Gun stocks give short sellers bang for their bucks
11 November 2016 London
Image: Shutterstock
US gun maker Smith & Wesson has seen its share price tumble in the wake of the shock victory of Donald Trump in Tuesday’s presidential election.
Smith and Wesson’s share price, which had been rising in the days leading up to the election dropped from $28.4 on 8 November to $24.1 the next day as Trump’s victory was revealed.
Short sellers were primed to take advantage of the situation. Shares on loan surpassed 18 percent on 1 November to peak at 18.7 percent on 7 November.
Utilisation began to fall to 17.7 percent on 9 November as some short sellers banked profits and closed out their positions.
The news that the traditionally pro-gun rights Republican party had achieved a clean sweep of the White House, the House of Representatives and the Senate strongly implies that any legislation advocating further gun control will almost certainly be shot down immediately.
With the threat of gun limitations from a Democratic president removed, any sense of urgency to purchase a gun before the door closes went with it, leading to the share price fall.
“Smith & Wesson shares have fallen significantly in the last few days as the prospects of new gun legislation, which had been a catalyst for gun sales in the US, now looks off the table in a Republican-controlled Congress,” said Simon Colvin, analyst at IHS Markit.
“Short sellers have been well positioned to profit from this trade as demand to borrow the gun maker’s shares grew significantly in the weeks leading up to the Tuesday’s election.”
Smith and Wesson’s share price, which had been rising in the days leading up to the election dropped from $28.4 on 8 November to $24.1 the next day as Trump’s victory was revealed.
Short sellers were primed to take advantage of the situation. Shares on loan surpassed 18 percent on 1 November to peak at 18.7 percent on 7 November.
Utilisation began to fall to 17.7 percent on 9 November as some short sellers banked profits and closed out their positions.
The news that the traditionally pro-gun rights Republican party had achieved a clean sweep of the White House, the House of Representatives and the Senate strongly implies that any legislation advocating further gun control will almost certainly be shot down immediately.
With the threat of gun limitations from a Democratic president removed, any sense of urgency to purchase a gun before the door closes went with it, leading to the share price fall.
“Smith & Wesson shares have fallen significantly in the last few days as the prospects of new gun legislation, which had been a catalyst for gun sales in the US, now looks off the table in a Republican-controlled Congress,” said Simon Colvin, analyst at IHS Markit.
“Short sellers have been well positioned to profit from this trade as demand to borrow the gun maker’s shares grew significantly in the weeks leading up to the Tuesday’s election.”
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