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Strategies & Market Trends : Floorless Preferred Stock/Debenture -- Ignore unavailable to you. Want to Upgrade?

To: drjoedoom who wrote (8)	7/31/1998 9:25:00 PM
From: Zeev Hed	Read Replies (1) \| Respond to of 1438

dr, if you indeed are a Dr. you should know a little calculus, just smooth the curve to a continuous rather than discrete decline and you will be surprised but the story is uglier and the bandit actually makes more money. In reality, he cannot short the whole position at once, that is why his buddies at the company (thanksful for the use of the money) cause few pump cycles just like in the good old Reg S scheme, into which he can short, he usually shorts above his first conversion price (which in many cases is the ceiling conversion price, like the $6.5/share in the new European floorless of HEC), making it like a thief before the stockholders even know what hit them (if he managed to lay out shorts on his full position, he has a profit before he laid out his $10 MM and collects interest to boot on no capital). He does not wait until the stock goes to $7.5, at $9 he can already short another 110,000 shares. Why don't you set up the equation and enjoy it. From time to time, toward the end of the day you will see a rally in the stock (typically from a new ,low, we call it a DCB, look at HEC today and at the same stock about two weeks ago, the bounce from 3.75 to just under 4.5 if memory serves) so that he can now short again at a little higher prices. Sometimes, they induce (start) the rally themselves by partial covering of their shorts, and that creates a crowd of followers bringing the price up a neat 10% to 15%, and the process repeats. A hint, your function should have the general form P=P(0)-Asinwt. Zeev