Options price hurting stock priceOn April 20, AEZ did a private placement with units sold at $1.35 which included options exercisable at $1.50.
On June 18, AEZ did another private placement with units sold at US$1.37 which also included options. But this time, the options are exercisable at the same US$1.37. The pricing of the options should cause selling pressure on the stock price. This is because Fund Managers who participated in the private placement could sell other shares in AEZ they already held, hopefully getting close to $1.37 the stock was trading at on June 17th, and they would be left only with the options exercisable at $1.37. In other words, they would get to participate in the upside of the stock with no invested capital.
Of course, as the Fund Managers started selling, the stock would start going down. But it would still be worth their while to sell as long as the stock was above 98 cents US ($1.03 Cdn). The company issued just under 9 million shares on June 18th. Since early July, about 2 million shares have changed hands on the TMX. I did not look up trading in the US. The stock has declined to as low as Cdn$1.06. The selling is almost all from "Anonymous".
My conclusion: Friday's price should be about the bottom. When the selling stops, I think the stock price will bounce back to the diluted price at the time of the June private placement, which would be about US$1.32. However, since only 2 million of the 9 million shares have been sold so far, it could hover around Friday's level for a while.
I bought in early June, feeling safe that the April placement was the last of the dilution for a while. Then the company surprise me with the mid-June placement and the sweet options. The good news is they now have enough cash to last until early 2012. But I still feel I got taken.