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Technology Stocks : Cymer (CYMI)
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To: Zeev Hed who wrote (18648)7/22/1998 3:07:00 PM
From: Berk   of 25960
 
Zeev, I agree with what you are saying and the transaction may be "closed" but it could be even more complex and therefore uncertain. Since the convertible has an implied warrant within it and as the stock goes down in price the warrant loses its share valuation, the arbitrageur would then require less short shares as an offset to the convert, in other words they cover part of the short sale on the way down to stay properly hedged. Then, what we don't know and haven't considered is if the converts are being used by an option market maker (or someone else) who is using them as an offset to long or short calls or puts and consequently is using the derivative market as a hedge and isn't even in the underlying equity, long or short. Then to further confuse the issue the derivative offset could be changing daily depending upon the implied volatility relative to the underlying.
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