FDR: a clarification and a correctionBy me, that is.
First the correction. I keep forgetting the report of outstanding FDR short interest doesn’t discriminate between covered and naked shorts. So when I said recently that covering by naked shorts looked to be 10-12% of trading for the last two weeks, it’s possible some of those were merely warrant holders exercising their warrants.
Which we know for a fact many warrant holders have been doing. Though I confess I cannot understand why. With 12 months to run until expiry, presumably no margin requirement, and no margin *eligibility* either yet, there seems to be zero incentive to surrender any capital. But I must be missing something, because the exercises continue at a smart clip.
Now the clarification. I arrived at my somewhat arbitrary 25% estimate for November PP sellers as follows. 10% of holders by volume would sell their entire positions for the quick double currently available. A further 30% of holders would attempt to recoup their initial capital – meaning sell half their positions. (1 x 10%) + (0.5 x 30%) = 25%. Roughly speaking.
So – are we facing a sharp, brief selloff dead ahead? Unlike last July, it is hard to imagine a 25% drop in FDR’s share price this time around. There may be no decline at all. The block-trades may already be loosely arranged, to be consummated early on the free-trading date. My best guess is no more than a 10% price decline. And it might last only 2 or 3 hours.
FDR’s stock has been stuck in a trading range since, arguably, late December. But the November PP’s free-trading date may be about to break that logjam. By my calendar math, the sell-off, if there is to be one, will begin Wednesday, March 27th. (The 27th being what I think is the earliest day the November placement holders can sell.)
It's going to be a fun week.