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Thompson Creek Metals Company Inc. Message Board

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  • straightdope13 straightdope13 Dec 12, 2012 7:36 AM Flag

    Guess... The... Short Interest!

    28.1 million shares short as of end of November. Up a little from mid-November.
    I still believe a lot of these shorts are an arbitrage trade with tMeds, and will not be closing their positions in the near future.

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    • Hi StraightDope13,

      I don't understand why someone who would go long the T-Meds would then turn around and short the stock and I don't understand how that is arbitrage. I don't understand this logic. Can you explain your theory?

      I get that the people who bought the TMEDs could short the stock and have already effectively covered at the higher price but why would anyone do that. If you short the stock down here around 3 but you bought the TMEDS at a 4 to 5 range then you are guarenteeing that you would loose money because you have effectively covered your short at a higher price (the cost of the TMEDS). You want to cover your short at a lower stock price or hope the company goes bankrupt so not sure exactly how this logic works.

      Sentiment: Strong Buy

      • 1 Reply to molyvestor
      • From a May 15th post soon after tMeds were issues.

        Re: You Guys Having Fun?
        by votingmachine . May 15, 2012 4:50 PM . Permalink
        Thanks. The part that was confusing to me was it almost sounded like the $25 was split into $4.075312 and $20.924688. Then I wondered if the contract to receive shares was 5.3879 times the $20.924688 part.

        The fact that the contract for shares is for $25 of shares makes the split a bit misleading. The convertible part of the tMED is $25 and the Note part is $4.075312.

        The smartest way to play the tMED's is to buy the tMED and then short 4.5855 shares at a price over $5.45 (against the box). That way you get the tMED free. You cover the shares with the conversion. And since tMED buyers are all potential shorts at $5.45, the price is going to be capped.

        It is tempting to try that. The price was $5.5 before all this fell down. Any short at any price that nets $21 will turn the investment into an 11.68% return. So a short against the box at $4.80 gets you $22, and the note portion costs $3.

        And if the stock price is under the $4.65, you get a bonus 0.8 shares at conversion after covering the short.

        From a pure gain point of view, the common stock is probably a better bet. But from a hedging to lock in a decent gain point of view, the tMED's have some nice features.

 
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