RE:RE:RE:RE:watch patternI dont want to belabor this strategy bcz only my opinion.
Think of it this way.
You borrow 100 shares. You are now obligated to return those shares at a point in the future, regardless of price, your only obligation is to give 100 shares back to lender.
So, you can buy and sell that 100 shares all you like.
As long as you eventually return 100 shares.
Sell at 5, buy at 4.99, sell at 4.98, buy at 4.95. sell at 5.2, buy back 5.19. I just made .05 per share. shorting the covering.
I can lose money too. I only have to return 100 shares to lender eventually.
I can short the stock at .05 and buy at .01 and make .04. as long as I can buy low, sell high.
So, i can short the stock to zero and cover at nothing.
If someone has ROCC stock they anticipate receiving 7.5 shares of BTE in three months. They can borrow and sell 7.5 shares of BTE freely bcz they know they will be able to return the borrowed stock via merger stock of 7.5 per ROCC.
they can short to zero, if they want.
Typically you borrow, short high,buy low, return stock keep profit. Shorting is not profitable if you have to buy higher to return stock.
it is not wise to short a stock so low that it would be subject to a hostile bid. your shorts are not profitable. They do not need to buy to replace the borrow because they will get 7.5 shares "free" in three months.
They sold a ton on day one high volume. they are better off to replace those shares at a lower price (4.5-5) hence keep shorting.
if they short to $2 they make a great profit by selling $5.5 cover at $2 with deal stock. But if a hostile comes at $5 or 5.5. Ruins the profit. My guess is they do the delicate dance of $4-5 range to be safe.