Securities Research Services

Thursday, July 19, 2007

Shorts Feeling Pain

Yesterday we wrote: "We would look for a weak day sometime this week, probably today. At the same time, we will be looking for dip buyers to step in and frustrate the put buyers who have been making big downside bets."

Indeed this is what we saw. The market opened very weak, but then spent the rest of the day defying traders who have taken on a massive short position as they watched their profits erode. Put options are likely to expire worthless for the most part on Friday. If the pattern continues, they will roll their puts over onto next month, which will only add fuel to the fire for longs if they are again forced to cover their losses at higher and higher prices.

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