RPL - who are the short sellers

The curious story of the Reliance Petroleum stock boils down to a single, unanswered question: Who are the players who began to short-sell the scrip in the derivatives segment just a few days before the company’s promoters (Reliance Industries) started offloading a slice of their holding in the spot market?

These short-sellers in the futures and options market were either very brave — having the heart to take a big short call when spot prices were zooming — or they knew something that the rest of the market was clueless about.

These smart players went on a selling spree towards the end of October, selling shares to double the open interest position from 8 crore shares to 16 crores shares by November 6. Open interest of 16 crore shares simply means that if there was somebody who was buying contracts worth 16 crores shares, there was also somebody else who was selling as many.

Some of the reputed names in the market are believed to have suffered heavy losses by going short on the stock in the last couple of months when the stock was on a tear. So who are these short sellers who burst upon the scene suddenly?

For a stock whose average open interest position has been between 5 crore and 10 crore shares ever since it was listed in April ’06, it must have required real conviction (or `knowledge’) for someone to carry out an aggressive leveraged selling within the span of a week.

Open interest (triggered by such short-selling) peaked on the same day (i.e., November 6) when the promoters began selling the shares in the cash market. Between November 6 and November 23 — the period during which the promoters were selling the share — prices in the spot market plunged from Rs 267 to Rs 204, and those in the F&O segment fell from Rs 260 to Rs 204 (something that helped the short sellers make a pile).

On November 7, NSE banned the stock futures of RPL, making it the first stock among the 50 constituents of the Nifty Index to be put under F&O ban. In the seven-year history of derivatives in India, players could never muster the courage to sell so many shares of a blue-chip company that would cause the exchange to ban derivatives trading of the stock. Still, they chose to take on RPL.

But on Thursday, these operators chose to cover their positions with the RPL counter increasingly coming under the media glare. It is equally possible that some of the smart traders had sensed
their mood and also gone long on the stock.

Via Economic times