KBIO: Insiders Vs. Shorts

The most recent short interest data was recently released by the NASDAQ for the 05/31/2013 settlement date, and Kalobios Pharmaceuticals Inc (KBIO) is one of the most shorted stocks of the Russell 3000, based on 10.44 "days to cover" versus the median component at 4.86. There are a number of ways to look at short data, but one metric that we find particularly useful is the "days to cover" because it considers both the total shares short and the average daily volume of shares typically traded. The number of shares short is then divided by the average daily volume, to express the total number of trading days it would take to close out all of the open short positions if every share traded represented a short position being closed.

START SLIDESHOW:
Ten Bargains You Can Buy Cheaper Than The Insiders Did »

In the case of Kalobios Pharmaceuticals Inc ( KBIO), the total short interest at the 05/31/2013 settlement date was 264,948 shares, which compares to the average daily trading volume of just 25,379 shares, for a "days to cover" ratio of 10.44.

When short sellers eventually cover their positions, by definition there must be buying activity because a share that is currently sold short must be purchased to be covered. At the present levels of short interest, if from this point forward every single KBIO share traded represented a short position being closed, then at the average daily volume of 25,379 shares it would only be during the 11th trading day that every short position would be closed.

So it would stand to reason that should some unexpectedly good news come out, and short sellers did not have 11 days of patience but instead wanted to cover their short positions very suddenly, that situation could result in sending the stock higher until the higher price produces enough sellers to generate the necessary volume to close out those positions quickly.

Kalobios Pharmaceuticals Inc ( KBIO) has something relatively rare for a stock with this much short interest, that being insiders taking the other side of the trade. Looking back over the trailing six month period, KBIO has seen 2 different instances of insider buying, as summarized by the table below:

Purchased Insider Title Shares Price/Share Value
01/31/2013 James Healy Director 375,000 $8.00 $3,000,000.00
01/31/2013 Venture Partners Pty, Ltd Gbs 25,000 $8.00 $200,000.00
01/31/2013 Brigitte Smith Director 25,000 $8.00 $200,000.00
01/31/2013 Partners Llc 5am 62,500 $8.00 $500,000.00
01/31/2013 Sanofi 87,500 $8.00 $700,000.00

Below is a chart showing the "days to cover" for KBIO over time:

Loading+chart++2013+TickerTech.com

And looking at the chart below, KBIO's low point in its 52 week range is $4.81 per share, with $8.25 as the 52 week high point — that compares with a last trade of $5.00.

Kalobios Pharmaceuticals Inc Moving Averages Chart

In recent trading, shares of Kalobios Pharmaceuticals Inc ( KBIO) were changing hands at $5.00/share.

null

More from Stocks

Bank Stocks Slump After Congress Greenlights Dodd-Frank Rollback

Bank Stocks Slump After Congress Greenlights Dodd-Frank Rollback

10 Questions for PayPal Ahead of Its Big Investor Day

10 Questions for PayPal Ahead of Its Big Investor Day

Stocks Tumble as Trump Comments Lead to Worries Over China Trade Talks

Stocks Tumble as Trump Comments Lead to Worries Over China Trade Talks

Tesla's Model 3 Is Far From Being for the Masses -- at Least For Now

Tesla's Model 3 Is Far From Being for the Masses -- at Least For Now

China Makes Good on Car Tariff Pledge, Tesla Wins Big

China Makes Good on Car Tariff Pledge, Tesla Wins Big