Geoffrey Rogow is reporting that equities traders are getting ready to purchase shares in companies that hedge funds are betting against. The idea here is to catch hedge funds that are facing redemptions and riding the tide with them as they cover. It is short term gain strategy. But, is this really any different than what equity traders do on a daily basis--go with the flow and then get out. On the other hand, many traders are well aware of which stocks hedge funds have been shorting in size. So this proprietary information could be put to good use.
Or will sharp hedge funds take advantage of the equity traders by pulling a reverse? Interesting game to be played.
The one problem with this scenario? The selling related to redemptions may have exhausted itself. Derivatives analysts at Credit Suisse estimated this week that about 80% the excess trading in the market in the last few months of the year was related to redemptions and hedge-fund deleveraging, and based on the decline in volatility and the reduced volume, the excess trading may be subsiding. “This might be another sign that we’re nearing the end of the selling cycle,” they write.
“One day I was trading a stock and it was just ripping. There was no reason whatsoever, but I called around and it was that all the hedge funds were shorting and had to cover [for redemptions],” said Dave Rovelli, managing director of U.S. equity trading for Canaccord Adams.
Betting on Bad Amid Hedge Fund RedemptionsSubscribe to All American Investor via Email
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