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Microcap & Penny Stocks : Pharmos(PARS) -- Ignore unavailable to you. Want to Upgrade?

To: Stephen D. Wilson who wrote (711)	5/4/1998 6:17:00 PM
From: InvestorLady	Read Replies (1) \| Respond to of 1491

From Wall Street Words: arbitrage The simultaneous purchase and sale of substantially identical assets in order to profit from a price difference between the two assets. As a hypothetical example, if CBS stock trades at $115 on the New York Stock Exchange (NYSE) and at $114 on the Midwest Stock Exchange (MSE), an investor could guarantee a profit by purchasing the stock on the MSE and simultaneously selling the same amount of stock on the NYSE. Of course, the price difference must be sufficiently great to offset commissions. Arbitrage may be employed by using various security combinations including stock and options, convertibles and stock, and so forth. In PARS' case, the large investors of the private placement have put up money for stock at a discount. How much of a discount depends on certain terms, probably the average price over a certain time. So they short the stock for two reasons: 1)to lock in a guaranteed profit as they get shares at a discount (20% or better) so they will cover their short position with the shares they will receive from the private placement and/or 2)they want to force the price down so that they receive a larger discount based on the terms of the private placement. If management is smart, they put a buy back clause in the contract which gives them the opportunity to buy back the shares should they have the cash to do so. The arbitrager must then cover their short shares in the open market. I have seen that happen before with a stock I owned and it was a beautiful thing once the company bought back the shares (a bit painful before that), and it was a buying op while the arbitragers were arbing and taking the price down. When one can, it is a good idea to get from management how many shares have been issued and how many are left to issue to get an idea of the overhang the arbers have. PARS moves volume, so, if it is say a million shares it would not take long to burn through that amount. If the private placement has friends to go along for the ride, they can do more damage. Or they could work alone. People who place private placements with low-priced stocks do so with companies who really need the money to do what they have to do---the arbitragers take advantage of that. They are rarely long-term investors, rather short term profiteers. Private placements of this ilk frequently promise they won't dump shares on the market,and inexperienced management believes them, but there is no way to stop them short of a lock up agreement that is long term, which they generally won't sign. Hope this helps, Lady PS: Nice day today for PARS, are they done?