Today the stock reached 1,000 euros, after a 145% intra-day increase on Monday when the stock closed around 500 euros. Due to short sellers apparently screwed by Porsche announcement on Sunday…any opinions about that dear AFers?
Short Squeeze
Classic short squeeze, volumne went through the roof and forward P/E stands at 100x. Unrelated comment. I do love my Carrera, especially when I am driving the baby on twisty hill road, uphill…
Mother of all short squeezes. Porsche cornered the market in VW stock by using cash settled options with multiple banks to get round disclosure rules. So they controlled nearly 75% of the company, whilst the market thought they only owned 35%. Short interest got up to about 16% of the company, but together with lower saxony’s 20% stake in the company there is a free float of <6%. So VW becomes the biggest company in the world and everyone laughs at the german regulator.
I guess the lesson is not to get involved in obvious or crowded short positions? It seems like Porsche management (or their i-bank) is pretty clever?
virginCFAhooker Wrote: ------------------------------------------------------- > It seems like Porsche management (or their i-bank) > is pretty clever? …one might say they, turbocharged, their returns.
And imagine that about 3 years ago the share price was around 30 EUR. But I have noticed that it is not first such case in Germany. Continental has played a similar trick. Do you know exactly what happened in that case?
I think it’s really the new TDI Jetta. With over 1,100 Km on a tank, these things are likely selling like mad. Way to go krautkan. Willy
i like the comment by this guy, Klaus Kaldemorgen in the article below: – The head of Germany’s largest fund manager accused Porsche – the largest investor in VW – of acting against the interest of other shareholders. — that’s pure gold! Porsche causes a 250% rise the company’s share price and this guy says that it is against the interests of other shareholders! yeah , if only shareholders in other companies I owned caused the stock to triple overnight . of course if you happen to be a ‘short shareholder’…well then… VW driven to top spot by surge in share price By Richard Milne and Kate Burgess in London Published: October 28 2008 09:34 | Last updated: October 28 2008 23:23 Volkswagen briefly became the world’s largest company by market capitalisation on Tuesday after an extraordinary share price surge that raised fears that hedge funds and other traders could collapse after betting on a fall in the stock. The continued surge – triggered by the revelation on Sunday that Porsche had a much larger interest in the carmaker than many traders had realised – sharpened criticism over the level of disclosure and regulation in German capital markets. EDITOR’S CHOICE Editorial comment: Shortenfreude - Oct-28 Funds left reeling as VW races on - Oct-28 In depth: Auto crunch - Oct-28 Daily View: VW briefly the world’s largest company - Oct-17 Hedge funds hit as Porsche moves on VW - Oct-27 Porsche accelerates towards VW control - Oct-27 VW’s share price rose 82 per cent to €945 following Monday’s 147 per cent jump, leaving it with a market capitalisation of about €287bn ($370bn), making it the world’s second-largest company ahead of Wal-Mart, General Electric and Microsoft. At its intra-day peak of €1,005, its market capitalisation exceeded Exxon, the US oil company. This has raised fears over a “squeeze” on traders betting on a fall in Volkswagen shares through short-selling – the practice of selling borrowed shares in hope of profiting by buying them back later at a lower price and returning shares to the lender. A manager at a large hedge fund said: “The losses will be extreme. I don’t think it is going to bring down a big fund, but it will probably bring down some small ones.” The head of Germany’s largest fund manager accused Porsche – the largest investor in VW – of acting against the interest of other shareholders. Klaus Kaldemorgen, the head of DWS, which is a shareholder in VW and owned by Deutsche Bank, said: “I criticise heavily that a company like Porsche is manipulating VW shares in an irresponsible manner.” Porsche did not respond to calls asking for comment on Mr Kaldemorgen’s statement, but it told Reuters on Tuesday: “We vehemently reject the accusation of share price manipulation.” There was widespread expectation in the markets that the huge rise would push some fragile hedge funds – who bet on VW’s shares falling – to collapse with losses estimated at €20bn-€30bn. Several hedge funds and banks denied they had any large exposure to VW. Morgan Stanley, whose shares fell by as much as 26 per cent on Tuesday only to close up nearly 11 per cent, said it had “virtually no exposure”. Bafin, the German regulator, repeated its comments from last week that it was monitoring, but not formally investigating, the share movements.
hah “acting against the interest of other shareholders” - as if the short sellers weren’t already doing that. Somebody beat them at their own game. Wow, that redefines the “short squeeze.” I bet a handful of funds really took it in the shorts with this one.
chrismaths Wrote: ------------------------------------------------------- > Mother of all short squeezes. Porsche cornered the > market in VW stock by using cash settled options > with multiple banks to get round disclosure rules. > So they controlled nearly 75% of the company, > whilst the market thought they only owned 35%. > > Short interest got up to about 16% of the company, > but together with lower saxony’s 20% stake in the > company there is a free float of <6%. > > So VW becomes the biggest company in the world and > everyone laughs at the german regulator. I don’t get how they could do this with cash settled options? Wouldn’t you want the ability to purchase the stock, thus gaining control of the company? If the options purchased to corner the VW market were cash settled wouldn’t the counterparty simply have to pay the cash difference, which would not cause a disruption in the VW shares outstanding.
It’s hard to sympathize with any hedge fund who would go bust because of the failure of one bet. Most of them just pile into the same crap anyway – like the VW short, the long oil/short financials, the yen carry trade, and on and on – so you sometimes wonder what investors even get for their money.
"Porsche cornered the market in VW stock by using cash settled options " Sounds like an Ethics breach at Porsche to me! II (B) at the very least! edit. I mean Standards of Conduct. not ethics. doh
good for Porsche. The reactions of people like Andy Brough are typical of those with more arrogance than talent.
TJR Wrote: > I don’t get how they could do this with cash > settled options? Wouldn’t you want the ability to > purchase the stock, thus gaining control of the > company? If the options purchased to corner the > VW market were cash settled wouldn’t the > counterparty simply have to pay the cash > difference, which would not cause a disruption in > the VW shares outstanding. It’s not clear to me either. Do cash-settled options have to be backed somehow by real shares?
It is down by 40% today.
mihau10 Wrote: ------------------------------------------------------- > It’s not clear to me either. Do cash-settled > options have to be backed somehow by real shares? the option writer needs to hedge
DarienHacker Wrote: ------------------------------------------------------- > mihau10 Wrote: > -------------------------------------------------- > ----- > > It’s not clear to me either. Do cash-settled > > options have to be backed somehow by real > shares? > > the option writer needs to hedge If he sold calls (I assume a long call position would be used to get a large share of the co.) he would hedge with long stock, right?
My understanding is that Porsche used cash settled options because of a “loophole” in German securities regulation which allowed them to build up such a position (~75% effective control) when the market thought they were only at 50% or so. If they used share settled calls, they would have had to announce when they crossed certain thresholds. I would imagine that this would never happen in US securities markets. In terms of delivery risk, I would guess they have some sort of side agreement for the call writer (presumably a bank with a huge VOW long position to hedge its call exposure) to buy the shares. I also read that they may have written put options to finance the calls. It seems like the buyer of the puts could scream “market manipulation!” about Porsche inducing a short squeeze when Porsche has a vested interest in keeping the price of the puts low/at zero.
My parents held some 10,000 in Volkswagen stock for years. I talked to them on Friday and they were pretty pissed off about the losses they’ve had to deal with this year. They were thinking of selling their portfolio. On Monday I told them that I couldn’t care less about their portfolio but they HAD to sell Volkswagen. They got 960 for it and almost made up for all of their losses thus far this year. Amazing stuff.