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Technology Stocks : Broadcom (BRCM) -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (5996)	7/2/2001 11:35:53 PM
From: Keith A Walker	Read Replies (2) \| Respond to of 6531

First it would require having uptick sales info (which I don't have). Then take the incremental short sales which occurred for the month, so for May it was 1,794,682 (15,825,247 - 14,030,565) Take the average price on the uptick volume and use that as the average for short sales. Multiply by the number of shares shorted and you now have a rough measure of negative market cap, or, in other words, market cap which may have to be returned to the shareholders. Now take the number of shares in the float and divide that into the aggregate negative market cap (using an absolute value) and this should give you some idea of what price the stock will hit if a short squeeze were to occur. If BRCM's short interest, 15,825,247 were on average shorted at $100, that represents - $1.583 billion of borrowed stock. Sooner or later that has to be paid back (presuming BRCM doesn't go Chapter 11) If all shorts wanted to cover and no one else was buying, the float could be divided into the 1.583 billion and that is what shorts would need to pay over and above the current market price to pay back their borrowed shares. So if BRCM's float is 100,000,000 shares, then a short squeeze would produce at least a $15.83 pop in the stock. The problem for shorts is that as they begin to cover, it is usually a time when new buyers of the stock begin to emerge. In effect, the float begins to diminish because new buyers are not going to sell that quickly (except for day traders), and as long as the company isn't issuing any new shares, the supply of stock which shorts need to cover begins to dry up. The price keeps going higher until more sellers are encouraged to sell. For BRCM, that may be a fairly high price, considering the volumes it traded while above $200. Of course, you are certainly aware of all of this, but it is fun to think about the possibilities that a short squeeze may bring to BRCM. Keith P.S. One other assumption I am making in the above scenario is that $100 is a fair price for BRCM. If no one in the future believes that it is, then the shorts can rest easy for a while.