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Technology Stocks : Applied Magnetics Corp -- Ignore unavailable to you. Want to Upgrade?

To: Tom Simpson who wrote (11931)	5/15/1998 3:17:00 AM
From: Frodo Baxter	Read Replies (2) \| Respond to of 12298

>As you have pointed out, it is painless for convert holders to short the stock once above the conversion price, and just go on collecting the 6%. Remember, unlike common individual brokerage accounts, institutions collect interest on shorts, too. So they get their 6% plus money market rates on the amount they short. Another way to look at it is that the shorting pays for the bonds, so that they get their interest with NO principal. >Since the stock has already floated up to the low low 30's, should we now see a short position building in HTCH? Yes, you can all but guarantee an increase in short interest if the stock stays above the strike for an extended period of time. >As a practical matter, how would a bond holder decide what particular price is the most advantageous level for him to short? Think risk-reward. You're trying to construct an arbitrage where the risk is zero. So any reward greater than the Treasury rate, and you've won. Economically, converts are nothing more than junk bonds without the stigma. Take a look at the pathetic chart of HAYZ and all the recent company press releases. Looks like management was a bit naive to the ways of Wall Street.