09-20-2012, 12:34 PM
In case anyone is wondering whether or not a large percentage of the shorts could be held by the convertible note holders, not so with IOC. It is not unusual for holders of convertibles of any company to short the common so they have a risk-free coupon. If the stock goes way up, they can always convert to cover the short position. If the stock goes to zero, they already sold short.
According to note 26 of the 2011 consolidated financial statement, the $70,000,000 in convertible notes can be converted for 10.4575 shares of common for each $1,000 in notes. The conversion price is $95.625 per share. If all the convertible notes were converted, there would be a total of 732,025 shares issued. That is less than 10% of the most recently published short position. I have no idea if the convertible holders are short or not, but even if they are, there are over 90% of the other shorts that will have to find some other way to cover.
Some shorts may be hedged with long calls, but it sure seems like this is really going to end ugly for either some shorts or some option traders or both. If the shorts own a ton of calls, then the option market makers will have to buy the shares from someone. I remember a conversation I once had with a former options trader on the CBOE. He said there were occasions where a stock moved so dramatically on them, that it "left a mark". I have to believe that IOC is going to "leave a mark" on one or more institutions somewhere pretty soon. In terms of the old board game, Clue, I say it is Colonel Phil, with the sell down, in the board room.
According to note 26 of the 2011 consolidated financial statement, the $70,000,000 in convertible notes can be converted for 10.4575 shares of common for each $1,000 in notes. The conversion price is $95.625 per share. If all the convertible notes were converted, there would be a total of 732,025 shares issued. That is less than 10% of the most recently published short position. I have no idea if the convertible holders are short or not, but even if they are, there are over 90% of the other shorts that will have to find some other way to cover.
Some shorts may be hedged with long calls, but it sure seems like this is really going to end ugly for either some shorts or some option traders or both. If the shorts own a ton of calls, then the option market makers will have to buy the shares from someone. I remember a conversation I once had with a former options trader on the CBOE. He said there were occasions where a stock moved so dramatically on them, that it "left a mark". I have to believe that IOC is going to "leave a mark" on one or more institutions somewhere pretty soon. In terms of the old board game, Clue, I say it is Colonel Phil, with the sell down, in the board room.