Online trader begs for help after his short goes south

[FLPanhandle]

http://www.marketwatch.com/story/help-my-short-position-got-crushed-and-now-i-owe-e-trade-10644556-2015-11-19?dist=afterbell

Help! My short position got crushed, and now I owe E-Trade $106,445.56

?uuid=ef9d9252-8ef9-11e5-967c-0015c588e0f6

His name is Joe Campbell, and he claims he went to bed Wednesday evening with some $37,000 in his trading account at E-Trade. One notable development on the pharma front later, and Campbell woke up to a debt of $106,445.56. Now, he may end up liquidating his 401(k). And his wife’s.

That’s where you come in. At least where Campbell desperately hopes you come in. Of course, sympathy in the trading community over such gaffes is typically in short supply.

His is a cautionary tale of getting caught on the wrong side of one of the riskier bets on Wall Street. When you’re long, the worst you can do is lose is everything. But when you’re short, everything and a lot more is at stake. He should have known better, no doubt, but you have to feel for this poor guy.

This is what apparently happened, as Joe explains in his GoFundMe plea.

“I was holding KBIO short overnight for what I thought was a nice $2.00 fade coming,” he wrote. “At the close of the bell I saw the quote montage clear out and figured today there was no action after hours in the stock. So I went to my office for a long meeting. I got out of the meeting and saw a message from one of my buddy’s, he asked if I was ok since I was short KBIO.”

OK he was not. Far from it.

KaloBios KBIO, +402.42% stock had exploded, running up about 800% at one point in late trading after Turing Pharmaceuticals CEO Martin Shkreli (yes, THAT Shkreli) gained control of a majority of the shares. KaloBios had announced last week that it was winding down operations because it was running out of cash while developing two potential cancer drugs.

So now Campbell is coming to the community for some help. Good luck.

“If you don’t want to donate I understand, at least read my story of what happened today and protect yourself from the same happening to you!” he wrote. “This is a terrible lesson for me but if this helps just one person than I’m happy I wrote this.”



Somehow with all the issues in the world and people having problems, it's hard to feel anything for this guy.

[Nye Bevan]

1. "you have to feel for this poor guy".

No I don't. He knew exactly what he was doing and what the risks were. If the stock had gone down instead of up he would be smugly congratulating himself on his genius.

[Warren DeMontague]

8. He did catch a monumental piece of bad luck given the dramatic price increase.

Last edited Fri Nov 20, 2015, 08:25 AM - Edit history (1)

But no, not a lot of sympathy. That's why fucking around with short selling is a bad idea for your average etrade dilettante.

[jmowreader]

20. It's impossible to "short on margin"

Margin trading is borrowing money to take a larger long position in stock than you have the cash for. Shorting is borrowing stock you think is going to drop in price from your broker, selling it and caching the proceeds in your brokerage account, waiting until it drops, buying it back, and returning it.

The risk of shorting is pretty simple to understand: if the price goes through the roof like this one did, your broker is going to want that shit back, right fucking now. The ideal situation is for the company to go out of business while you've got an open short position - since the stock is now worthless you don't have to give it back, and you can keep the money you sold it for.

The risks of margin trading are too many to list here.

There are three ways for a trader to enter the More Balls than Brains Club. Margin trading is one, shorting is the second and selling unhedged naked calls is the third.

Right 'bout now I'm breaking out the world's smallest violin for this guy.

[Warren DeMontague]

25. Right, of course. Got my terminology mixed up.

When I threw that post off, it sounded a bit weird in my head.

What can I say, I'm not a day trader, etc. ..ask me about the finer points of the Jerry-Phil interplay in spring '77, i have a better knowledge base.



The bottom line - correct me if I'm wrong, here- is he's potentially on the hook for an unspecified and potentially undefined (ie no real upper limit) sum which he may not have, as distinct from plunking down a shitload of cash for an investment and then, yes, you might lose that cash but you're not going to lose more than the initial outlay.

But a margin account is more like a line of credit, eh.

All right, bear with my ignorance, since this isnt the sort of gambling I engage in; Im a craps guy, myself- on short selling, how exactly is the time frame structured? You say broker is gonna want the stock back right fucking now if if goes through the roof (like here) but is it generally some set window in which these guys wait for the price to go down?

[jmowreader]

29. Time frame? There really isn't one

First, I must apologize: Shorts have to place collateral of 102 percent of the previous day's closing price on the stock they short, and some of them use margin (it is a line of credit with a LOT of rules) to do it.

