This page has been archived and commenting is disabled.

The "Short-Squeeze ETF" Has Finally Arrived

Tyler Durden's picture




 

It was over two and a half years ago when we first revealed that the only remaining "alpha strategy", one which has outperformed throughout the entire centrally-planned regime has been "Buying The Most Hated Names", i.e., betting on a short squeeze. It was then that one of our more entrepreneurial readers first suggested that "if anybody has a few million doing nothing, we could create an ETF.....and get paid some FEES for basically doing nothing."

Yesterday we learned that someone has indeed found a few million doing nothing, and taken this idea to the next level.

Presenting the ActiveAlts Short Squeeze Fund, aka SQZZ, which with a 1.85% expense ratio means the ETF sub-adviser is about to "get paid some FEES for basically doing nothing."

Besides the obvious, here is what the prospectus says is the ETF's main strategy:

The Fund seeks to achieve its investment objective by investing in exchange-traded U.S. equity securities and American Depository Receipts (“ADRs”) (collectively, “Equities”) that Active Alts Inc. (the “Sub-Adviser”) believes may be subject to a “short squeeze” (as described below). The Fund may also lend portfolio securities that the Sub-Adviser believes may become, based on its analysis, subject to a short squeeze. The Fund is an actively managed ETF and thus does not seek to replicate the performance of a specific index. Instead, the Fund uses an active investment strategy in an effort to meet its investment objective.

 

In selecting securities for the Fund’s portfolio, the Sub-Adviser uses a proprietary investment process (described in more detail below) to identify Equities that it believes have a higher potential for capital appreciation as a result of a short squeeze. A “short squeeze” occurs when investors who have sold short shares of an equity security are forced to cover or buy back the short position due to news or events that result in share appreciation. Often, the additional buying momentum created by short sellers covering their short positions escalates the increase in the price of the shares.

 

The Sub-Adviser’s process for identifying short squeeze opportunities involves analysis of both fundamental factors (e.g., quality of earnings, fundamental stability of business, etc.) and technical factors (e.g., price and volume characteristics, relative strength, etc.). Using this analysis, the Sub-Adviser seeks to identify securities where, in the opinion of the Sub-Adviser, short interest is significant, is increasing or is expected to increase, but is unjustified based on the Sub-Adviser’s analysis. The Sub-Adviser may also determine to lend out portfolio securities that the Sub-Adviser believes to be strong candidates for a short squeeze to short sellers and other market participants. The Fund will receive premium income in exchange for securities it lends.

Lots of words. Here, shown far more simply, is the chart that provoked this fund's creation: a chart we showed most recently in 2013.

 

Some more details on this inevitable development from ETF Trends:

Basically, the fund managers will pick out securities that have a higher potential for capital appreciation, which could result in a short squeeze.

 

A short position is a sale on a borrowed security. The investor needs to eventually return the borrowed stock by purchasing it back from the open market. If the price falls, the investor buys it back for less than he or she sold it for and pockets the profit.

 

A short squeeze occurs when investors with heavy short positions are forced to cover, or buy back, their shorts in the event of a sudden share appreciation – short sellers are essentially being squeezed out of their short positions, typically at a loss. Consequently, the additional buying momentum from short sellers covering their options contracts help bolster share prices even further.

 

Investors can identify securities at risk of a short squeeze by monitoring short interest – the total number of shares sold short as a percentage of total shares outstanding, along with the short-interest ratio – the total number of shares sold short divided by average daily volume.

 

Moreover, for the fund’s secondary income objective, SQZZ can lend out securities from the fund’s underlying portfolio to short sellers and other market participants for a fee. [Making Sense of ETF Securities Lending]

 

However, due to its frequent portfolio transactions, investors should be prepared for higher portfolio turnover and the potential tax consequences. The high turnover, which may involve commissions and other transaction fees, would also help explain the higher expense ratio for the fund.

