Derivatives, in the context of stocks, are options, convertible debt, and warrants (which are basically options with long lives, like LEAPS). There are futures for indexes and commodities but that's not our context here.
I agree with Jim that they had so many shares, they couldn't have protected them all with puts. The open interest (the total number of option contracts open) in all the puts at all the strikes in all of the series of TELK options was not enough to cover their black bare behind (and you know some of us peons were responsible for some of those!). Maybe they sold all the calls, too. But then the market makers in the derivatives have to somehow lay off the risk inherent in taking the other side of those transactions (by buying or shorting the underlying themselves, as dictated by their client's transaction). If they don't think they can do it, it won't get done. Another method, not applicable here (or with AGIX, I believe) is to buy convertibles and short the underlying. This doesn't show up on the filings, though. You can only guess if the owners of converts are shorting the stock.
Now, if we want to bring in the the idea of phantom shares being borrowed, that might do the job . . . a definitely illegal practice that doesn't seem to be much enforced, and hard to know how much it goes on. You've probably seen this concept discussed on the momo-tif and SEC threads that Rick runs. I have a hard time getting my head around it, so I'm not going to try to explain it, especially since I've quaffed a bit of Zin. Hope that helped, cuz I probably can't improve on it much.
Cheers, Tuck |
