GT Advanced Technologies Inc (OTCMKTS:GTATQ) witnessed a drastic decline in short interest between September 30 and October 15. In a shocking move, the company filed for Chapter 11 bankruptcy on Oct.6. Short interest in GT Advanced Technologies fell 36.4% during the period from 61.16 million shares to 38.9 million shares. Based on the average daily trading volume of 9.48 million shares, it would take short sellers 0.4 days to cover their positions.
GT Advanced Technologies likely to settle with Apple
Shares of the company had gone up by more than 70% this year until September 9, the day Apple Inc. (NASDAQ:AAPL) announced its iPhone 6 and 6 Plus. Last year, Apple invested $578 million in GT Advanced Technologies, fueling speculations that latter’s sapphire crystal display might be used in the iPhone 6 and 6 Plus screens. That didn’t happen, leaving investors disappointed. On Sept.10, GT Advanced Technologies shares tumbled.
A decade ago, no one talked about tail risk hedge funds, which were a minuscule niche of the market. However, today many large investors, including pension funds and other institutions, have mandates that require the inclusion of tail risk protection. In a recent interview with ValueWalk, Kris Sidial of tail risk fund Ambrus Group, a Read More
On Oct.6, the company filed for bankruptcy, triggering a 93% decline in its stock. The company that was valued at $3 billion in September almost vanished the following month. The company didn’t reveal the reason for bankruptcy filing, but Apple’s onerous contract terms are believed to be largely responsible. Last week, GT Advanced Technologies said though it could eventually win the legal claims against Apple, it would prefer to reach a settlement with the Goliath. The small fish cannot afford to fight Apple.
Hedge funds win big shorting GT Advanced Technologies
Hedge funds betting against the stock have reported massive gains. For instance, Tourbillon Capital Partners returned a whopping 71% during September quarter, shorting GT Advanced Technologies and MannKind Corporation (NASDAQ:MNKD). Lakewood Capital Management posted a 7% return in the third-quarter shorting GT Advanced Technologies.
Lakewood Capital said in a letter to investors that supplying components to companies with stringent contract terms like that of Apple is always a “tough way to make money.” Such component suppliers reach sky high valuations amid investor expectations that the contract with a big company is going to change its fortune overnight. But most of the times the reality doesn’t turn out to be equally exciting.