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Strategies & Market Trends : BEFRIEND THE TREND Short-term Options Trading Thread -- Ignore unavailable to you. Want to Upgrade?

To: SusieQ1065 who wrote (1068)	2/19/2002 9:10:47 PM
From: SusieQ1065	Respond to of 4058

On Friday in the market monitor at OptionInvestor.com, we thought the recent convertible offering on shares of Adelphia Communications (NASDAQ:ADLAC) and technicals there would have the stock under some selling pressure as those institutions that may have bought the convertible offering looked to hedge that position by shorting the common stock. With a "negative tone" to the telecom sector, it's difficult to see a bottom in the stock if we were to see it break to a new 52-week low. Adelphia Communications Chart - $1 and $0.50 box Take the weakness in the telecom group and add a convertible offering that is now underwater for those that bought it and you've got a potentially bearish scenario for the underlying stock. What can happen is that the institutions that bought the convertible with a relatively lower YIELD now find their base investment losing value. To "hedge" that underlying investment, the institution may come in and begin shorting the common stock, after all, they have the option of eventually converting into the common stock, thus their risk is not in shorting, but NOT shorting. Some fundamental investors may be looking at ADLAC's earnings and seeing a stock that doesn't look overvalued. But imagine the stock trading $10 and then the conversion takes place. That conversion would then dilute earnings as there would be more shares on the market and the earnings would have to be spread across all outstanding shares. With the telecom sector looking suspect and the technicals for ADLAC also bearish with a vertical count currently hinting at $5, we remain bearish on this stock.