To: Eleder2020 who wrote (18344 ) 10/1/1998 8:11:00 PM From: The Freep Read Replies (2) | Respond to
<<Step 2->Short your shares and POCKET THAT MONEY(I believe the key to why
this happens) from the shares you just sold as a short. Now that you
have your equity you have a short and a long that are balanced out
against each other.
Step 3-> Cover your short on your deathbed and buy them back with the
shares you sell that you've been long for 20 years.>>
OK, I might sound ignorant here, but this doesn't make total sense to me. Why? Well, how are the Reg D guys gonna make a big profit shorting a stock at 1 or 2 or even 4 or 5? Particularly if these guys are limited to 5% ownership. Take 5% of 25 million (the max shares) and you get 1.25 million shares, maximum. If you go short ALL your shares -- and no one has that many yet -- you're capping your profit at the value you shorted, aren't you? Unless, of course, the stock goes down, but for the sake of all of us, I hope that's not the case.
Perhaps I'm just not clear on how the Reg D people get out of a short position. If I'm a reg d person, let's say I convert 100K right now. I short them and pocket 150K. That's small potatoes. If I never get another share of ancor, I have to buy those shares back and cover at some point if I want to make more profit. Now, if I convert 100K next month (which means the stock price hasn't budged, or I convert less -- and that's a risk), I can either repeat the shorting process OR use the new shares to pay off the old short. But if I do that, I don't end up with 200K shares, do I? Don't I have to actually give my broker the shares to close my position? Therefore, I still have 100K and can short/convert again, but I'm NOT making my initial Reg D money back at this pace, and I can only get free shares until March 1999.
It seems more likely to me that the Reg D people have been shorting like mad from higher prices, converting down here, potentially shorting more on rallies knowing that they're going to end up with more shares than they'd imagined back when the price was at 8 or even 4 and then, eventually, holding onto their core position in hopes of making back their investment. Keep in mind there are still only 1.3 million shares short -- even if all were done at 8 that's only 10.4 million, not enough to have made the investment worthwhile (or 9.1 million if you covered at 1 rather than shorting and holding to the deathbed). Eventually, the Reg D people must need the price to go up while holding a long position or they will have lost money. Or have I completely bungled this???
Anyway, I agree with the theory -- run when you see a Reg. D. That said, I would think that by March 1999, when conversion ends, the shorting problem should also end. Or, again, am I still missing something?
the freep
