MARKETS SPECTATOR: Sayonara short sellers
The advent of high frequency trading means it takes short sellers twice as long to buy back their positions, which is now likely causing pain to all but the most steadfast of operators.
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A recent look at a list of the largest short positions held in Australian equities has thrown up some very interesting situations, especially given recent price action.
While those participants that instigated short positions early would be sitting pretty, anyone remotely late to the party could be finding themselves in a very sticky situation, especially given the growth of high frequency trading and the impact it has had on underlying liquidity.
Previously, those participants with short positions would have calculated how long, based on an average day's turnover for a stock, it would take them to buy back their position to close out the trade.
Herein lies the problem, or opportunity depending on how you look at it and are positioned. The advent and growth of high frequency trading now means that one cannot buy 100 per cent of daily turnover. This is due to the fact that at least 50 per cent of high frequency trading orders exist for a second or less.
Rather, in today's market place it's highly probable that any one buyer can only purchase between 25 to 50 per cent of the average daily volume.
Yet most short sellers have not taken this into account, meaning that in reality it's actually going to take them at least twice as long to buy back their position than previously calculated.
Using JB Hi-Fi as an example, its short position is currently quoted as about 22.1 per cent of total shares on issue. Now, using the average volume traded over the last 50 days would take approximately 28 trading days to buy back the entire short position. Now, that assumes one could purchase 100 per cent of daily turnover.
So based on the assumption that one could only purchase 50 per cent of turnover, it would take the seller 56 trading days to exit the position.
You can see where we are going here.
Below are just some of the top short positions among Australian equities. As you can see from recent price action, they have all broken out of their long term downtrends and would likely be causing considerable pain to all but the most steadfast of short sellers.
With this in mind, there look to be some long opportunities in these names, with the hope being that the short sellers are forced to buy back their positions, if they have not already begun to do so.
Source – Iress
JB Hi-Fi – 22.1 per cent of shares on issue are held as short positions.
Source – Iress
Fairfax Media – 15.9 per cent of shares on issue are held as short positions.
Source – Iress
Myer Holdings – 14.9 per cent of shares on issue are held as short positions.
Source – Iress
CSR Limited – 9.3 per cent of shares on issue are held as short positions.
While those participants that instigated short positions early would be sitting pretty, anyone remotely late to the party could be finding themselves in a very sticky situation, especially given the growth of high frequency trading and the impact it has had on underlying liquidity.
Previously, those participants with short positions would have calculated how long, based on an average day's turnover for a stock, it would take them to buy back their position to close out the trade.
Herein lies the problem, or opportunity depending on how you look at it and are positioned. The advent and growth of high frequency trading now means that one cannot buy 100 per cent of daily turnover. This is due to the fact that at least 50 per cent of high frequency trading orders exist for a second or less.
Rather, in today's market place it's highly probable that any one buyer can only purchase between 25 to 50 per cent of the average daily volume.
Yet most short sellers have not taken this into account, meaning that in reality it's actually going to take them at least twice as long to buy back their position than previously calculated.
Using JB Hi-Fi as an example, its short position is currently quoted as about 22.1 per cent of total shares on issue. Now, using the average volume traded over the last 50 days would take approximately 28 trading days to buy back the entire short position. Now, that assumes one could purchase 100 per cent of daily turnover.
So based on the assumption that one could only purchase 50 per cent of turnover, it would take the seller 56 trading days to exit the position.
You can see where we are going here.
Below are just some of the top short positions among Australian equities. As you can see from recent price action, they have all broken out of their long term downtrends and would likely be causing considerable pain to all but the most steadfast of short sellers.
With this in mind, there look to be some long opportunities in these names, with the hope being that the short sellers are forced to buy back their positions, if they have not already begun to do so.
Source – Iress
JB Hi-Fi – 22.1 per cent of shares on issue are held as short positions.
Source – Iress
Fairfax Media – 15.9 per cent of shares on issue are held as short positions.
Source – Iress
Myer Holdings – 14.9 per cent of shares on issue are held as short positions.
Source – Iress
CSR Limited – 9.3 per cent of shares on issue are held as short positions.
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