 

Brad Lamensdorf, founder and owner of Active Alts Inc., will manage the proposed short squeeze fund. Lamensdorf is no stranger to ETFs as he also helps manage the AdvisorShares Ranger Equity Bear ETF (NYSEArca: HDGE), which targets weak companies to short.

Who is Brad? Here is his LinkedIn profile.

 

Who is Ranger Alternatives?

“The Ranger Equity Bear”

 

Ranger Alternative Management, L.P. is the investment manager responsible for managing the Ranger Equity Bear ETF (NYSE Ticker: HDGE). HDGE is the first actively managed ETF, which invests on a short basis only in U.S. equities with the objective of generating positive relative risk-adjusted returns. The investment team implements a bottom-up, fundamental, research driven security selection process which seeks to identify securities with low earnings quality or aggressive accounting practices which may be intended on the part of company management to mask operational deterioration and bolster the reported earnings per share over a short time period. In addition to these issues, Ranger seeks to identify earnings driven events that may act as a catalyst to the price decline of a security, such as downwards earnings revisions or reduced forward guidance.

So on one hand, Lamensdorf's HDGE ETF shorts companies, a strategy which without an offsetting pair trade under the new normal, has not exactly worked...

... and on the other, his new ETF, SQZZ, seeks to blow up shorts.

Sounds like a match made in mutually offsetting heaven.

Of course, Mr. Lamensdorf doesn't care how the ETFs actually perform as long as he pockets his 1.85% expense ratio on the SQZZ side and another 1.85% on the HDGE side, so a net pick up of 3.7% for investing in mutually offsetting positions.

In retrospect, a brilliant business plan, and one which as highlighted here, is about three years overdue.

Now the only question is what happens when another even bigger entrepreneur introduces SQEEL - the SQZZ inverse, or the short squeeze short squeeze fund, one whose only strategy is to go short the stock of SQZZ because now that the genie is finally out of the bottle, and the short squeeze strategy is finally out in the open, the logical next step will be to go short companies that have a big short interest because they will be shorted as a result of the anticipated squeeze sending them higher and thus providing a good short entry point.

Or something.

And then, once get the levered squeeze funds, the fun really begins.

Finally, can we finally get the BTFD and BTFATH ETFs next please? Just as a monument to the successful take over of "markets" by the Fed's central planning.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 04/08/2015 - 08:51 | 5970162 pods
pods's picture

Short Squeeze fund?

Is that like a porn budget?

pods

Wed, 04/08/2015 - 08:57 | 5970176 Divine Wind
Divine Wind's picture

 

 

 

Bullish

Wed, 04/08/2015 - 09:07 | 5970212 Thirst Mutilator
Thirst Mutilator's picture

GLD & SLV are banned from the portfolio I presume

Wed, 04/08/2015 - 09:24 | 5970279 SoilMyselfRotten
SoilMyselfRotten's picture

Mama's got a SQZZ box daddy neevr sleeps at nite!

Wed, 04/08/2015 - 09:29 | 5970301 new game
new game's picture

we sqzz d some folks.

Wed, 04/08/2015 - 09:36 | 5970325 Divided States ...
Divided States of America's picture

Might as well make a Ponzi ETF ticker RAPE.

I am sure Larry Fuckin Fink's Blackrock wouldnt mind setting that up, he definitely has expertise in that.

Wed, 04/08/2015 - 09:42 | 5970348 ParkAveFlasher
ParkAveFlasher's picture

I'm starting an ETF, based on bets that the Smails kid picks his nose.  SMAYLZ

Wed, 04/08/2015 - 11:54 | 5971058 City_Of_Champyinz
City_Of_Champyinz's picture

Ha....$50 more says he eats it...

https://www.youtube.com/watch?v=E-jlQS-Wuc0

Wed, 04/08/2015 - 14:34 | 5971964 N2OJoe
N2OJoe's picture

...fund’s secondary income objective, SQZZ can lend out securities from the fund’s underlying portfolio to short sellers and other market participants for a fee. [Making Sense of ETF Securities Lending]

In laymans terms: Lend money to short sellers then squeeze them out of their position and profit on both ends at the expense of the client.

