Short interest likely due to Castle Creek, since they've got the necessary shares for covering already 'in the bag,' due to the unconverted preferreds (priced at $6). For them, shorting at $8 is an easy 33%, and hedges their downside should things not work out.
Since the price for much of Jan was not very high, it's highly unlikely that anyone else is shorting at current prices. Too much risk of getting creamed if the price ramps quickly as soon as sales are confirmed by way of POs.
Conversely, if this is CC, we won't see a short squeeze on the runup either. Rather, we are seeing the share dilution from the issuance of the debt. That's a big thing keeping a lid on the price right now.
From a post on yahoo:
<< . However, we happen to have a potential large supply of NEW stock, which we might be seeing enter the market bit-by-bit every day. That would be Castle Creek, who have about 2.3M shares (if converted at the fixed price, and I say 'about' because there were also warrants involved in the deal; basically, think of the $15M divided by $6.03/share).
It's been discussed here previously that CC, being a 'hedge fund,' could well be shorting into the market every day, and only later has to decide whether to cover their shorts with the converted shares, or whether they can pick up more shares later at prices below $6 in the case of any price retrenchment below that. (That is, they could just convert now, but don't need to commit to that plan yet; they get 6% on the loan until converted, enough to cover their borrowing fee on the shorted shares, so why not leave their options open?)
If you read the SEC filing closely, there are limitations on how many shares CC can sell (short or otherwise) into the market each day. It is the maximum of (3) numbers: 30,000/day, or 15% of that day's volume, or 15% of the average volume of the last 5 days. So, the *minimum* you might see each day is 30,000, and after days with higher volume (like last Thursday), they have a window of time during which that number could increase.
What does this mean? Share dilution is taking place every day, right in front of us. In the end, if the shares are all converted at the fixed price, it'll have been about a 10% dilution total.
If these 'new' shares were not available, the constraint on the supply (because many shares are 'locked up' by institutions and retail investors alike, who aren't looking for a quick trade double but for a major long-term gain) might see the price moving more to the upside.
In this light, note that there were over 1.2M shares short last month. Normally, this might allow for a 'short squeeze' when the price moves up, because they have to cover. But if these are due to CC, there will be no squeeze, because they have the 'new' shares in their back pocket, with which to cover.
Note that there was an increase in short interest in January, although the price had already come well off its highs. I seriously doubt anyone is choosing to short the stock below 8, so I would put my money on this being due to CC.
Just one scenario, but one I think of when I see big blocks (or quick bursts) clocking through each day, every hour or so. How might this affect your trading strategy? Well, this week, every day that goes by without 'news,' and with most buyers happily positioned for the upward move we anticipate, there's not quite enough buying to balance CC, so I see a net negative drift. So if you're looking to buy, each day you wait, you might get a lower price. But each day brings us closer to the end of March, that many of us seeing as the outer edge of the window for some 'material event' to occur. So place yer bets! ;)
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Posted: Feb 24 1999 11:18AM EST >>
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