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Strategies & Market Trends : Floorless Preferred Stock/Debenture
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To: Puck who wrote (1189)6/29/2000 5:35:00 PM
From: Zeev Hed  Read Replies (1) of 1438
 
Puck, I see that info already provided all info required. Typically the discount is just an additional sweetener to the floorless feature. The killer is the floorless feature and the typical "look back" (20 trading days), but even floorless without look backs gives the holder of the debentures (the "floorless bandits") a license to steal and a very large incentive to massively short the stock against their block of debentures. Even if the stock goes the other way, despite the shorting, they earn interest with no money at stake, and if they short above the conversion ceiling, they pocket an additional profit. The only downside risk the bandits have is the inability to hedge their full position before the stock tanks. That is handled by letting off shorting and hyping the stock to rally. A well organized campaign allows the bandits to cover some of the shorts before the hyping campaign (pocketing nice short profits) and then shorting into the volume generated by the hype campaign. After they are fully hedged, they will apply death spiral tactics and double their money few times over. Intermittent organized hyping campaign allows them partial covering of shorts and reshorting at the hype peak into the volume created.

Zeev
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