re: call premiums: in this situation, normal options valuations don't apply; I view this as the market setting the price. Since the premiums are high, and did not drop measurably during the recent pullback to $8, that seems to indicate that there is high demand for purchasing calls. Either folks wanting a piece of the action, or a hedging strategy for some naked shorts.
Stock is not following the pattern many would have thought, of a speculative runup to sell into. Will it rally much after FDA approval, if that is the event? Are the shorts covered by means of the calls they purchased, or will there be a subsequent squeeze? Where will the price end up, after all the traders are gone? Where should it end up 6-12-24 months from now? It could well be that any pullbacks this spring will later be viewed as having been excellent buying opportunities, though for the moment there may be disappointment at not having the anticipated 'spike,' near-term.
I note that the financing announced today has minimal risk for the financier: if there are any delays, and the stock sells off, the financier could elect to convert during February at a price as low as $3/sh, but only if the defined average of the lowest bids gets as low as $4/sh. And I note that was the previous support area for the stock price.
Conversely, why would SNRS finance just days in advance of the FDA meeting? If they thought the price would take off and stay up there, what's their rush? Frankly, at the max conversion price it is not a bad deal for them, probably a fair price with a nice discount added in (25%), and they wanted to start their hiring and production ASAP. Plus initiating the relationship with Lehman, with an eye towards the future.
Is there any chance that Lehman would act as a hedge fund, and short the stock later this spring during weakness, to obtain a more favorable conversion? Hard to say. If that arises, it would present an even better opportunity for bulls to load up, rather than be discouraged.
Looks like they feel pretty confident of getting approval.
Good luck to all longs, and might I recommend to think beyond the near-term trading situation? There may be many cross-currents of trading during the next few days, weeks, and months, so continue to perform your due diligence, and know what you are investing in here... so you will be prepared to act when opportunity arises. |
