the position if it hits $44.

[HLS]

Take a look at buying In The Money (ITM) puts.
Your risk is limited to what you pay for the puts, and can be at a tiny premium to shorting (borrowing)shares to short.

When you short a stock you have huge unlimited risk on the (even if small) chance that someone comes along and takes the company private at a premium to the market price.
Crazier things have happened!

[barnaby33]

I was thinking the same thing HLS. However puts are also dangerous because you have to get timing and direction correct, unless you are going to get into really advanced strategies. A basic grasp of “Black-scholes” is necessary.
Josh

[Coronita]

The markets can stay irrational longer than you can stay solvent.

[gzz]

Up 15% since I first shorted.

This is why I start short positions gingerly!

Longer than I can stay solvent? Sometimes, but not with the cash burn rates of Uber and Snap.

Uber just went back to the “hard/impossible to short” list, so a lot of people see this as a no-brainer short. I believe Uber has lost more money than any startup in history at about $9-10 billion thus far.

[gzz]

In my defense, I also have been plugging build america bond funds, BBN and GBAB. They’ve gone up 15-20% since Fall 2018, plus paid their fat 6.5% monthly dividends the whole time.

I’d call them a hold rather than a buy after such a run-up.

I don’t play with puts since I can handle the downside of short sales, and also option premium kills so much of the gains. Plus option bid-ask spreads are huge compared to stocks.

[gzz]

Woohoo, my short position in Snap is finally in the black. Still above my initial short, but I shorted more 15-17 so in the black overall.

My UBER short has been profitable from the get go.

Also opened shorts in LYFT and PTON and MGI in the past week.

To offset these shorts, I purchased some Vanguard ETFs so I am protected if my shorts go up as part of a broad bull market.

For each company and read the annual report and analyst opinions, as well as most recent 10-Q. All are scary unprofitable.

[henrysd]

[quote=gzz]Woohoo, my short position in Snap is finally in the black. Still above my initial short, but I shorted more 15-17 so in the black overall.

My UBER short has been profitable from the get go.

Also opened shorts in LYFT and PTON and MGI in the past week.

To offset these shorts, I purchased some Vanguard ETFs so I am protected if my shorts go up as part of a broad bull market.

For each company and read the annual report and analyst opinions, as well as most recent 10-Q. All are scary unprofitable.[/quote]

Shorting weak IPO stocks is popular way to make some profit even though I don’t do it. Wall street brokerage houses try to get as much they can from IPO price, so generally speaking IPO price most of time are over-valued. Even you made a mistake shorting strong companies, you can still get bailed out when the 6 month insider lockup period expires – Wall street doesn’t want corporate insiders to make big money when they are able to sell.

The popularity of shorting IPO by retail investors has made wall street mad as they want their client stocks to keep floating high the first several months. So they started a campaign against short sellers by buying most of the floating shares of Beyond Meat to cause major short squeeze and made share borrowing over 130% annual interest rate. Now time is so close to end of lockup period, BYND stock is coming down. Wall street is so crooked, but I believe price manipulation post IPO in 6 month lockup period is allowed by law for underwriters.

[Coronita]

How do you short a freshly minted IPO stock? There’s not that much float and there are so many regulatory hurdles for shorting right after an IPO, that most retail speculators would not have access to those limited shares in a meaningful quantity. How did you folks that said your shorted right after Snap went public did you manage to pull it off? What brokerage firm did you use that were allowing you to short right after an IPO?

And I don’t think you pay 18% interest just from shorting unless you the short position blew up, the stock price went up past your short price AND you don’t have enough money in your account to cover the paper loss. That difference between what you shorted at , and the current market price (which is higher) is like a margin loan.. At least that’s how my broker works. I never had to pay margin interest when I was on the right side of a short. And even when a short position had a loss, so long as I had enough cash in the account to cover that unrealized loss, there was no margin interest charges too.

[henrysd]

[quote=flu]How do you short a freshly minted IPO stock? There’s not that much float and there are so many regulatory hurdles for shorting right after an IPO, that most retail speculators would not have access to those limited shares in a meaningful quantity. How did you folks that said your shorted right after Snap went public did you manage to pull it off? What brokerage firm did you use that were allowing you to short right after an IPO?

And I don’t think you pay 18% interest just from shorting unless you the short position blew up, the stock price went up past your short price AND you don’t have enough money in your account to cover the paper loss. That difference between what you shorted at , and the current market price (which is higher) is like a margin loan.. At least that’s how my broker works. I never had to pay margin interest when I was on the right side of a short. And even when a short position had a loss, so long as I had enough cash in the account to cover that unrealized loss, there was no margin interest charges too.[/quote]

In IPO the underwriters sell to general public. The shares owned by underwrite have 30 days restriction to lend out for shorting. But for other public buyers like mutual funds or retail investors, their shares can lend out for shorting. If too many people want to borrow shares, then it become a difficulty.

From this article “Is there a time limit that must pass before short sales are accepted for IPOs?”:
https://www.investopedia.com/ask/answers/05/062905.asp

[quote]
To be able to short a stock, you usually need to borrow it from an institution such as your brokerage firm. For them to lend it to you, they need an inventory of this stock. Here’s where the difficulty can arise with IPOs and short selling. An IPO usually has a small amount of shares upon initial trading, which limits the amount of shares that can be borrowed for shorting purposes. On the day of the IPO, two main parties hold inventory of the stock: the underwriters, and institutional and retail investors.

As determined by the Securities and Exchange Commission, which is in charge of IPO regulation in the United States, the underwriters of the IPO are not allowed to lend out shares for short sale for 30 days. On the other hand, institutional and retail investors can lend out their shares to investors who want to short them.

However, only a limited amount of shares would probably be available on the market as the company would’ve just started trading publicly and the shares may not have been completely transferred. Furthermore, there might be a lack of willingness among investors to lend their shares out to be short sold.
[/quote]

[gzz]

Flu, I pay 0-5.5% annual interest on these shorts. I wouldn’t pay 18% ever.

PTON i just checked daily, I think it was 3 days after the IPO they had shares to short.

I wouldn’t short BYND because I tried it and it was delicious and very close to real meat.

I am not a bull on it, just don’t like the risk of shorting a company with a great product.

[gzz]

Risk of short squeezes is greatly overblown.

Risk of a hype-based rally based on uncritical media reports of “pro forma” earnings is much larger. Usually boosted by “analysts” whose banks want to so the followup offering when the “profitable” company burns through its IPO cash.

I also think the “lockup period” price decline is a little overblown too. It does happen, but IPOs are usually much larger than post lockup insider sales.

Also, the normal thing for IPOs these days is to have a big element of insider sales directly to the pocket of insiders, not new shares and capital to the company. Some IPOs are more than 50% insider sales. So they don’t need to suddenly cash out at the lockup. Maybe some low level people who have stock options, but that’s a small thing.

In summary, I’ve done well for 21 years now shorting purely on valuation and ignorance non-fundamental issues like squeeze risk and lockups. If I were a pro I’d probably consider them slightly.

[Coronita]

Sure… if you say so, I’ll take your word for it..Personally, I’ve never made any significant money shorting stock beyond a few thousand here and there and there were also times the shorts went the other way. So if it works out for you, great.

[Author]

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