Guys like our friend at the top of the list tend to hold their short positions open for hours or days...but there are people who hold short positions for YEARS. There are quite a few fees involved. First is collateral, which we discussed in the previous paragraph. Then there's a borrow fee, which is a percentage of the stock's closing price the day before you short it. The actual number depends on how hard it is to borrow the stock - if you want to short General Electric, the fee will be reasonable because there's a ton of it out there and the price doesn't move much; if you want to short Shake Shack - assuming you can at all; a lot of people want to short SHAK and the shares to do it with just plain ain't there - the fee will be outrageous. If the company whose stock you're doing the Vegas thing with declares a dividend, you have to pay the amount of that dividend to the firm you borrowed the stock from. (On the flipside, when you sell the stock at the start of the short the proceeds from that sale will be deposited in your brokerage account, and it'll draw interest.)

Where this guy fucked up is he didn't use the most basic investment safety techniques. When you decide to short you need to decide how much risk you can handle, how many fees you want to pay and how much reward you expect. Let's throw out a real easy short: 10,000 shares of a $20 stock with a 5 percent borrow fee, and you paid the collateral in cash because everyone has $204,000 collecting dust in the bank, right? The borrow fee is on an annual basis, so a buck a year per share of stock. You want $5 per share reward, you can handle $2 per share risk, and you want to pay no more than 50 cents per share in fees - which means you will cover the short no more than 183 days after you open it. When you enter the short contract you need to issue either two or three buy-to-cover orders, which are how you close a short. The first one executes 183 days from issuance regardless of price. The second executes if the stock hits $22, and the last if the stock hits $15 - this one is optional; if you think the company is on a death spiral you wouldn't buy this. When one executes the others are canceled. Conditional BTC orders cost money but it's not much. Our buddy didn't issue any of these and, as you can see, he really should have.

There is a special class of investor, the "accredited investor." If you're an individual and you want to be one you have to be worth at least $1 million, not counting the value of your house. (The theory is, a lot of high risk investments also require high investment sums, and they don't want people who really can't afford to play in Twelve Percent Land to lose their asses and bring down the system.) Only accredited investors can get into the seriously risky shit like hedge funds. I'm really shocked the SEC doesn't require shorts to be accredited investors, but they don't.

[Warren DeMontague]

37. Interesting. Thanks for the crash course.

I was always confused by that aspect of short-selling; I always assumed there had to always be some sort of built in time limit on the "bet" that the thing was gonna go down, but nothing is ever that simple, is it?

Either way it sure doesn't sound like the kind of game i would be interested in playing. Like (at least without implementing the safety measures you describe) you have a ceiling on how much you can make, but not lose. I mean, no matter what you're never gonna make more than the total amount you "sold" the stock you didn't have in the first place, right? (like you said, assuming the company goes out of business in the interim) Unless, again, I'm not totally grokking it.

I suppose if you're really sure company X is overvalued and going to sink, or you're just looking for a way to make money in a market that is trending down

Like, buy general motors at 30, sell it at 40-- that I understand. I even sort of understand options since they were such a big topic among my silicon valley pals for a while...

but, yeah. Sounds like dude fucked up. Bet his wife is PISSED.

[smirkymonkey]

34. Exactly! That's basically saying you should feel sorry for someone and donate to them

for covering their gambling losses, because that is basically what he was doing. Dumb move, but if he gets bailed out, he'll probably eventually do it again because the temptation of easy money is like an addiction for a lot of these guys.

[Rex]

2. So am I supposed to feel sorry for people that go to Vegas and lose their shirt?

Same shit, different product.

[kiva]

16. The difference is that Vegas casinos will often reduce the amount big spenders lose

because they want them to come back. The market? Not so much.

[ryan_cats]

3. Never

Never gamble more than you can afford.

[Go Vols]

9. +1

[jwirr]

13. That is great advice but once Glass-Steagall was repealed

no one asks us anymore.

[hatrack]

4. That's how it works, and he knew the rules when he started to gamble . . .

Welcome to the hard, simple and glittering world of "Makers" and "Takers" - you lost, deal with it.

[Warren DeMontague]

5. Looking good, Billy Ray?

feeling good, Louis!




Dude should have paid more attention to Trading Places. Sure, commodities, but similar basic idea.

[longship]

6. Margin called!

No sympathy for that guy.

[Warren DeMontague]

7. You know, I was going to go back in time and kill baby Hitler

But I think I'm gonna stop at last monday and buy a shit ton of KBIO, instead.


Edit- take it back after reading the entire piece. i wouldnt want anything to do with Martin Shit-kelly or whatever that oily weasel's name is, no matter the profit.

