If your theory is right, then i have a different view of UBS's motivation.
Give this theory. If we simplify it a bit, say assume 1% of of the "share flow", similiar to "cash flow".
Some lender initially buys 1% of LNC, and lend 1% to a shorter, who shorts on market. Assume, the lender is only one buying at market, thus he bought the total 1% back. The cycle can go on forever in theory, ignoring the fundamentals of paying interest, availability, other buyer/sellers on the market, legal and etc.
Thus, in theory, accumulatively, you can short more than the total number of shared on issue. From lender's book, the virtual number of shares is unlimited, depending on how many cycles it went through. Same applies to the shorter.However, that would only be 1% of the voting power. At any point of time, from lnc share registry point of view, there is in total only 1% of "real share", which is with the lender at all time.
In this case, if the sp is essentially down to 0 or sp is pushed down to a point it won't move down any further. The whole reverse ponzi scheme shall bust, because there isn't enough real shares on market to fill in the shorting positions and shorters will have to pay premium regardless. Thus the time is always on the lender's side (assuming company fundamental does not change for simplicity of math model).
Given this theory, then UBS is the lender here and he is essentially taking a positive view at LNC (i say positive meaning the fundamental won't drastically deteriorate in short time frame). The overall net reduction of "real" share is due to the effect of lending out shares to shorters not actually resulted from selling LNC themselves.
If we take this view, then UBS eventually makes huge profit when shorters go busted. Essential this is when market liquidity is drained completely.
I know this is getting really naive now. But just for the fun in the math, UBS has decided to gamble even more, it decided to "call" a massive amount of options. Then it has to be determined to bust shorters before options expiry.
Given bondie holds 40% and assume he never sells. if UBS secretly accumulate maybe another 10-15% and/or somehow promote shorters to increase their position by another 10-15% before option expiry, the market liquidity would be pretty much gone. Shorters then won't find enough buyers and will have to fill in their position in a very dry market.
Hey, if you have read this far and still trying to follow my logic, or even attempting to throw tomato or egg at me, you had been reading this post too seriously.
LNC Price at posting:
61.5¢ Sentiment: None Disclosure: Held
