A surge of short-selling of AMD shares preceded the release of information on Tuesday about 13 flaws in some of the company's processors by Israel-based CTS Labs, a report claims.
Reuters said there was a heavy trade in AMD shares on the day the claims were made, with the stock finishing up 1% at US$11.64 after volatile trade. The stock traded between US$11.10 and US$12.04 after the claims were made.
The CTS Labs researchers gave AMD just 24 hours to respond before releasing details of the flaws, all of which could be taken advantage of only after an attacker had gained root/admin status on the system in question.
The usual time given to a company to respond to claims of flaws is 90 days.
{loadposition sam08}Adding fuel to the fire was a report released by short-seller Viceroy Research, betting that AMD shares would fall. Viceroy founder Fraser Perring claimed his firm had received a draft of the CTS Labs report from an anonymous individual at about 4pm US time on Monday and released its report on Tuesday.
A curious clause in the disclaimer contained in the CTS Labs report attracted attention. It read: "Although we have a good faith belief in our analysis and believe it to be objective and unbiased, you are advised that we may have, either directly or indirectly, an economic interest in the performance of the securities of the companies whose products are the subject of our reports."
iTWire has sought clarification about this and some other aspects of the CTS Labs report.
The Reuters report said there had been increased interest from investors in AMD since the beginning of March.
Options which drew large trades that seemed to be counting on fluctuations in the share price in the short term had been witnessed, with puts — options contracts that protect against a share price drop — being very active.
It said in the last week, the ratio of open put contracts to open calls was 1.5 to 1, the most defensive it had been for more than two years, citing data from options analytics company Trade Alert.
"That measure declined slightly by Tuesday. On Friday and Monday, short selling of AMD’s stock increased by about 15 million shares, according to S3 Partners, a financial analytics firm. That brought overall short interest in the chipmaker to about 180 million shares, the most since at least 2010," the report said.
“Over the last several days there was a spike in short selling that was completely out of the norm,” Ihor Dusaniwsky, S3 Partners’ head of research, was quoted as saying.
According to Investopedia, "Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.
"Short selling may be prompted by speculation, or by the desire to hedge the downside risk of a long position in the same security or a related one."