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Technology Stocks : Data Race (NASDAQ: RACE) NEWS! 2 voice/data/fax: ONE LINE! -- Ignore unavailable to you. Want to Upgrade?

To: Marshall who wrote (28186)	2/26/1998 12:22:00 PM
From: drakes353	Read Replies (2) \| Respond to of 33268

Marshall: Correct me if I'm wrong, but wouldn't Thursday or Friday be the last day to figure one of the choice closing bids into that 22-day conversion price equation? I guess you're talking about the $2.125 or $2.25 from January 27th. Keep in mind it's only one of three data points. Say it was $2.125 (I'm too lazy to look it up on Bloomberg) and the other two are $2.50 that would work out to $2.375....if we drop the $2.125 and replace it with a $2.50 then we're talkin' $2.50......a difference, but not that much of one. Price matters, but liquidity matters more. Will the privates take advantage of this fact by grabbing another chunk this week and if so, do you think they might try to sneak another low point into the equation first? They need liquidity first and foremost, the kind that accompanies a price spike, otherwise the shorting they are doing will knock the stock down to a point where it's not possible for them to convert at a profit. The thing about trying to sneak another low in there is another thing that would scare me off from buying the stock. Trying to time or define a "low point" is tough to do ahead of time since it's a relative thing. Let's say the stock gets knocked down to $2.25 today, there's no way to know it won't get knocked down farther the next day and the day after that only to rally back to the price you thought was the "low". Another interesting item - These guys converted 400K shares last Thursday and one would certainly assume they didn't hang on to them. Me thinks they were shorting into the price rise. Thye converted after the close, journaled the conversion shares against their short position and bingo, guaranteed return. The shorting takes place first, conversion second, on these deals. We saw over 1 Million shares trade that day and the price barely moved. Um, "barely moved?" This sucker us up 41.8% at the high that day. A hu-gantic move (hu-gantic = huge + gigantic, in other words, really, really a whole bunch and definitely much, much more than barely). Were a good portion of this activity true buying the price would have gone much higher. "True" buying? I'm stickin' with my theory that it was uninformed buying until I find out otherwise. Coulda been a day trading frenzy. Coulda been outright manipulation. Coulda been a day trading frenzy precipitated by market manipulation. I don't know. If it were true buying based on early rumors one would have expected it to continue since rumors generally take a few days to make the rounds. If it were covering by the true shorts I think the privates could have figured that out and let the thing run to catch the best price. Any price that allows them to convert at a profit (in volume) is the "best price" as far as the convert holders are concerned. Keep in mind these guys are institutional investors. The aren't trying to make a zillion percent here, anything in the neighborhood of 20-30% annualized is a monster return in the institutional investment world (remember that's a risk free return since they convert after they have locked in their sale price by shorting the stock) and they will take it whenever the liquidity allows them to do so. Kind of points towards closing out a portion of a hedge, doesn't it? There is no hedging going on here. The short interest has not moved much at all since this deal was done (new short interest numbers out yesterday BTW). This deal can't be hedged ahead of time since you don't know what the conversion price will be except right around the time you're going to convert. The shorting they do ahead of conversion is more like preselling. Look at it this way..... three day low close bid average works out to $2.50, current bid on the stock is $3. I short the common at $3. I'm guaranteed to make .50 on 2.50 or 20% I could keep my short open but there's no point in doing so. I just notify RACE right after I put on my short that I want to convert $X of preferred shares and RACE delivers X shares of common to my account via DTC. I then have my broker journal off the long and the short. Free money. If I shorted shares today (with the conversion price set at $2.50) in an attempt to hedge my preferred position and then don't immediately convert my preferred shares into common I'm setting myself up for a screwing. If the price that I convert my shares at (always the 3 low close bid over the last 22 trading days) is above the price where I sold short then all I've done is locked in a loss. That's why they will never wait to convert once they have their short on. drakes353