Hi gg
The recent shorts are 'pros', especially the 12 million short shares. Retail cannot short at this penny level.
I suspect (fully expect) the pros are hedged with the debenture offering. Wily thinks so too. Their hedge can range, as a percentage of debenture conversion. Examples:
1. Half-hedged happens when the pro shorts half the conversion (long shares on conversion). Half-hedging reduces risk (on the short leg) without being shut out on the upside (the long leg).
2. Full-hedged happens when the pro short exactly the same number of shares as he gets on conversion. This is the safest scenario. He enjoys the debenture like a bond with a 5% coupon, the equity risk is eliminated with the short. However, being fully hedged, he misses out completely on any violent upside.
The Pro remedies this as follows, if the upside is managed (some use the word 'manipulated' instead, tomatoes tomatos) by the pros, and I expect this to happen, then the full-hedge short leg is bought back; to become half-hedged to even no-hedged. The pro then participates on the long side again with the unhedged debenture. (The long side cap or wall is removed) At any time he can return to half-hedge or full-hedge stance at higher prices. This locks in his gains. If the stock $ falls, he's hedged, there is no loss.
What Wily eluded to is that the pros will play this up and down to lock in gains on both the ups and downs. OTOH, this is market timing at its finest. I am sure there will be a % of pros who will dedicate time to this short term trading with large share volumes, but I bet more will take the low risk approach, enjoy the 5% and they make more on the longer swing trades.
So in response, the shorts in this trading area have a lot to be concerned about IMHO, I take the view that the shorts have nothing to be concerned about if they are fully hedged. The pros have it very good.
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