Early in the morning, well befor the opening bell, There was a guy name Zdreg posting here on ET almost desperate to find a way to short BIDU...
That might have been one of the most valuable posts put on ET in a long time. You did your homework, gamed the trade, and made some nice cash. Nice trade! There are not many on here worthy of respect, but I must give credit when credit is due. Continued Success! Mike
Can someone explain how you would trade this info? These IB's could purchase 481,304 shares at $27.00 ( from where? were these warrents? ), if so how would that really effect the float except that now you had more outstanding shares available either to short or sell into the open market. So you went long based on this info that more shares were coming into the market? I don't trade IPO's and needless to say my mental processor can be rather slow at time. Maybe this is one of those times. Failing a reply by EtfTraderLives, would some astute soul please clarify how a long only strategy would take advantage of more shares coming into the market.
Hi I'm going to speculate as to what could have happened. You guys can correct me. Okay? First to answer your ADS question: Baidu.com, Inc. announced its initial public offering of 4,040,402 American depositary shares, or ADSs. Each ADS represents one Class A ordinary share. The ADSs are evidenced by American depository receipts, or ADRs. The ADSs began trading today at $27 per ADS on the NASDAQ National Market under the symbol "BIDU." Now nobody can short the stock because there is none to be borrowed right? However, if you could purchase the stock (post offering) @ $27 a share, you can short your own stock: it's called short against the box. In other words, you own 400,000 share @ $27 by exercising the option. The stock is then run up to $122 and you short it, effectively selling at $122 without giving up the stock. So you raked in a $95 profit on each share, and your totally hedged. When stock does come available for shorting purposes, and the stock dives, you cover your short. Makes sense?
I dont get it. You're long X shares at Y dollars, the stock runs up, you short it, as you have the shares from your options exercise, you simply deliver them against your sale, book the $95 bucks and move on. If you cover your so-called short, you remain long at the exercise price. Correct?
Well maybe they can not sell the shares for a certain period of time. So they hold the original shares and 'short against the box', locking in the profit. Correct, when you cover the short you still have the stock.