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The Short Report

Weekly Reports | Feb 15 2018

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending February 8, 2018

Last week saw the ASX200 plunge -300 points in Wall Street’s vacuum, from its prior 6120 high.

One would be forgiven for assuming such a fall would have shorters slathering, given the opportunity for profit-taking, but when we look at the table below, we see mostly red, suggesting increased positions rather than reduced positions. But there are a few points to consider.

Firstly, with a couple of exceptions all those red movements reflect minimal bracket creep. Realistically there was little change in net short positions last week.

Secondly, short positions by no means have to be “naked”. Two common uses of short positions, outside of capital raising arbitrage, are pairs trading and options market making.

A pairs trade matches a short position against a long position, typically between two similar companies. BHP and Rio is an obvious example. CBA and any other major bank would be another. Here the trader is looking to profit on the price differential, not the price itself. So when the whole market falls in concert, there may be no offer of profits on a pairs trade.

Options market makers offer to sell (or buy) calls and puts to (from) clients. They then hedge those positions by buying/selling stock on a ratio reflecting the chance of that option being exercised (delta). Last week saw the US VIX volatility index very much in the spotlight. A rising VIX implies increasing demand for put option protection (Hence: “fear gauge”).

We have a VIX here too, in case you didn’t know, but it doesn’t draw nearly as much attention. We also have a stocks options market. When an investor buy puts from a market maker to protect their stock position, that market maker has to sell stock to hedge. If the market maker does not already have stock in place against other positions, it must be shorted.

Have a look at the short positions table at the bottom of this report for the ASX Top 20 stocks. Last week 13 of the 20 saw short position increases in the plunging market. My take-out from this, and ASIC does not require shorters to explain their positons, is investors were buying puts on the big names, forcing market makers to sell stock short.

An assumption only.

Otherwise, we find Tassal Group ((TGR)) remains at over 8% shorted hence its jump from 5.9% the week before was not a data blip.

Greencross ((GXL)) stood out last week with a fall in shorts to 8.4% from 10.7%.

Credit Corp ((CCP)) jumped from below 5% to 6.2% shorted.

See below.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.2
IGO     17.5
DMP   16.2
HSO    14.1
JBH     13.6
RFG    13.4
HT1     10.9
MYX   10.4
GXY   10.7
FLT     10.0

In: GXY, MYX, FLT             Out: GXL                  

9.0-9.9

VOC, AAD, AAC, HVN, MYR, APO, NWS
 
In: AAC, HVN, MYR                        Out: MYX, GXY, FLT                                                                                 

8.0-8.9%

TGR, GXL, MTS, ORE, NXT

In: GXL, NXT                        Out: AAC, MYR, HVN

7.0-7.9%

PLS, BAP, TPM, SHV

Out: NXT, WSA

6.0-6.9%

WSA, GMA, GTY, BEN, NAN, WEB, CCP, KAR, AHG, ISD

In: WSA, CCP, KAR            

5.0-5.9%

IMF, SEK, QUB, JHC, RIO, CSR, LNG, NSR

In: LNG, NSR, BGA                         Out: KAR

                       
Movers and Shakers

Last Tuesday was when the ASX200 fell out of bed in line with a near -1200 point fall in the Dow. It was not a great day for vet/pet shop chain Greencross to make a couple of announcements. One was a trading update, which was positive, and the other was a change in CEO.

Brokers noted that a change of CEO won’t make the challenges the company faces any easier, and noted the new guy has no prior experience in traditional retail. Greencross’ shares fell -7.5%, on a mix of the macro and the micro. Greencross shorts fell to 8.4% from 10.7%, suggesting profit-taking.

As long as this is not another ASIC data blip.

Consumer finance company Credit Corp reported earnings on January 31, before Wall Street tanked, and its shares fell -12% on a forecast miss. They fell further along with the market a few days later.

Credit Corp had been hanging around the bottom of the 5% plus shorted table for a while but had slipped off recently. Last week it was back at 6.2% shorted.

 

 

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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CHARTS

CCP GXL TGR