CC's short position is the key question.
If CC is converting to cover an existing short position against the B preferred, then it is true that they have about 2 million short because it took about 1.3 million short to hedge the A preferred.
The last short interest report showed 2.5 million short as of August 9, only a short time into the prolonged sell-off. This would leave at least 500,000 naked shorts out there. But I suspect there is a larger short position.
If we believe CC's statements to management, then they didn't sell any shares in August, at least until the week of August 23. Since then, they can only have shorted about 450,000 shares since they are limited to selling 30,000 shares a day. This would put the short interest total to about 3.0 million, and CC's total short position would only be about 1.75 million, leaving 1.2 million naked shorts out there.
Now what is going on now? Well, if my conjecture in the last paragraph is true, then CC will likely sell into any stock strength up to their limit of 30,000 a day until they have completely hedged the approximately 700,000 shares they have converted at this point. OTOH, the shorts who were trying to ride on CC's coattails will need to cover on any stock weakness... makes for an interesting game.
We could see weakness each day until CC's daily quota of shares are gone, followed by strengthening prices. This could go on for ten days or so, until CC has completely hedged their initial conversion amount. If they have already shorted around 450,000 against the series B preferred, then it will take about ten days to finish covering the first conversion amount.
But long term, this conversion is undeniably bullish. I don't think CC will have enough firepower to attempt another death spiral push down, and the real floorless bandits need to cover an awful lot of shares. They can't afford to wait until CC is done before they start covering their short positions.
The next short interest report covering through September 9th will show a total short interest of about 2.8-3.0 million, if this theory is correct.
Paul |
