Full credit goes to crazitjo who noted (before it even happened) that JPM may be exercising an option to purchase 1.2 million shares off the open market pursuant to their underwriting agreement with KERX.
Essentially, a company may provide to an underwriter an extra 15% of the shares for a public offering. In KERX's case, the secondary offering consisted of 8,234,000 shares. Basically, JPM buys an extra 15% of the offering at the offering price of $8.49 per share and sells those shares on the open market. JPM is, therefore, effectively short 1,235,100 shares of KERX. JPM then has the option to cover their short shares either from the open market or from KERX's treasury depending on the market price of the stock. If the market price is above the offer price of $8.49, then JPM will purchase the stock from KERX at the offer price so that they don't lose any money. If the price is below the offer price of $8.49, as it was on March 1st, JPM may purchase the shares off the open market, which will be returned to the KERX treasury. In this second scenario, JPM stands to receive a profit by recovering on the open market.
As crazitjo noted, JPM had 30 days from the secondary filing to exercise this option, which puts us right around March 1st.
So unfortunately, there's a perfectly, unsexy reason for today's rally.
"Basically, JPM buys an extra 15% of the offering at the offering price of $8.49 per share and sells those shares on the open market"? Correct me if I'm wrong but I think what you meant is that JPM short-sold 15% of the secondary offering at the offering price of $8.49 (as supposed to bought them), which is how the green shoe option is supposed to work. Thanks for the info!
I think you are correct. Between 10:32 and 10:38 on Friday about 5 big block trades totaling about 1.2 million shares were executed. Each time the PPS rose. The next trade which was probably a short started taking the price down a little. No founded news, just a secondary for JPM! Good observation "crazitjo"
Sentiment: Strong Buy
Hip guy, I am naive about the whole MM controlled market. I don't know a cup and saucer from a head and shoulders. I believe you are saying that JPM buys the shares from Kerx and sells them, and "therefore effectively short". How is that any different from either of us selling a share, and ( having the opportunity to buy it back) being a short. You can call me a newbie, a pumper,a dumper, a sheep jumper. Don't care. I've owned this stock since Jan. 10. People like you ,who feel they are able to manipulate a stock on the weekend are forkin idiots.. My excuse is that the movie sux and I'm 2 Martini's and 1/2 half a bottle of red in.Enjoy your life.
No need to call me names. I have no intention of manipulating the stock, I'm just searching for a more reasonable explanation dramatic increase in volume last Friday than a SierraNews buyout rumor that has been around since late January. Google Greenshoe option. Also, reference the latest propthink article which opines that the greenshoe option may in fact be invoked by the underwriters. Lastly, review the SEC filing verify that what I've written is true.
I will enjoy my life, thank you. Best of luck to you.
My mistake, I believe JPM covers their short from the open market in both scenarios, NOT from KERX treasury in any scenario. Where the market price is above the offering price, JPM has the option of covering their shares from the open market at the offering price. Again, JPM does not make any money in this situation, so let the conspiracy theories fly as to who was behind the February bear raids.