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Biotech / Medical : Vivus, Why the Slide?
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To: RT who wrote (3697)9/21/1997 3:24:00 PM
From: DDS-OMS   of 3991
 
RT,

These 15 million shares (or the difference between shares outstanding and the float in any stock) are shares not freely available to be sold. They are owned by insiders who have to file an intention with the SEC before they can sell; can be shares owned by the company to be used when management's options are exercised, and are shares bought on the open market in so called buy-backs. These buybacks (which VVUS announced long ago) effectively reduce the float AND the shares outstanding--if the shares are retired. I believe if the company buys back shares with the intention of using for employee options, then the shares outstanding wouldn't be affected--only the float. In essence, when assaying the squeeeze potential--consider only the # of shares in short position vs. the float--ignore shares outstanding. HOWEVER, another factor to mull over is that the shares shorted artificially increase the float by the # of shares short. This is why you have to pay any dividends on shares you short--the guy you borrowed them from expects his dividend and the guy you sold them to also expects his dividend--so you have to pay one of them--the company isn't going to pay both!! So add the # of shares short to the float and then divide that by the short position to get a more accurate %. VVUS's percent short is more like 30% than 50%. If I've made any mistake on the effect of treasury stock, I'm sure someone will correct me.

Regards,
Gary
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