RE:thing about fire
Vulcan wrote:
could be shorts or.could just be the impatient.. constant selling into the bids. price doesnt move because they sell supreme short. apha should be a great indicator that the companies the operate with the right products and run effectively.. will do great.. . yet we go down.. shorts work effectively or people are way toooo impatient.. only other option is rookie investors with very minor positions sell short because 10 or 20 dollar loss is irrelevant.. with time regardless those that sold short will reqret the loss of opprotunity.. jmho cheers
I'm not sure if there is a lot of shorting going on but the incentive will remain as long as the bonds are trading so far from par.
FIRE.DB are offered at 32.5, they earn an 18.5% current yield so it offsets the borrow cost on the short, the only way to lose money is if the stock goes through $0.94 if it was fully hedged and most hedge funds wouldn't fully hedge.
Now these guys aren't as smart as the fellows on this board so they don't think the stock is going to outperform the bonds. To be fair to these funds it's almost impossible to lose money with that position.
In the worst case scenario (FIRE goes bankrupt with zero recovery on the bonds) it makes money. In the best case scenario, they can always cover shorts on the way up and still make lots of money (because the bonds will mature at par) but not as much as the equity holders. That's fine by a hedge fund because they are focused on the risk/reward as opposed to just the reward. Heads you make money, tails you make a lot of money is a pretty great investment.
That's why I think it makes sense for equity longs to switch to the FIRE.DB. It replicates the trade hedge funds are putting on which still gives lots of upside (300%+ plus on the offer in 18 months or sooner) while protecting against any unforeseen equity issue or stumbles. It could still end badly, they should pay all of the coupons until next June at least, which means the net cost is closer to 25.25 on the bonds so there is even less risk on a dollars invested basis vs the equity.
its still a long position but in a safer albeit less liquid security. Of course having a maturity date is the ultimate liquidity event and it's not that far away.
Anyway, I know my comments are considered hostile but we all win if the equity and the debentures go higher so GLTA.