It seemed like a simple enough trade.
My broker was putting on a piece of
, up a dollar from the last sale, at 100 1/2. He was "open to sell," meaning that if you wanted to sell some stock at a great premium to the last sale on the New York Stock Exchange, he would let you "participate" in the print.
These trades happen periodically when some behemoth institution wants to get in a stock badly and can't find enough supply at the prevailing levels. If you want to get out, or if you don't like the stock, these kinds of moments are generally an ideal time to dispose of/short the company.
"Anything going on SLOB?" I asked my desk. A collective shoulder hunching greeted my inquiry, meaning "beats me." What the hey, I figured. How can you go wrong shorting a stock up a dollar from the last sale, which was up a half dollar from the opening already? Up a point and a half, for a stock that has gone down 15 straight points, I mean what did I have to lose?
Two seconds later I found myself short 25,000 Schlumberger at 10:15 a.m. And an ineluctable odyssey had begun.
Almost immediately the stock ticked at 101 1/2, up a full point from where my print went on. It happened so fast that I thought maybe I had actually done the trade at 101 1/2. I pressed the light that rings the broker who did the trade: "Where did I short the SLOB, 101 1/2?"
"No, Jimmy (yes, traders use all of the patronyms, they'd be great in Russian novels), 100 1/2."
Oh #$@$#. I said. How could I be down that fast? "Beats me," he responded.
Then my fate was sealed. At 11:00 a.m., another firm was putting on a print of SLOB up at 102, also "open to sell," meaning another institution was trying to get in and pay a premium to the premium someone else just paid. That meant there was no supply of any size at the 101 1/2 level either. I went into the broker, told him I was short, and I asked him what I should do. He said he felt I should stay away. "Where are all the $#$@$#$%# sellers who were killing this stock every day for weeks?" I screamed into the phone to a no-doubt surprised salesman who hadn't done anything to warrant such angry rhetoric.
In the intervening seconds I made every trader in the room hit trading wires to find out why people wanted into SLOB so bad.
Instantaneously, the voices from the street came back: "natural gas is up for the first time in eight weeks," said one. "Government auction of Gulf properties going better than expected," said another. "Crude's bottomed at $20" said a third. "Big funds have stopped selling," added my broker.
Oops, I had the image in my mind of that Lloyd Bridges character in Airplane, saying "Looks like I picked the wrong day to short Schlumberger."
Now, remember, I had done the trade solely because of price. The stock seemed too high. But once I had discovered that the macro fundamentals were turning for the better I should have immediately covered. That's what the rulebook says to do.
But, I wasn't done rationalizing my poor decision. I still hadn't checked SLOB's fundamentals. Maybe they weren't any good, even if the industry itself might be turning? Before I was going to admit defeat I started calling brokers and analysts about how Schlumberger was doing. One after another, both brokers and analysts told me that SLOB was having an oustanding quarter. Some didn't even bother to check; they just mouthed the "great quarter" line.
There was only one problem, the stock was now at $103.
Far be it from me to capitulate on my 25,000 shares. Now I waited for crude, which had been in a tailspin, to start going down again. I put the crude future chart on my
, to the exclusion of all other information, and watched as it wound its way, real-time, higher and higher.
When SLOB got to $104, one of the brokerage firms that follows the stock broke in, at about 2 p.m., and put the stock on its recommended list. The stock quickly spiked to $105.
At 3:30 p.m. I made a decision: cover the #@#@% SLOB. I paid $106, the top price of the day. I felt great; the pain was over. I know that sounds counterintuitive, but for those of you caught in a short squeeze like I was, the moment you cover, it's like the bamboo being pulled from under your nails. Pure relief with only a duller pain aftermath.
When I got home my wife, always wise to the biz, asked me whether I had caught the driller rally. "They really stuck it to the shorts," the veteran in her smiling a devilish grin. "I mean who else but a moronic short-seller would buy SLOB up six points?"
"I couldn't agree more," I said. "Let's talk about something else."
Active Managers Dreams Come True: Check out the graphs on page B-2 of
this morning. Next to bar charts showing six so-so performing funds are bar charts showing the S&P 500 down 100% for the year. Now that's relative performance.
Main Street Journal II: "Economists, in Survey, Push Education and R&D Spending." Stop the presses.
James Cramer is manager of a hedge fund and co-chairman of
His fund holds a short position in
. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to