Hello Mr Xie:
Let me cast this scenario quickly for comment. A moneyed aggressive investor group sees opportunity in a higher stock price Zitel. They put a few million dollars into increased demand for the stock, coupled with publishing misleading stories and hype- to give the appearance of something going on the public does not know about--YET. They also have been selling some shares short over time, and have taken call positions while selling puts and generally prior to the hype step-ups. They next buy a large block of shares to bundle into a position. Demand is still positive for the shares by this, but the risk in holding these shares was hedged by options. Whether a new story or not, options expiration is coming and so is the end of Zitel's quarter where there is further risk of reporting a near bankruptcy. So while puts are cheap, they are bought, and while call options are at a premium, they are sold--but not in heavy lumps. Next, those few millions put and hedged are taken out. The day of options expiration, a series of sales of the block are made, accelerating a downward price in Zitel. Low and behold, the March 15 calls expire worthless, the March 15 puts are in the money, and maybe the twelves come in. The downward momentum is great. Mr King announces preliminary results for the quarter that the promise has not quite come in and now they are battling those short-sellers who are trying to destroy Zitel--and Zitel will valiantly fight back to get the financing for the y2k business that is coming--the Caymans convert in steps diluting Zitel to new lows, and Mr. King must announce later that the short-sellers seem to have won and that coupled with another disappointing quarter has made things tough, but we will fight back. After time, Zitel is essentially bankrupt, the short-sellers get the rap, the heroic Zitel management did all they could, and a lot of small investors have put their dollars into others pockets quite unaware of the nature of the risks, for lack of information known to others who were trading Zitel. So what do they do--sue some worthless ashes. There are better uses for time, talent, and treasure.
Any comments bolstering or banishing this scenario???
Best regards,
mdr |
