Thurston, sometimes they do not even convert, you can find out if conversion has occurred or not by looking at the share count in their quarterly reports as well as the left over size of the preferred. If the preferred has not decreased, it would means that the floorless holder simply engaged in hedged shorting. Take ASMF it self. Few months back it had a spike to $5. The bandits being close to the company have a good chance of finding first the "material" event or news release that caused this spike (they may even "engineer it themselves). Before the spike they stand flat. Then they short the spike itself, they can short with impunity since most of these floorless have a ceiling (you'll have to go back to the document describing the floorless, it will have a sentence including "conversion at the lower of: ... including a price which will be a discount to the price on closing, and then the price at a discount to the last 5 days lowest bid or whatever the language).
If $5 was above the ceiling, they short and do nothing, they get back their money plus profits if the price is well above the ceiling, and continue getting interest (having now no money at risk). Then, when their shorting brings the price down, they can cover (and the period of decline may be so short, that it will not appear in any report, since the short is reported only for the 15th of the month (or a day close to it if that was not a trading day). If the price starts and decline under the ceiling, they can then engage in further shorting, because the face value of their floorless allows a greater number of shares to be shorted. Mind, you they already have been paid back all their investment by shorting at $5) From time to time, they may cover totally or partially their position, to engage later in another shorting session. They know much better than you and I where the stock might go and they know where it was in the last five days, in case of a sudden run, they can always use the price before the run (the last five days, which is of course lower) to actually convert and deliver stock from the conversion.
You look at the trend of this stock, and you will see it is going down, and to me it seems at the beginning of a death spiral. From time to time you see spike back up, these could very well be generated by short covering, which creates "momentum" into which the bandits can short again at higher prices.
Zeev
Thurston, in the second or third post on this thread is a lengthy description of the typical floorless scenario. |
