The Short Story of Dell - TheStreet

The Short Story of Dell

Despite rumblings to the contrary, Dell seems to be doing just fine. So now the puts are being blown out, and that's creating upward pressure on the stock.
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Let's get behind the scenes at Dell (DELL) - Get Report so you can understand what is occurring with this lone tech stock that is up on my screen. Two nights ago, Dell held a dinner with the sell-side. Before that dinner, everybody, including people on our site, presumed that Dell would guide numbers lower. There was a massive amount of put-buying and short-selling of the stock, betting that this one would crack and crack big. More than 75,000 puts were listed as open interest just in near-term strikes.

But nothing happened. The dinner went fine. The meeting went fine. Michael was fine. The server business was fine. The laptop business was fine. It was a fine session.

Now all of those hedge fund guys kind of hoped that when they got back to their desks, someone would downgrade Dell and create some supply. But nobody did. Why should they? Michael Dell said everything was fine.

So, what do you do if you have the puts? You blow them out. What happens when you blow them out? It creates upward pressure on the stock. Soon, very soon, you have a counterintuitive buying panic. I mean, let's think about it, with


(IBM) - Get Report

down 4,



getting clocked and


(SUNW) - Get Report

down big, shouldn't Dell be going down?

Compounding the woes of the shorts is that hair-trigger people put more Dell out short today when they saw it didn't go down while the others did! That creates even more stock to buy.

I used to short stuff like this all of the time. In the past few years, however, I got tired of the gang-tackle shorts. They always end up being a prisoners' dilemma where you have to hope that nobody blinks, that they all just stay short.

But somebody always blinks.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at