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Technology Stocks : General Magic -- Ignore unavailable to you. Want to Upgrade?

To: Straight Up who wrote (6626)	6/30/1999 9:52:00 PM
From: John Madarasz	Read Replies (2) \| Respond to of 10081

Now I'm guessing here, and certainly not expecting anything...but it would be conceivable that on or around the 13th of this July's conversion date some type of final shakeout or manipulation could be expected...maybe just more of the same type of water torture we have become so accustomed to, or any # of traditional tactics to cause some fear and worry in the hearts and minds of the weak. It will be at this time, on low volume days that I would expect some excellent buying opportunities. Thanks for taking the time to indulge my naivete' Straight. Again, I believe this could be an opportunity of a lifetime here given the technology and respective set of circumstances. Wishing you all the Best with your investment here. Regards, John

To: Straight Up who wrote (6626)	7/1/1999 3:45:00 PM
From: Michael Feldstein	Read Replies (3) \| Respond to of 10081

Regarding convertible holders shorting the stock, there is another reason for them to do so besides a desire to keep the price down, and that is to lock in profit. Convertible bonds are, relative to stocks anyway, a conservative investment. Institutional buyers may want to lock in gains by shorting against their bonds. This is exactly what happened with Apple Computer recently, as Eric Yang of the Apple Investors web site explains so clearly: "One of the most puzzling phenomenon Apple investors have noticed was the high volume of short interest in AAPL. As of the latest census conducted in April, over 18 million shares of Apple stock, representing over 13% of outstanding shares, have been shorted. A high level of short interest on a stock usually indicates that there are many investors out there with a bearish outlook for the company. This is clearly not the case with Apple. With one of the best stock performance on the S&P in 1998 (second only to Dell) and the lowest PE among computer manufactures, AAPL is hardly the ideal target for investors to short. So what gives? "The answer to this mystery lies with the convertible notes. Many institutional investors who purchased convertible notes have conservative investment objectives. They tend to have lower risk tolerance and want to generate a steady return on their investment. With that in mind, when shares of AAPL appreciates dramatically over the conversion price of $29.205 many institutional investors who hold these notes will be inclined to take the profit. One way to lock in their profit is by shorting AAPL against the convertible notes. This strategy not only locks in existing profit but can actually deliver even more profit if shares of Apple stock drops back down below the $29.205 conversion price. Furthermore, the convertible notes holder continues to earn 6% interest on the notes. Thus when utilized with a short position, the convertible notes can be a flexible trading tool that provides down side protection. "For these reasons, one would expect an increasing number of convertible notes holder to short AAPL against the notes as Apple's share price climbs. Because of this, the high short interest figure we see each month is quite deceiving. Most of those shorted shares are not really shorts at all because they are covered by convertible note. They are not exposed to the risk of a "short squeeze" like a typical short seller would when the stock rallies. Further evidence supporting this theory comes from the fact that the short interest in AAPL were typically in the 2 to 3 million shares range before convertible notes were issued. Once the notes have been converted into shares I expect many of these newly issued shares will be used to cover existing short positions in AAPL. This should cause short interest to decline over the next few months." Eric turned out to be right; when Apple called the convertibles early, the short interest on the stock dropped dramatically. For Eric's full, highly illuminating discussion of convertibles and what they can mean for a stock (in this case, Apple), see appleinvestors.com