Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Non-Tech : Action Performance....ACTN -- Ignore unavailable to you. Want to Upgrade?

To: CMS27 who wrote (156)	5/11/1999 8:27:00 AM
From: JakeStraw	Respond to of 278

Hey Scott, I think he's "tugging on your chain".

To: CMS27 who wrote (156)	5/11/1999 11:16:00 AM
From: Stoctrash	Read Replies (1) \| Respond to of 278

Scott, big money guys(bank, hedge funds) will try to play it like this, or it's my understanding this is how it works: They buy the Convertible Bonds and then short the stock as a hedge..that way they collect the interest risk free on the bonds they own..and with the dilution hopefully the stock will go down and they cover their short and make money on that too. This happens ALL the time with small float Convertible bond offerings in high growth small caps.

To: CMS27 who wrote (156)	5/12/1999 8:11:00 AM
From: CMon	Read Replies (2) \| Respond to of 278

Scott, a simple explanation of why a convert arb would be short the stock is that convertible/derivative instruments of all flavors, options, convertibles, futures, etc., have a theoretical value for any given price of the instrument they convert to. An arb's interest is not in the direction of the individual securities, but rather in the relative value of the two. If the convertible bond is relatively cheap to its theoretical value, an arb will capture that relative value disparity by buying the convert and shorting the stock. He realizes a gain by unwinding the position at some set of paired prices closer to the theoretical value. For any convertible issue outstanding, some portion will be held by arbs, and some by outright investors.