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Technology Stocks : VALENCE TECHNOLOGY (VLNC)
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To: Rich Wolf who wrote (18908)3/31/2000 9:16:00 AM
From: kolo55  Read Replies (1) of 27311
 
My assessment as well.

The only thing that could really explain Bear Stearn's big selling over the last week, is that they need to hedge the put they sold to the plaintiffs in the settlement case. According to the filing (which was filed with the SEC last Wednesday), they bought a put and sold a call on 600k shares. The strike prices on these were not revealed. Neither was the expiration, but since the distribution of the shares is expected in the fall, it appears the options are likely good at least until then.

These options are NOT exchange options and won't show up on any of the option exchanges, but are 'custom options' written by Bear Stearns. BEST is almost certainly hedging the put by shorting stock against the 600k shares this last week. According to the SEC filing last week, they are allowed to short against these shares. But why sell all the shares in one week or so, instead of spreading the sales out over a longer time?

It could be several reasons...
First, that BEST did offer a fixed strike price on VLNC and would hedge the stock by shorting as the price dropped to protect themselves. Then they got caught by the short attack.
Or Secondly, that BEST's strike price for the put (and call) is being set by the market pricing during some time period (March? First ten trading days? Lowest ten closing prices in March? Lowest five closes in the first ten trading days? etc.) In this case, BEST has a strong incentive to short stock during the pricing period to lower the put strike price.

In either case, the fact that BEST has sold heavily into the decline played into a beautifully orchestrated short attack. More on that in the next post.

Paul
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