|
|
Post by liane on Mar 3, 2014 17:48:16 GMT -5
|
|
|
|
Post by babaoriley on Mar 3, 2014 19:27:29 GMT -5
alcc, if you take a look at this document, you'll see what appears to be potential short selling as a hedge strategy.
|
|
|
|
Post by alcc on Mar 3, 2014 22:37:01 GMT -5
babaoreily,
If you mean Deerfield could have pre-sold their shares when the price moved above their conversion price, sure, I supposed they could have. But what relevance does that have for a regular street investor, or even a hedge fund that does not hold such contracted conversion rights?
Besides, that's not a hedge. That's locking in a gain, period. Seems to me we have a different understanding of what "hedge" means.
|
|
|
|
Post by babaoriley on Mar 4, 2014 2:49:03 GMT -5
alcc,
Here's what the document which Liane linked above (the Third Amendment to the S-3 Registration Statement) states on page 8, regarding the plan of distribution:
"In connection with the sale of the shares, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction)."
The other day, in connection with a discussion on the constituency of the short interest someone posted a theory that perhaps a portion of the short interest might be represented by certain people hedging. The above seems to indicate a way in which that might be done, and they do use the term "hedge."
I've always thought of a hedge in terms of taking an action which is intended to mitigate one's loss, in case things don't turn out exactly as you'd like. So if you hold 10,000 shares of MNKD in one account, and you sell short 5,000 shares in another, you've hedged your original 10,000 share bet on MNKD (whether you've locked in a gain at that point or not, does not in my mind make it not a hedge). Of course, there are many ways to hedge, I do it by selling covered calls, for example. I sometimes buy puts, but I think they are too expensive for the coverage afforded with this stock. If the share price were much higher, it might be easier to do.
|
|
|
|
Post by alcc on Mar 4, 2014 12:40:56 GMT -5
babaoriley,
I agree a hedge is generally understood as an action intended to mitigate one's loss, but WITHOUT reducing one's net position. If "you hold 10,000 shares long in one account and sell short 5,000 shares in another" you now have a net long position of 5,000 shares. You did not protect those 10,000 shares. You sold half of it -- plain and simple. You can call it reducing your long position, or taking profit, whatever. But what it is assuredly NOT is a hedge.
You can hedge a position by using derivatives or shorting some other stock or instrument. But when you short the same stock you hold, how can that possibly be a hedge?
|
|
|
|
Post by babaoriley on Mar 4, 2014 12:52:19 GMT -5
Unlike you, alcc, I'm not sure (my whole life is one of uncertainty, though). I just am pointing out how the securities lawyers who wrote that filing characterized what Deerfield may be doing. The only point being it seems that selling short can be a part of a hedge strategy, perhaps only coupled with other actions. Certainty is rare in my world.
|
|
|
|
Post by alcc on Mar 4, 2014 13:05:03 GMT -5
Further, let's parse the following: " [...] the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions."
a) It does not stipulate what hedging transaction Deerfield might enter into. Does not say they are using short as hedge.
b) The broker-dealer might "in turn" engage in short selling. Of course! A broker-dealer who does not want to end up with a net position on MNKD will most assuredly want to hedge any transaction it undertakes with Deerfield. That's what a dealer of derivatives do all day: zero out their net positions as much as possible. Let's say Deerfield wants to "hedge" their long MNKD position by selling covered calls. The market maker who bought those calls would definitely short an equal number of shares, generally in a near-simultaneous execution, because he does not want to be caught long. That's a hedge, by the dealer.
c) Deerfield may sell their shares short and deliver these securities to close out their position. Note, it does not say this is a hedge. All this says is Deerfield may be net short at any time, and upon conversion, use those new shares to close out their short positions. In other words, nothing in the agreement prohibits Deerfield from pre-selling shares they KNOW they can acquire later at a fixed cost. This is called reducing their long position. Not a hedge.
|
|
