• Research

Sep 27, 2016

S3 BLACKLIGHT: As Icahn Unwinds His Chesapeake Stake, Shorts Follow Suit

Shares of Chesapeake Energy (CHK US), the oil and natural gas producer, were down much as 10% intraday today on the back of the company announcing that two members of its board had resigned on Monday.   This comes one week after Carl Icahn cut his stake by more than half (from 9.4% to 4.6%) for “tax planning purposes.”

According to the S3 Velocity Indicator, a measure of the real-time relative change in shorting activity, short sellers have been unwinding their bearish bets since 9/19, the day Icahn disclosed to the market his reduced holding.   Short interest is estimated to be down as much as 20% since early last week, from $750million to $600million in short exposure currently.  As more shares hit lending pools due to Icahn’s long sales, borrow spot rates have hit the lowest levels seen year-to-date, currently trading just off general collateral/cheapest rates.   This is in stark contrast to February, when indicative fees hit as high as 50% in unison to the stock price hit its 52-week low of $1.59.  

Investors will be watching closely what Icahn’s next move is, as he may be planning on cutting his stake even further now that he has no board representation.   And if he does, shorts sellers will realize additional profits.  

For more information on the above analysis, please contact:
Matthew Unterman, Director, S3 Partners, LLC    
Matthew.Unterman@s3partners.net

The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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