The New Playbook

Same as the old playbook.

Last week, I noted the extreme premiums being paid for options on Arena, and also noted that CNBC had given airtime to a hedgie who opined that Arena was a “great short.”

I expressed my skepticism about encouraging the public to join in on short sales that the hedge fund pros already had in play.  Basically, the way the math works, a short seller can keep recycling their capital on a good short until they’ve shorted every share available to borrow, so letting others in on the trade limits the potential profit.  On the other hand, if a short is getting away (the statement in question happened the same day Arena was setting a new two-year trading high), then any help is welcome, especially if an independent event is looming that could make the short position a disaster.

That said, the short sellers playbook has a number of other plays in it, plays I’ve seen far too often for my financial health.

I’m reminded, for example, of Dendreon, which collapsed spectacularly after its promising prostate cancer treatment was sent back for more studies.

So I’m not surprised when one of the reporters who serves as a mouthpiece for the Dendreon shorts   takes his shots at Arena. The Street dot com has often presented spin from short sellers as “news” without telling us where they get their opinions.

Today’s column is rather thin on content, using, of all things, the to-be-expected warning from the annual report that the FDA might not interpret the data from the safety tests the same way the company interprets it.

Duh.

Does that support the headline “Arena Pharma’s Own Data Point to Weight-Loss Drug Rejection.”  I think not.  But what could you expect from a reporter who encouraged retail investors to short the stock on Tuesday last week?

I think the more interesting part of the story is the huge volume that accompanied today’s 40-cent shellacking on a stock that was already down from over $3 a share to $2.50.  27 million shares!  That’s some serious selling power.

We’ll have to wait to see how much the short interest increased, but I think I would not get anyone, especially the boys at Street.com, to give me even odds on whether that was short selling or longs deciding to throw in the towel now, right before the FDA has its say.

There is another possibility, one that I hope isn’t true.  That this past week of selling, including today’s climactic action, is because somebody knows what the FDA committee members are going to say before they say it.  That would be insider trading, and we all know that only celebrities without Wall Street connections get into that kind of trouble, not reporters or their anonymous hedge fund sources.

hh

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: