Ok, Italiana, here's the explanation: IFLY, like a lot of smaller Nasdaq IPOs, came public with some underwriter and other warrants that got registered as well. This scheme allows a small company to raise additional capital if it does well later on. It was used heavily by Morty Davis of DH Blair fame. In this case there are at two series of warrants.
The first warrant strip came in April of 1998, which see #reply-7097707
The second (attempt) is occurring right now. Here's how it works: Whoever is interested in getting the warrant price above it's exercise price so that the trade will be profitable (could be the underwriter who got the warrants, the company, or some other big warrant holder) starts a story about the stock that is favorable and incentivizes brokers to get the stock going up.
In the case of IFLY, the current warrant strike price on $10. So the transaction to exercise the warrant becomes profitable above $10. So the boiler rooms get the stock going through standard pump and dump methods like hyping the stock (internet hyping is actually relatively new, in the past they mostly telephoned gullible people that liked to take a swing).
Whatever the story, once the stock gets above it's strike, the pump goes into full force to take the stock higher. At the point of maximum hype, the broker dealers (part of the pump and dump or not) start selling the stock short and exercising the warrants to so that they can buy stock at the strike and deliver it against the short. Thus they lock in a profit on the spread.
Now the raising of money for the company is a good thing if you like the company. But, all too often, there is massive insider selling that comes out of nowhere. Inevitably, the stock declines well below the warrant exercise price and the insiders and brokers are long gone from the stock. Roughly 10 days after the stock price climax, all of the 144 trades are printed as per SEC requirements. In this current round of pump and dump on IFLY, even though it does not look like they can keep the stock up to force the warrant conversion, there will have been some sizeable insider selling. Hope this helps, AG.
#reply-7074028. This is the brokers denial trade. The other MM's know that the Pump and Dump crowd is trying to get the stock up. The outside brokerr dealers know that if they deny the trade this time, then the P and D crowd will have to come back again later. Thus it gives the BD's not involved more trades more more 1/8ths to scalp (brokers like volatility). |
