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Technology Stocks : WCOM -- Ignore unavailable to you. Want to Upgrade?

To: Harry Ehrlich who wrote (2764)	6/28/1998 8:41:00 PM
From: SDR-SI	Read Replies (1) \| Respond to of 11568

Harry: I don't believe that we can say there will be no rally due to short covering. My point was not that there will not eventually be an upward pressure on stock price from short covering. My point was that one should not read too much information into the published levels of short interest in a stock once a merger or acquisition deal is announced, due to both risk arbitrage and non-risk arbitrage considerations. The explanation in your post is correct in reference to the closing out of arbitrage positions. Outside of arbitrage, there remain other shorts that could ultimately result in a "short-covering rally". If one looks back at short interest figures on Worldcom, there have been those who were heavily shorting the company from before the MCI deal was announced or even rumored. As with many other successful high tech companies whose stocks have followed a generally upward movement without significant backtracking, there are a number of people who find such a stock a prime target for shorting, hoping to profit from the eventual, "inevitable" price reversal that stocks usually have. These are the people who, if the WCOM/MCI deal comes about successfully and if WCOM stock continues to move upward, will have to ask themselves whether their hoped-for price reversal will ever come or, at least, will ever come to the depth that they can make serious money on their short position. If their answer to themselves is "NO", then they must undo their short positions by covering. This particular element of short-covering would definitely put upward pressure on stock price through normal supply and demand considerations of the market. It would, however, be more related to where those people think WCOM stock is going post-merger, rather than just the completion of the merger formalities themselves. As a holder of WCOM stock, I would welcome such persons' covering not only from the immediate price gratification, but also from the implication that these sophisticated investors apparently then felt that WCOM would probably be more likely to continue its forward progress, than to be turning backward price-wise. Such could not be bad news for holders of WCOM stock. Steve