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Technology Stocks : Cymer (CYMI)
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To: Jess Beltz who wrote (8365)11/5/1997 6:45:00 PM
From: Emile Vidrine  Read Replies (4) of 25960
 
Thanks for at least presenting arguments in an attempt to negate the convertible--shorting theory. Remember, this is a theory. It simply establishes the feasibility, the plausibility and the advantage of the convertible holders selling shares short.

Your central objection is without merit and show a lack of understanding of the issue:

"Much of the deterioration in the share price has occured since the bond issue, meaning that the shares had to be shorted at prices considerably below the conversion price. Covering such positions using the bonds would be very expensive and incur large losses.

Your first objections shows lack of understanding of the theory. The stocks were shorted beginning at around $47 (post split). When the shares were intially dumped, it intiated panic selling and price of the stock began to tumble. Some of the shares were held back to complete the panic and to achieve the lowest possible price. Once a panic is started, it feeds upon itself. When the price got to a certain level, the convertible bond holders began to cover their shorts by buying shares in the market at the lower price. They do not cover their short positions by converting their bonds. They cover their short positions by buying in the panicked and disoriented market. The conversion of the convertible bonds are a backup in case the plan failed--which was virtually impossible. In the improbable event that the shorting failed and someone stepped in a bought all the shares and drove the price over $47, then the bond holders would have had to convert their bonds into shares at $47 and cover their shorts--the net lost in the worst case scenario would have been 0 (discounting a very small fee for commission). No, instead they covered their shares at lower prices and pocketed the difference.
A perfect plan without danger of financial lost.

"So, your objection--Covering such positions using the bonds would be very expensive and incur large losses.--is simply wrong.
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Thanks for making me rethink this theory.

Regards

Emile
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