Billions: the Long and the Short of it

Billions has arrived and it seems that the relationships will be the most important issues on the show. Therefore it probably is not necessary to be able to understand what Bobby is saying when he is talking about Lumetherm, Electric Sol and Southern Wind or what he says when speaking to the reporter about Arcadian Railroad.

However, generally speaking people do not like it when they do not understand something. In fact we don’t like not understanding which is why we  have added a Glossary to the blog with definitions for words that we hear on the show and make us go ‘what?’  We invite you all to let us know if there is a word or words you have heard which we haven’t added yet.

A big thank you to Lady Trader who took the time to look this over and ensure we have it down right.

There are two terms which seem particularly important to understand. They are both mentioned during the pilot and no doubt will be important moving forward.

They are “stay long” meaning long position and “go short” meaning short position. Bobby tells Danzig to ‘go short’ on Lumetherm. Bill later advises that they should ‘go short’ on another stock (Superior Auto) as well. So what does this mean exactly?

Long or ‘long position’ is where you expect the value of stock to rise. You buy this stock and own it.

Short or ‘short position’ is where you expect the value of stock to fall. You borrow this stock rather than own it. You then sell it. However, you must later buy the stock back.

‘Covering’ is the term related to the short position. That is, when you short, you are selling the stock on the basis you expect it to fall in value and thus when you buy it back or ‘cover’ you expect to do so for less than you sold it and make a profit. However, if you get it wrong and the stock price rises, you must still cover the position and will make a loss.

Portfolio – a group of stocks, bonds and other financial investments.

Axe is in charge of the whole gig at Axe capital and everyone runs everything past him, but who are the people who take care of your portfolio?

Portfolio Manager – The person or persons responsible for the management of the portfolio day-to-day.

Portfolio Managers we have seen on Billions so far include Danzig, Pouch and Bill.

Analyst – does the research. They analyse the data and then make recommendations to the Portfolio Manager.

We meet Danzig’s new Analyst, Ben Kim, in the Pilot. Always beware the new guy when entering a world on a TV show. He has yet to earn his ‘can be trusted’ stripes.

Trader – once an Analyst has made a recommendation to their Portfolio Manager, the Portfolio Manager will then decide what to do with that information and will instruct the Trader to carry out the buy or sale.

There is a reason that, when you are learning to read, you start with a book that is mostly pictures and only some words.

There is a reason that, when you are learning to count, your work book has pictures of 5 balls and 5 balloons and asks you how many objects there are altogether.

It is easier for a child to think visually.

The same may be said for adults i.e. for those of us not stock market jargon aficionados, hearing what is said has us scratching our heads, but if we see the words written down we have a better shot at trying to understand it.

We are going to attempt to explain them using some examples we have cooked up.

Firstly: – Damianista = Portfolio Manager; TBkWrm = Analyst; and JaniaJania = Trader.

We are going to use T-shirts as an example because T-shirts are something you can understand easier than saying 100 Lumetherm shares. What the heck is Lumetherm? – I can’t visualize 100 Lumetherm shares!

Example 1 – long

Billions has long sleeve Bobby Axelrod “F U money” T-shirts’ at $15 each. These T-shirts are selling like hotcakes!

The TBkWrm determines that the value is unlikely to decrease on this stock and advises Damianista that we should stay long. Damianista agrees and takes this to JaniaJania and instructs the increase in position of 100 T-shirts at $15.

Before we know it the T-shirts are sold out and the stock is now worth $25 per T–shirt. Because of demand, there is a 7 day window until more T-shirts are available. We see an opportunity and decide to sell at this point because new stock is on the way. We sell our 100 T-shirts at $25 each. Meanwhile as the arrival date of more T-shirts approaches the stock price starts decreasing again.

We bought at $15 and sold at $25. This means a profit of $10 per t-shirt. Thank you, Bobby!!!

Example 2 – short

With shorting, you ‘borrow’ stock and sell it. You don’t own it.

The other issue with shorting is that you must buy back what you sold. This is called “covering” and therefore when you are shorting you have to be extremely certain the stock value is going down otherwise you will make a loss that is:-

Example 2 (a) we correctly guess that the stock value will decrease.

Billions has 100 short sleeve Chuck Rhoades Senior “Wendy is making things difficult”  T-shirts at $15. These things aren’t selling. Why? You may ask. The man is dissing Wendy. No one wants to walk around with a T-shirt dissing our favourite Dr. These T-shirts are hiding in a truck! We are not uncertain!

TBkWrm sees where this stock is going.  We absolutely must go short. TBkWrm determines we must move fast and advises Damianista that we should do it now. Damianista authorises JaniaJania to borrow of 100 Chuck Rhoades Senior T-shirts and sell at $15 each.

Buyers now begin to realise they have made a mistake and are siting with stock whose value is only decreasing.

We leave the buyers sweating for a while deciding we’ll buy back at $6 when we get a hint of a change. The buyers wish to avoid losing all their money and so sell them back to us at $6.

Having sold at $15 and then bought back at $6, the difference $9 (per T-shirt) is our profit.

Example 2(b) due to unforeseen circumstances the price goes up.

Following a row which Wendy won easily, Chuck Rhoades has been forcing everyone in the US Attorney’s office to buy these hideous T-shirts at full price!

Having already sold at $15, we watch in horror as they inexplicably sell out with stock in demand. The orders keep coming and coming. Who are these people? Finally, with the T-shirts sitting at a whopping $25 (same as Bobby? You must be joking!), we decide enough is enough and cut our losses before the price goes up even more.

We bought at $15 expecting the stock to go South and choke on our tea when it starts heading North and doesn’t stop.

Deciding to cut our losses and buy back at $25, we now have to cover the difference which is $10 per T-shirt and so we just lost $1,000 and the original buyers get the last laugh.

We hope you enjoyed our examples and we will cover as much as we can in the next 12 weeks. We already have our eye on the episode 4  title ‘Short Squeeze’.