Eastman Kodak Co (KODK) shares have skyrocketed over the last few days on news that the company has agreed to a $765 million loan from the U.S. government under the Defense Protection Act and Department of Defense to produce pharmaceutical ingredients which are critical to the production of generic medicines. KODK is up over +420% today and +1300% for the week. KODK short interest is $13.70 million; 1.72 million shares shorted; 9.48% short interest as a percentage of its float. KODK stock borrow fees are 6.34% fee on existing short positions but are rising to over 200% fee on new stock borrows.
KODK is the 20th largest short in the Technology, Hardware, Storage and Peripherals Sector.
KODK shorts are down -$59 million in mark-to-market losses on today’s price move, -$69 million for the week, and -$61 million for the year. With short interest of only $13.7 million, recent losses were over five times larger than their risk position. These KODK short trades highlight the risk that losses may be several times larger than an investors risk position and the need for a systemic ability to monitor short risk positions on a daily basis.
Coupled with these losses, KODK short sellers will now be at risk for a significant increase in stock borrow costs. KODK’s stock borrow fees will increase in the near term, spot rates are trending over 200% fee and we are seeing rate changes on existing stock borrows rising to over 50% fee.
The double barreled effect of large mark-to-market losses and escalating stock borrow rates will more than likely cause a short squeeze in KODK. And more importantly, the lack of stock borrow availability will severely curtail the ability for new short selling to hit the tape. The effect of an increased amount of buy-to-covers and no new short selling in size will tilt KODK price action to the upside.
With minimal short selling in the picture, KODK’s stock price will only decrease if existing long share holders begin selling their stock to realize the large amount of mark-to-market profits they have earned over the last week. If long shareholders hold onto their stakes, we can expect strength in KODK’s stock price over the near term.
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