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

To: Geigartt who wrote (2052)	12/22/1998 12:27:00 AM
From: chester lee	Respond to of 2506

geigartt, <<but if you short the rights and they are not exercised and expire worthless, does that mean you don't have to cover the short>> While I have no experience shorting rights, the mechanics of this sounds like writing an option that expires worthless, allowing the writer to keep all of the money. Note, that this is not as risk free as you suggest. In the case of options, writing them means you are accepting the risk of being called, and having to deliver the shares at a predetermined price (strike price). In the case of BTIM, the strike price floats with the price of the common, a 33% discount on the new shares. I intrepret the mechanics to mean that if you shorted BTIM prior to the issuance of the rights, then you automatically are short the right when they are issued. This means that if the owners of the rights want to exercise and buy shares on the cheap (at 67% of market), than you as the rights seller (since you are short) MUST come up with the shares for delivery. I assume since you are also short the shares, you would have to obligate the buyers of the new shares by buying them on the open market and then selling them to the rights execiser at the 33 discount. I assume it has to work this way, sicne you as an individual can NOT issue shares out of your brokerage account. Also, this mechanics as I've describe them keeps the float regulated to the maximum number BTIM wants to issue. Otherwise, the shorting in advance of rights distribution would automatically increase the number of rights, and consequently increase the number of shares outstanding. Just my 2 cents. As I've said before, I've never experienced rights before, but may get the opportunity before long if FIBR keeps running against me. chester