>> ALL: Large IOM short interest reconsidered. WSJ article Mar. 6, 1997 ppd C1 and C20 indicates short position in IOM (and other firms) not necessarily indication of bearish opinion but rather a hedging strategy for holders of convertable preferred. As I understand it, if you hold conv. pref., you hope the common will rise in value to some pre-specified strike price, convert pref. to common at that time, sell your common at that high price and thus realize your profit. But long before the common reaches the strike price you are sitting there holding a bunch of conv. pref. You ask yourself, "what if the common never rises in value and I can never convert and realize my profit." Being a cautious sort, you sell the common short. So, if it does go down, you make money anyway. But you make it my covering (if you choose to do so) at the lower common price. But you don't have to cover, because if the price of common goes up, that makes your conv. pref. more valuable. It seems to be a classic hedge. Any comments or corrections would be appreciate.<<
Not to psychoanalyze this poster personally, but if you buy into this line of reasoning, then you are in denial. People buy short positions to make money. They make money if the stock goes down. Iomega has a large short position. Conclusion: Lots of people are betting that the price will continue it's fall below the $15 level. A "short squeeze" (even with it's ~23,000,000 short shares) is unlikely because of the relatively high volume this stock can accomodate without affecting share price, and continuing resistance of individual investors as well as institutions to buy into this company because of past experience, or recommendations to stay away from IOM. |
