American Consequences - August 2017

– buying another 1,000 shares at around $10.50. His average on 2,000 shares was $10.25, so he believed there was only about $0.25 of risk in his trade. Luke and his firm believed something different. Their analyst put a $5 target on the name because the top-line growth seemed to already be maturing... the unprofitable company’s costs/spending was accelerating... and of course, Amazon – Amazon – Amazon. The consensus by what some people call "smart money" was almost unanimous – stay away. Over the course of the trading day, Luke’s firm shorted 200,000 shares at an average cost of $10.50. Their strategy going forward was to cover their short position starting at $7... and from there, slowly buy shares until their order was complete. The consensus by what some people call “smart money” was almost unanimous – stay away. Most institutional accounts, like Luke’s firm, didn’t have any interest in buying the deal at either the first ($15-$17) or second ($10-$11) price range. Some of Luke’s peers shorted the name. It was well known on the Street to not touch the deal. But not everyone shorted it because there was the issue of getting a locate to borrow the shares. And others didn’t think they could get a large enough position to move the needle for their fund.

A few weeks later, Michael is sitting on his back deck, again drinking coffee and wondering what he should do with his 2,000 shares of APRN trading around $6. He thinks it’s too late to sell now, but he’s afraid to buy more. His losses on this one trade have wiped out his past gains on all of the IPOs that he’s received. Michael says he should have known better when he got such a large allocation, but he says he’s thankful at least he didn’t receive any shares of selfie-app maker Snap (SNAP). Meanwhile back in Midtown, Luke says that his firm has covered about half of their position. They’re being patient on the last half... trying to buy the stock when there’s a $5 in front of the share price. And then he said: “Who knows? We might even go long the thing at $4.”

Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where their founder and several Galleon employees were found guilty of

insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol, and power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side; AWall Street Trader’s Tale of Spectacular Excess.

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