I guess I'm the asshole for assuming something like that would be illegal.

Wed, 04/08/2015 - 12:28 | 5971248 Bananamerican
Bananamerican's picture

I still prefer SLOTZ

Wed, 04/08/2015 - 09:30 | 5970304 negative rates
negative rates's picture

As are doctors and genies.

Wed, 04/08/2015 - 08:58 | 5970179 DeadFred
DeadFred's picture

'Fess up, which of you Tyler's started this fund?

Wed, 04/08/2015 - 09:02 | 5970194 LawsofPhysics
LawsofPhysics's picture

Is that another bell I hear ringing?

Wed, 04/08/2015 - 10:16 | 5970511 Urban Roman
Urban Roman's picture

Time to start drooling.

Where do I go to short SQZZ?

Wed, 04/08/2015 - 08:53 | 5970164 winflation
winflation's picture

Bass?  Tarpon?  Wtf am I reading?

Wed, 04/08/2015 - 09:05 | 5970203 GetZeeGold
GetZeeGold's picture

 

 

Welcome to Fightclub.....there is no orientation.....you just jump right in.

Wed, 04/08/2015 - 08:56 | 5970170 Roving reporter
Roving reporter's picture

All I know is Don't SQZZ the Charmin !

 

https://www.youtube.com/watch?v=L50tuag6iRs

Wed, 04/08/2015 - 08:56 | 5970171 heisenberg991
heisenberg991's picture

Hook Em

Wed, 04/08/2015 - 08:58 | 5970180 Cursive
Cursive's picture

This is THE sign to get out of or short the market.

Wed, 04/08/2015 - 08:58 | 5970181 The Master
The Master's picture

This. Is. Amazing.

Wed, 04/08/2015 - 09:02 | 5970191 LawsofPhysics
LawsofPhysics's picture

So, time for the real sell off?

Wed, 04/08/2015 - 09:02 | 5970195 Spungo
Spungo's picture

This is the funniest thing ever. I wish them luck with their fund. It's creative.

Wed, 04/08/2015 - 09:37 | 5970328 NotApplicable
NotApplicable's picture

Desperate times call for desperate measures.

At this point, we're waaaaaaaaaaaaaaaaay beyond the looking glass.

Wed, 04/08/2015 - 09:05 | 5970207 Dr. Engali
Dr. Engali's picture

The retarded just got retardeder.

Wed, 04/08/2015 - 09:07 | 5970211 Stained Class
Stained Class's picture

Please tell me, is it 3x leveraged to boot?

Wed, 04/08/2015 - 09:08 | 5970214 spanish inquisition
spanish inquisition's picture

Just like Vegas off setting! All that is left is to open a window at a Casino. 

Wed, 04/08/2015 - 09:09 | 5970220 mrdenis
mrdenis's picture

They need a place to dump their losing shorts ....this is it ..

Wed, 04/08/2015 - 09:10 | 5970221 Dagny Taggart
Dagny Taggart's picture

Does this mean Direxion has a triple squeeze play in the works? TRISQZ?

Wed, 04/08/2015 - 09:10 | 5970222 Seasmoke
Seasmoke's picture

So he shorts and shorts squeezes at the same time. Goldman better hire this guy quickly !!!

Wed, 04/08/2015 - 09:12 | 5970229 Tenacious Trader
Tenacious Trader's picture

I'm going with Larry Silverstein on this one:

"pull it"

Wed, 04/08/2015 - 09:23 | 5970277 SoilMyselfRotten
SoilMyselfRotten's picture

That's Lucky Larry to you!

Wed, 04/08/2015 - 09:36 | 5970286 GetZeeGold
GetZeeGold's picture

 

 

"pull it"

 

We've come to inspect your fire extinguishers.....and built in pyrotechnics.

 

Know your nearest exit....and how to bring your building down on top of you....should the need arise.

