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Technology Stocks : The New QLogic (ANCR)
QLGC 16.070.0%Aug 24 5:00 PM EST
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To: Ken Richard who wrote (18376)10/4/1998 10:28:00 PM
From: Greg Hull  Read Replies (1) of 29386
 
Ken,

<<There HAS to be risk with this strategy ..

What if the stock starts moving on major news, would the squeeze issues not come into play. Also, there is a time (as in our case) that the preferred's are through.>>

I don't see how the preferred holders can be squeezed. You or I would be squeezed if the price rose above the price at which we sold short. We would be forced to buy new shares at an unattractive price. They buy new shares (that is, convert) at prices of as long ago as three weeks. There is no risk in the price getting further away. They know the price they can convert at today, and for the next three weeks (at least the worst case price).

I still maintain that the best circumstance for the preferred shareholders is a sawtooth price chart - quick jumps from the low $1s to $2 or $3, followed by a return (probably slow) to the low $1s again. This cycle would be repeated as many times as it took to sell all the shares they wished at 100% or better profit. They would not convert the shares until they had locked in the selling price. They can sell today, convert tomorrow, at yesterday's price.

It's hard to squeeze somebody who isn't forced to buy at today's price.

Greg
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