Globalstar Telecommunications Limited GSAT Message Board

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Microcap & Penny Stocks : Globalstar Telecommunications Limited GSAT

GSAT 59.47

-1.6%

Nov 19 3:59 PM EST

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To: djane who wrote (5907)	7/21/1999 7:40:00 PM
From: djane	Read Replies (2) of 29987

Excellent post on G* short interest (via G* yahoo thread) Top>Business and Finance>Stocks>Services>Communications Services>GSTRF (Globalstar Telecommun.) Short interest is against Cvt. Pfd. by: Nosemeat 8287 of 8290 Globalstar has 7 million shares of 8% preferred stock outstanding. The stock has a face value of $50 and converts into 2.15 common shares. It converts at a price of $23.25, so it is well in the money. Convertible arbitrageurs buy the preferred and sell short the underlying stock (the higher the underlying stock price, they higher the delta of the implied call option, so the higher the short ratio used). By buying the preferred, they get the dividend. By selling short the common, they get the short rebate interest (currently around 3.5% to 4%). Properly hedged (delta neutral) this combined position has a very low volatility. So they margin up this combined position. They usually have a portfolio full of these types of positions, which generate levered returns of 12% to 18% with very low volatility. That's why you see the short interest. And believe me, most institutions that buy converts (preferreds or debt) do so to set up the above trade, not to hold the convert outright. So short interest is not necessarily indicative of investors having an opinion that the stock will go down, it's often just part of a strategy where the parties want to hedge out market risk on a particular trade as much as possible. Posted: 07/21/1999 06:26 pm EDT as a reply to: Msg 8257 by CapnBligh

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