The karma for killing baby Hitler is rosy by comparison.

[Snobblevitch]

10. I have no sympathy.

I have a stock that has dropped 30% in recent weeks because of shortselling by the big traders.

[GummyBearz]

30. If

If the sole reason it dropped 30% is due to shortsellers, instead of an underlying problem with the company itself, then why do you care? You still own shares of a good company. If anything be happy and buy more at a 30% discount. The short sellers gave you that opportunity to buy.

[Travis_0004]

11. Two words. 'Put option'

Yes, he would have lost money, but only his premium

[woolldog]

26. Sounds like he's a day trader though.

Buying puts on your day trades would get expensive. I'm not sure he did anything wrong...except for day trading in the first place. Just incredibly unlucky.

[smirkymonkey]

35. He might actually have to get a real job now.

[yeoman6987]

12. I like his honesty. I was going to give but he only asked for 5 grand and he has 5,130 already

Maybe he will have another fund later. I don't like seeing people suffer like this. This is a ton of money. Either we take care of each other or we don't.

[EL34x4]

24. The fact that he's already received over $5k

Makes me feel like a chump for not having a gofundme account of my own.

"Help! I really need to be driving a new BMW instead of a 5-year old Corolla!"

[Egnever]

39. +1

[Recursion]

14. Why the hell would he not use a put option?

That's mind-boggling.

[Cal Carpenter]

15. It's gotta be satire

Come on.

Fuuuuuuuuuuuuuuuuuck......... ................. ............ this world ................ .....................

Words and smilies fail me.

[lpbk2713]

17. He was playing Russian roulette and lost.

Joe, give us a list of all the people you helped when you were riding high and they tanked.


I thought so.

[BlueJazz]

18. I feel some of his pain but would not give him anything. He'll lose a lot of his life and...

...happiness but maybe he learned something. The best horse in the race can trip at the starting gate.

[philosslayer]

19. I'm sympathetic

He didn't kill anyone. He didn't commit a crime. He made a bad decision, that, coupled with a terrible piece of luck, has financially set him back a few years.

I'm not going to give him any money, but I feel for the guy.

[Dorian Gray]

23. Yeah

I feel the same way.

Not going to give him a cent, but I appreciate his honesty, and I hope someone reads this and realizes short selling on etrade is a bad idea. Leave that to the hedge fund guys. They have companies behind them to help them absorb their losses.

[MowCowWhoHow III]

21. Too small to fail?

I have some sympathies for idiots who put themselves unnecessarily into complex situations, but not enough to fund their lifestyles.

Maybe would be traders should be required to demonstrate they have a grasp of the risks before they are allowed to trade..

[Adrahil]

22. Too bad, so sad....

I'm guessing this moran wouldn't be sharing the wealth if his "brilliant" decision to short had made him a bunch of cash!

[unblock]

27. *this* is why *everyone* benefits from a government safety net

even people well-off enough to have 2 401(k)s and enough money to feel ok investing in risky positions like shorts (even if ill-advised) can go belly-up. in this case, literally overnight.

people can take risks in investing and in business and so on knowing that at worst, there are government programs to help them survive at some minimal level.

[BeyondGeography]

28. What's his job again?

[KamaAina]

31. "Martin Shkreli (yes, THAT Shkreli) gained control of a majority of the shares."

KaloBios had announced last week that it was winding down operations because it was running out of cash while developing two potential cancer drugs.

Coming soon to a website near you: "Turing Pharmaceuticals offers two new cancer drugs for $10,000 a dose."

[Blue_Tires]

32. All he has to do is shoot some

unarmed black teenager on the street... He'll have a half-million in donations by the end of next week...

[bunnies]

33. Sorry. Im fresh out of fucks to give.

[gratuitous]

36. As robber baron Jay Gould supposedly said

He who sells what isn't his'n
Buys it back or goes to prison

[geomon666]

40. I'm evil

cause that made me howl with laughter.

[ericson00]

38. Show some compassion. If the GoFundMe were open,

I'd give him 5 or so. He, like all of us, is facing a rough economy, and was simply an entrepreneur trying to make it by trading on the side, as the page says. He is also being bold: I like that.

I hope he learns from his mistake. After all, he's a victim of pharmobro too.

[lindysalsagal]

41. No, he's not an entrepreneur. No pity, here. Let him open a small

Neighborhood business or develop a new product or service.

Sitting in your pjs typing on a computer keyboard all night is not being an entrepreneur. They got him because he's addicted to taking other people, not for earning an honest buck. This time he lost. Delusional fool.