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Strategies & Market Trends : Shorting stocks: Broken stocks - Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RockyBalboa who wrote (1581)	8/2/1998 5:08:00 PM
From: RockyBalboa	Read Replies (1) \| Respond to of 2506

Conversion means: If you have preferred stock in a company and the term convertible applies to it, a fact what you may discover in the SEC Filings of a company (see post 1577), you (as the preferred stock owner) may, from time to time convert it into COMMON stock simply by giving back convertibles in return for newly issued common stock without additional cash payment made to the company. The convertibles put back to the company reduces debt there, like paying money for newly issued stock. Convertible debt is available in as many different shapes as there are different animals across the universe (dogs, cows, pigs, monkeys, frogs, horses). I don't know which type of animal we see here, but anyway. Some convert at a previously fixed price which may at least market price or at a "premium" over it. These normal convertibles, issued by healthy corporations are considered honest as the offer normal (a bit lower %) cash interest payment plus a fixed conversion at a price usually higher than the market price (they include a premium,in the form of more money (less debt) for the company if exercised, similar to a traded call warrant). Its understandable that you can calculate the dilutive effect of such a preferred note, simply by taking the fixed amount of stock it converts to. The more poison ones are those with a conversion without floor. So if the price is 10 and you have 1 million you get 100.000 shares. But if the price is 1, you will receive 1 million shares for you note (at nominal value of $1 Million). if it is .10, you get indeed 10 Mill shares! Sure you pay cash to the firm for the note. But if you manage to borrow stock and sell short in front of conversion, then you can convert at a lower price the whole bunch, getting more common. Important: In order to sell the common stocks won by conversion to someone else (the greatest fool), you have to register them with the SEC. This was done for 3.769.000 stocks for INCL which is alot. It is also the maximum amount of shares to win by converting preferreds. So take $7.500.000 preferreds, add 37 day of interest in additional preferred yielding $7.538.000 and divide by 3.769.000 common shares. The result is 2$ which was the lowest price band applicable so far for common. If the conversion is later - now, the low - conversion price is higher. In August, with at least 90 days of interest the price may be bits over $2 (2 1/32). Maybe this helps a bit. Christian OTHERS STOCK to watch: ZAP (analysis may follow), AND (conversion workout), DCLK and SEEK.