Wed, 04/08/2015 - 09:14 | 5970237 Seasmoke
Seasmoke's picture

This reminds me when me and a few buddies play against each other on the roulette table. Black and Red. Racking up big comps in less than an hour. Food. Drinks. Suites. On the house. Only problem is those 2 fucking green numbers. Very dangerous !!!!

Wed, 04/08/2015 - 09:32 | 5970309 negative rates
negative rates's picture

Try the dice,  he only shows up 1/36 times.

Wed, 04/08/2015 - 09:18 | 5970252 thecrud
thecrud's picture

I wonder if they were in oil yesterday.

Wed, 04/08/2015 - 09:19 | 5970255 MajorFall
MajorFall's picture

You can't make this stuff up.

Wed, 04/08/2015 - 09:22 | 5970269 silverer
silverer's picture

Let's face it, the markets themselves have become the economy: producing profits on paper without any real investment in anything tangible.  All zeroes and ones on a computer.  Since all financial instruments were once rooted in reality and tangible items, with an honest correlation of value, and no real investment and tangible economic growth is actually occurring, it is now a game of how money can be made when the paper is shifted around regardless of what happens in the real world.  You have to wonder just how long pretend can continue, but we will find out.

Wed, 04/08/2015 - 11:31 | 5970904 rosiescenario
rosiescenario's picture

Well said.......at one time, perhaps, the market functioned as a tool for the creation of capital for use by companies needing it to expand.

While it surprises me that it has taken as long as it has for someone to launch a short squeeze ETF, this pretty well confirms that this HFT algo driven market is uncoupled from any sort of economic purpose or reality.

 

 

Wed, 04/08/2015 - 09:23 | 5970275 StuntPope
StuntPope's picture

I'm waiting for the 3X exposure inverse SQZZ ETF to come out, at which point I will sell naked PUTs.

Wed, 04/08/2015 - 09:23 | 5970278 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

You gave your money to a guy named Lamensdorf?  What were you thinking?

Wed, 04/08/2015 - 09:24 | 5970281 sidiji
sidiji's picture

he'll short squeeze his old short fund...then he will be perfectly hedged

Wed, 04/08/2015 - 09:24 | 5970283 SheepDog-One
SheepDog-One's picture

I'm goin all all, full double plus leveraged.

Wed, 04/08/2015 - 11:55 | 5971065 Canuckistan Al
Canuckistan Al's picture

I just sharted in my shorts...... does that count?

Wed, 04/08/2015 - 09:28 | 5970297 new game
new game's picture

think i'll sit this one out, thanks anyways...

Wed, 04/08/2015 - 09:28 | 5970298 Pumpkin
Pumpkin's picture

Why do they need accomplices? Scapegoats maybe?

Wed, 04/08/2015 - 09:36 | 5970321 laomei
laomei's picture

So um... nothing here to prevent manipulation on a massive scale I guess.

Wed, 04/08/2015 - 09:42 | 5970346 Blopper
Blopper's picture

Short squeeze, huh?

Well, I am gonna start an alternate fund called Short Release Fund!

Wed, 04/08/2015 - 10:28 | 5970566 22winmag
22winmag's picture

If it performs well, it will be outlawed or taxed.

Wed, 04/08/2015 - 10:48 | 5970654 actionjacksonbrownie
actionjacksonbrownie's picture

How about a Winchester Short Magnum fund? (I am a long action fan myself, but to each his own)

Wed, 04/08/2015 - 10:59 | 5970720 pakled
pakled's picture

Werner Heisenberg is rolling over in his grave.

Wed, 04/08/2015 - 11:32 | 5970907 bluestaq
bluestaq's picture

I just went all in on this.  What could go wrong?

Wed, 04/08/2015 - 12:14 | 5971184 Bunga Bunga
Bunga Bunga's picture

Even better performance than the Burn My Money ETF (BRNS).

Wed, 04/08/2015 - 12:22 | 5971225 observiate
observiate's picture

lol, one of the best ZH posts I've read in a long time! At least that's how this troller feels. Loving the increasing amount of sarcasm and wit as the post progresses.

Do NOT follow this link or you will be banned from the site!