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1) Let’s do a Friday happy-hour Event-Driven (ED) thread as ED keeps working. Not every trade is a home-run, but the hit rate has been surprisingly good lately. Let’s look at one of my favorite strategies; potential short squeezes...
2) $DDS may or may not be undervalued. It probably goes the way of $JCP, but that’s not my fight. I care about the short interest at 6,819,568. It has been high forever and there have been a number of squeezes in the past few years.
3) What matters today is that $DDS keeps buying back stock, setting up for a new squeeze. During July, they bought back 586,851 shares. By my math, between Aug 1 and Aug 29, they bough back another 267k shares. That means there are 18,366,790 Class A shares outstanding on Aug 29.
4) Let’s look at the holders. Newport and the Dillards (including Matheny and BoD) sure own a TON of stock. They ain’t selling. In total it is ~12m shares. That means the float is ~6.366m.
5) But wait, isn’t the short interest now at 6.819m shares with only ~6.366m in the float? You betcha. There are ~450k more shares short than in the float.
6) Now, it gets even more interesting as BONY, Blackrock, Vanguard and a bunch of other owners are ETFs. They won’t sell/cannot sell. Real short interest vs effective float is likely in excess of 2m shares.
7) But wait, it gets better!! $DDS bought back shares in August. I don’t think they stopped in September. They likely are buying back the same 10-20k a day as in August. Hell, they were buying stock in the $60’s back in February. The noose around the shorts is tightening...
8) How do I know it’s getting tight? The borrow cost has spiked!! Went from mid-single digit rate to the 50’s this week. Someone needs stock and cannot find it. Meanwhile, the company keeps chomping away at the free float.
9) How you play is up to you. I wrote puts and bought common. Companies with large buybacks are inherintly good put writers to begin with (another ED strategy I love!!).
10) I think this plays out soon and the spike in borrow cost is the tell... Now back to enjoying the sunset at the beach.
11) Please don’t tell me about the death of dept. stores or the real estate holdings at $DDS or anything else. I don’t care. All I care about is the float, the short interest, the buyback and the borrow cost. This is ED Trading at its finest!!
