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Technology Stocks : Cayenne Software (CAYN) -- Ignore unavailable to you. Want to Upgrade?

To: jach who wrote (745)	2/28/1998 11:46:00 AM
From: G. H.	Read Replies (3) \| Respond to of 1096

Jach, I'll take a stab at this, I'm not sure this is right, but perhaps someone elce with more knowledge in this area can jump in. O K we have a preferred stock holder who is going to convert sometime in the future to common stock. So the holder knows the company is in a flux so he takes out a short position to put more downward pressure on the common, because the lower the common goes, the more common shares he gets when he finishes converting. So now he started shorting way above the current price, so he is not worried about covering immediately, and this is the good part, after the conversion is done he will take some of the common and use that to cover his short position, in lieu of covering the short by selling the borrowed shares he shorted in the first place. Make sense ? The bottom line is he avoids any capital gains tax on the profit from the short, he still has a boat load of common at a cheap price and all tax free, nice. Now all the while he has been shorting there are poor fools out there who will jump on the growing short wagon, not knowing what is going on and all of a sudden the preferred holder has covered and left them holding the bag, short squeeze time. Once again with my limited knowledge of big boy finance, I think this is right. Good Luck Henry