Hey guys, there are a few things I can't wrap my head around and I was hoping someone with more knowledge could help me out.
Over on yahoo, down_set_hut_hut posted:
"Keep in mind there are many millions of "golden tickets" out there in the form of warrants to purchase shares at 2.60 through Oct 2012. There are many millions more to buy at 2.40 through early 2016. Of course, there are also many millions in call options (25 million shares represented by ONLY the Jan 2014 open interest). So, many of those short or shorting can be short against warrants or options that they hold, not having to cover in the market. They can simply exercise warrants/options to deliver against the short."
This isn't the first time I have heard about heavily shorting against warrants. Is this purely a hedge? What am I missing here? What's the tactic? Why wouldn't someone who was fortunate enough to buy the warrants simply be happy with an ever escalating stock price, pay the $2.40 when it is due, and ring the cash register on the way out the door? The term "not having to cover in the market" clearly has some benefit that I am missing.
My next question has to do with the ATM sale. Speculation was that we were ground to a halt at $4.00 because we were getting through the ATM. No mention was made of it at the CC and now it is believed that it hasn't started yet. I guess I don't understand how an ATM works. I assumed it was a behind closed door offering much like warrants and other offerings that retail investors don't have access to. My thought (please correct me if I am wrong) is that you sell your tens of millions of shares to long hedge funds and move on. Unless they turn around and instantly hit the open market with those shares (why would they, they just bought them for an at market price) then there wouldn't be enough selling pressure to really affect the price.
I saved my most newbish question for last. I have never written an option so I never cared much about how the "back end" works. I have never carried an option through to expiration either. However, I think I'm in for the long haul with my $5 Jan '14 calls. Just making up numbers, say I have 100 call options. All I know that come middle of January someone owes me 10k shares, and I owe them $50k cash. That's the furthest I ever thought it. However, as down_set pointed out, if there are 24 million shares at play, things get a lot more interesting. Provided of course that these shares are in the money, where do they come from? Does the person who wrote them have to cover at market upon opex or did s/he have to already own them before they can write an option against them? If they have to cover does this create a version of a short squeeze? Will it create a dogfight at key strike prices (especially $5)?
Thanks as always,
Stizz
