Sal,
I have some familiarity with this and it does bring out some good points. However, 52,000 shares hardly constitutes a big overhang on the market.
Also, in this particular case, loan fees and legal fees on these type of transactions make them very uneconomical to do unless you borrow the $1 million or more the article mentions.
Also, the various deriative strategies talked about does not mean that stock is not hitting the market. The broker/dealer taking the other side of that trade will be shorting the stock to lock in a riskless spread.
Let's say I own 50,000 shares of stock that I purchased in a private placement. And let's say 6 months later, it goes public in an IPO and based on market valuations its worth 4 times my cost. However, I cannot sell for another 6 months due to stock restriction rules etc. I go to Merrill or Smith Barney and they create a way for me to lock in my profit and hedge against loss. I give up my upside in return for the certainty of my profit. What they do is sell me a put at say 15% below market. They sell; I buy. I have the right to put my shares and sell at a fixed price no matter what the market does. Now, the broker dealer who sold the put is essentially long my 50,000 shares because they have the obligation to buy at fixed price. So since they are not in the business of taking that kind of risk, they simultaneously short 50,000 shares at current market prices. They lock in the 15% spread(or more, if volatile stock etc..all is negotiable). The bottom line is the 50,000 shares are sold.
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