Share
3,053 Posts.
lightbulb Created with Sketch. 2
clock Created with Sketch. 10/04/17
09:50
Share
Originally posted by iamjb46
↑
Actually the underwriters of the 11% bond, and the vast majority of the buyers of the bond were not cvt guys, and did not treat this as a cvt. This was a High Yield deal, with penny wts (only a term, the cost was 0) included to sweeten the offering.
Expand
Originally posted by iamjb46
↑
My most recent comment was trying to show the low probability of the shorts being hedged by the wts., as well as question tuna's characterization of the underwriters and bond buyers. The concept would make sense if the Black Scholes valuation model was applicable for a real trade here. In this situation, you can establish and trade off of a real value when shorting the stock, but because of the things i mentioned, on the wt side you only have theoretical pricing. I think the bottom bottom line is that GR tried to fit two "One size fits all" shorts on QIN, one being the "ponzi" allegation (check out Ackman's pain in his Herbalife trade), the other the "we don't trust any Chinese company, so if target has done business with a Chinese company it's a fraud" (somebody is doing billions of real business with Chinese companies, must be something to do with a quickly developing consumer class with a billion buyers, and super low labor costs). It seems QIN may have been deceived by the Chinese buyer, but I think there are one or two other buyers in that country. QIN isn't a small company dependent on one buyer, or even one product. Multiple revenue streams with years of runway, no debt maturities in sight, and no covenants to break. "IF THE GLOVE DON'T FIT YOU MUST ACQUIT", or cover!
Expand
I don't know where you have got the idea that black scholes doesn't apply because it's not tradeable - but it's not right - otherwise they would simply exercise the warrant and hold the stock! Nowhere in the derivation of Black Scholes, GARCH or the binomial models of option pricing does it require the option to be tradeable, and it would be trivial for the owner of a warrant to either go to an investment bank and ask them to make an OTC hedge (short stock, long put) or just hedge it dynamically themselves.
