There’s a lot of stuff going on in the world right now, but sometimes it’s more fun to look at more provincial issues, like what promises to be the mother of all short squeezes Thursday in Green Mountain Coffee Roasters, the maker of Keurig machines which announced a big investment and partnership with Coca-Cola (y’know, the biggest beverage company in the world, which buys all the vanilla, uh, everywhere).
The most recent data from Nasdaq puts short interest in this name at 25 percent of the outstanding shares (and about 30 percent of the float) – about 37 million shares, which doesn’t come close to the record of about 51 million shares back in November 2012, but still is a lot – average volume over the past 50 days is 3.11 million shares, so at that rate it would take about a dozen days to cover all of those short bets if they threw in the towel all at once.
Which means expect a gigantic trade on Thursday; it wouldn’t be surprising to see Green Mountain as the most active issue of the day behind the usual suspects (Bank of America, the S&P 500 tracking ETF, not much else). Note: Data from Markit, which calculates its own figure on short interest, puts it at 16 percent as of Wednesday, so some shorts have covered in recent days but that’s still a lot.
The stock is one of those that’s confounded investors for a long time, the kind of short bet that’s only worked as a “rental,” as hedge fund manager Doug Kass likes to put it when he jumps in and out of a bet for a few minutes or hours. StarMine data suggests it was already overvalued, putting its intrinsic value at about $69.50 a share — a price it’s not going to see again for a while as the stock surged by more than 40 percent in after-hours action.
One of the most notable short-sellers out there, David Einhorn of Greenlight Capital, has very publicly expressed his concerns about the value of this stock, and as of October 15 the hedge fund manager was still short the shares. That’s the date of his latest communication, and per my colleague Jennifer Ablan, his people didn’t comment on a question on whether he still has a short position.
So who’s getting rich Thursday on this? Besides those who have held a long position, it’s best to look at the options market on this one. There was some notable options activity in way, way out of the money call options of Green Mountain on Wednesday – more than 4,300 contracts traded at the $95 strike for a paltry 46 cents a share when there were just 780 existing contracts before the day.
The stock was trading around $110 in after-hours trading, so let’s do the math. Those 4,300 contracts would cost very little – 4,300 multiplied by 46 cents by 100 (since one contract covers 100 shares), so about $197,800. At $110, that contract is about $15 in the money — and the premium will rise to reflect that, too, so those contracts bought at 46 cents (well, $46) turn into a cool $6.45 million. Seriously.
And there was other buying, too, in the $100, $105, and even $110 strike prices; contracts expiring next week saw new positions in deep out of the money calls, too. Can’t say anyone knew something, but it sure is fishy…