Ed, additionally,
This seemingly "arbitrage-like" position,
Seth just described, is not completely riskless.
Depending on the following variables: interest
rate, time to maturity, stock price, the discount
of the bond varies. Essentially as holders of the
bond you can lose money if the bond price drops and
you don't intend to hold until maturity. And although
there is a force that tends to pull back the price of
the stock (as the holders of the bond sell short), the
stock price still behaves independently, or freely (in
other words, it does NOT to trade at 21+. For example if
mutual funds think it's worth 20 times PE, or 25 dollars,
they might buy until it is 25, so on and so forth), so there is
a pressure to cover by the short sellers.
Note also, that I don't believe, all 4 million shares
are shorted against the bond. So the naked short sellers
might have to cover too.
Again, the gist is "there is short interest out there" and
"there is a pressure to cover". Who knows how many percent
of those 4 million + shares are "sort-of" protected by
the "short against the bond" people. I say "sort-of protected"
because it is not completely riskless. And considering not
all the "short against the bond" people will hold until maturity,
at some point, they have to cover ... you know what i mean. |
