Larry, I think you misunderstood my example. In my example the preferred holder made a return of $3.7 million not on an investment of $25 million, but on an investment of $0, which is tough to beat. It's true that he puts out $25 million, but by shorting, he puts the $25 million back in his pocket where he can then invest it again.
You are of course correct that the preferred buyer could choose to simply take a long postion, as opposed to the sure thing. You'll know soon enough, though. When the July short numbers come out in a month, if the short interest is up dramatically, it probably won't be because someone is betting they will fail, but rather because someone is trying to eliminate risk. On the other hand, if the short figures aren't up at all, then it means that the preferred buyer will be holding a naked long position and betting on the company.
Carl |
