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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: Gordon Quickstad who wrote (13288)	7/22/1999 12:55:00 PM
From: Herb Blair	Respond to of 27311

GEEZ O PEET

To: Gordon Quickstad who wrote (13288)	7/22/1999 2:08:00 PM
From: Zeev Hed	Read Replies (4) \| Respond to of 27311

Gordon, first as a preamble, I have wetted my toe in the murky waters of VLNC and bought a position just here, I have a relatively tight stop loss at $5.125. The reasoning is not so much the details of the CC position or the imminence of a PO. If we get one, fine, the stock may go to $8, maybe to $11, if not, well, c;'est la vie. The reasons are numerous. First, I have a general market short term buy signal that historically was followed by a very strong move. Second, a bounce in VLNC to a t least $6.5 is quite possible because of the short position, if I am right with my general market forecast, then short will cover some if the market shows some real strength. Third, we are awfully close to a major resistance at $5.25 which has served as a major springboard in prior advances. Fourth, the 27th is only five days out, and I have to believe that management will come up with some form of "positive news" within this time frame. There are few more reasons, but these do not make the case stronger. Now as to your specific question on hedging. The way I see it, and of course this is only a hypothesis, CC give the company $7.5 MM and get 9% interest annually and can convert to sahres at about $6. The stock has been above that price for quite sometime, thus CC could have shorted to hedge the whole position well above the strike price. If they shorted, they took their money off the table and are now getting 9% interest on money invested (money they can put in another floorless and repeat the process). This is hedging, meaning, making in essence an infinites return with no risk. (9% on$7.5 MM without having the $7.5 MM at risk, but actually taken off the table is an infinite rate of return, even if it is only a finite amount of money). The goal of hedging is not to limit the "rewards" it is to maximize the return and eliminate market risks of obtaining this return. Zeev