Yes, Letitwalk, your numbers are correct. However, I think the procedure is a bit different. Please correct me if I am wrong!
Let's assume someone has 10,000 options at $0.40. The options are about to expire soon, so he wants to convert them into shares. Since for the sake of the argument he has no money, he borrows $4,000 and uses that money together with his options to buy 10,000 new shares from the company. Since he has to pay back his credit immediately, he has to sell as many of these shares as needed to return $4,000. If he is lucky, he can indeed sell 2,000 shares at $2.00. However, unfortunately he has no choice than to sell into the bid, so he might drive down the share price and therefore even might have to sell more than the intended 2,000 shares.
The crucial point here is that this exercises pressure on the share price. While 2,000 or 2,100 shares might be more or less easy to swallow, the impact of, say 20,000 or even 200,000 shares is considerably higher. Maybe this is what we have seen on Wednesday. And this can do more than just temporarily flatten a rise, but it can cut off momentum and reverse a trend. :-(
By the way, the impact of new shares coming to market is much lower the higher the share price is. For example, at $70 per share (just to pick an arbritrary number) the person in our example would have to sell only 58 shares to pay back his credit.
Disclaimer: If people not only want to financially neutral convert options/warrants into shares, but also want to go to Vegas, buy a Porsche, a house, etc., everything will look quite different.
Andrea ("Powered by POET")
