06-14-2013, 07:11 AM
2411 vangorilla
2416 vangorilla
What happens with most publicly traded company financings, the investor or investment house will sell shares short in the company knowing they will be able to replace them with shares in the financing.
Notice that almost all financings are done at a steep discount to current market prices. If XYZ was trading at 1.00 and Broker A was going to do a $1m financing, you would probably see Broker A sell 100-300k shares at the $1 dollar level knowing they could replace those shorted shares with stock in the offering at (hypothetical) .75.
Look at any stock when they announce they are doing a secondary offering or looking to raise money...stock always drops.
In DSNY's case, a $35m financing was proposed...the stock started to drop as soon as they started to negotiate...it was dropping so hard and fast that the people doing the financing wanted to cut the proposed price by 50%.
DSNY and those individuals couldnt agree on pricing so the transaction never closed. I am guessing Steve realized what they were trying to do to his company.
Well why didnt those guys cover the shares they allegedly shorted?
Based on what I read it looks like those guys were notorious for death spiral financing and they thought the financing would allow them to short to oblivion, DSNY would go out of business and they would never have to cover.
Now you have a company very much alive, profitable and on the verge of becoming very well known in the tech world. If, and it's a big IF, there is a naked short position in DSNY to the numbers that have been discussed, you could see a short squeeze that could last for weeks....yes weeks. The average daily volume for DSNY is 75k shares.
DSNY is in a very strong position because they dont have to do any financing which might give the shorts a way to cover. By buying back stock through the buyback plan, the company is just making it even harder for the shorts to cover...less shares on the market to purchase.
If there is a short squeeze in play, there are ways to really put a hurting on them..which I will discuss if, when that happens.
That concludes Shorting Naked 101..
Notice that almost all financings are done at a steep discount to current market prices. If XYZ was trading at 1.00 and Broker A was going to do a $1m financing, you would probably see Broker A sell 100-300k shares at the $1 dollar level knowing they could replace those shorted shares with stock in the offering at (hypothetical) .75.
Look at any stock when they announce they are doing a secondary offering or looking to raise money...stock always drops.
In DSNY's case, a $35m financing was proposed...the stock started to drop as soon as they started to negotiate...it was dropping so hard and fast that the people doing the financing wanted to cut the proposed price by 50%.
DSNY and those individuals couldnt agree on pricing so the transaction never closed. I am guessing Steve realized what they were trying to do to his company.
Well why didnt those guys cover the shares they allegedly shorted?
Based on what I read it looks like those guys were notorious for death spiral financing and they thought the financing would allow them to short to oblivion, DSNY would go out of business and they would never have to cover.
Now you have a company very much alive, profitable and on the verge of becoming very well known in the tech world. If, and it's a big IF, there is a naked short position in DSNY to the numbers that have been discussed, you could see a short squeeze that could last for weeks....yes weeks. The average daily volume for DSNY is 75k shares.
DSNY is in a very strong position because they dont have to do any financing which might give the shorts a way to cover. By buying back stock through the buyback plan, the company is just making it even harder for the shorts to cover...less shares on the market to purchase.
If there is a short squeeze in play, there are ways to really put a hurting on them..which I will discuss if, when that happens.
That concludes Shorting Naked 101..