Kodak Short Sellers Are Getting Obliterated

Eastman Kodak Company KODK shares gained another 19% in early Thursday trading and are now up a whopping 1,780% since last Friday’s close. The massive move came in response to the company securing a $765 million loan from the U.S. government to produce generic drug ingredients under the Defense Protection Act.

Kodak didn’t have an extremely large short position prior to this week’s move, but the meteoric rise in the stock’s share price has inflicted extreme pain on those short sellers. Kodak currently has about 1.72 million shares held short worth about $13.7 million, according to S3 Partners analyst Ihor Dusaniwsky. Dusaniwsky said Kodak has roughly a 6.3% short percent of float.

As of late Wednesday, Kodak’s borrow fees on existing short positions were just 6.34%, but borrow fees on new short positions had skyrocketed to around 200%.

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Cautionary Tale: Despite only having $13.7 million in net short interest, Dusaniwsky said Kodak short sellers took a $59 million loss on Wednesday alone. He also said the stock should serve as a cautionary tale for all short sellers.

“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,” he said.

Looking ahead, Dusaniwsky said the perfect storm of mounting losses, spiking borrow fees and lack of available Kodak shares to short should continue to squeeze the stock. Thursday’s early gains suggest his call was on the mark.

Benzinga’s Take: Kodak’s business and stock appeared dead in the water just a week ago, and the generic drug news is about as much of a black swan event as short sellers could probably ever imagine.

There’s a good chance Kodak’s share price will ultimately settle somewhere significantly lower than Thursday morning’s $39 price, but shorting the stock at this point will be extremely expensive and risky given its extreme volatility.