RE: I suspect tomorrow23 May 2019 17:43
Daisan - the shorter in that instance would actually be doing the dirty work of someone who was building a stake. Of course the people doing the stake building would have to come up with the cash to have bought the original shares as well as the second tranche of shares but the shorter effectively keeps the price nailed whilst the stake building is going on.
The Shorter, as way as paying to borrow the shares is also taking the risk that they are shafted in this way. Overall if the number of shares being bought in the second tranche is about the same as the number being sold short then the trade balance for the day would even out and the stake building would be almost unnoticeable. This may explain some of the features observed in recent trade analyses.
The stake builder could also continue to loan out the new shares they have just acquired further increasing the shorter's position. If the shorter does not succeed in driving the price down sufficiently or induce suffice selling by the rest of the market then they are getting in deeper and deeper and ultimately will lose in larger way at the end of the process.
An interesting question is if the stake builder succeeds in builder a bigger stake this way then where actually do those shares come from - that can only be decided once the shorter tries to close their short and tried buying back from the market - ultimately the price will rise and then at some point an existing holder will decide to take the large amount of money on offer - so it could well end up being a PI who's shares ultimately make their way to the stake builder but gets to cash out at a much higher point later. The stake builder gets cheap shares and the shorter has to make up the difference to reach what the PI ultimately is prepared to take.
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