KaloBios Pharma Stock Surges 83% As CEO Shkreli Says Will Not Lend Stock To Shorts

Shares of KaloBios Pharmaceuticals Inc. shot up 83% in premarket trade on Friday, after Chief Executive Officer Martin Shkreli said in a Twitter exchange that he would not lend any more stock to those looking to short sell it. Blogger The Fly cited Markit data that indicates 49% of KaloBios stock is short, meaning investors have been betting the shares will go down. In order to short a stock, an investor must borrow the shares from someone who is long; to cover that short position, the investor must buy the shares back. KaloBios has been surging since Shkreli bought a 70% stake in the company, rescuing it from insolvency. The stock has gained 1,279% this month, with the bulk of that coming last week. One trader was forced to ask for help on GoFundMe, when his short on the stock went wrong. Now other shorts will scramble to cover their positions, leaving Shkreli and others who are long the stock with all the pricing power. The situation is similar to the famous 2008 Volkswagen AG short squeeze, when Porsche increased its stake in the car maker to 43% from 31% plus another 31% in options. As the remaining 20% of the company was owned by the state of Lower Saxony, which was not willing to sell, short speculators were left with no ability to cover their positions. Volkswagen stock surged to more than 1,000 euros from about 200 euros as a result.

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