Floorless Preferred Stock/Debenture Message Board

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Strategies & Market Trends : Floorless Preferred Stock/Debenture

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To: Zeev Hed who wrote (3)	12/14/2002 11:34:51 AM
From: Haim R. Branisteanu	Read Replies (1) of 1438

Zeev, would add my 2 cents - when you sell short shares you borrow them and in fact you are lowering the float that is why short squeezes can be so powerful on top of the covering action. The only rational approach to this trading strategy is that you earn interest on a theoretical 0% down payment. Due to the regulation as a retail investors you must deposit at least 50% of your original investment. Further most WS bandits do not pay you interest on the proceeds of your shorts, so you are at a loss. The technic is true for institutional investors and there are few hedge funds specializing exactly in this strategy. The other issue you do not address is transaction cost for getting in and out which may cost you close to 5% as a retail investors. The only time that such a strategy can succeed is when the borrowed shares to sell short are not "actual" shares or the company itself is a profitless company which is a basic short any way. Amazon had a similar debenture and it worked at very high prices - (it did had a floor but still some made tons of money) but also those that shorted the stock at the right price made money Therefore the theory may work but practically is not -- keep in mind the simple rule THERE IS NO FREE LUNCH

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