Raadr Inc (RDAR)

[LOVE*PINK]

Should EMAIL to CEO of EVERY OTC stock.

I posted below on a few common boards so other investors can email the same to their CEOs.

DD on PREFERRED STOCK DIVIDEND+CATALYSTS = DOLLARS

Issuing a preferred stock dividend can force short covering, which can in turn trigger a short squeeze. This is because a dividend, whether it's cash or stock, represents a real obligation that short sellers must meet.

Here’s a breakdown of how it works:

1. The Obligation of the Short Seller
When an investor shorts a stock, they borrow shares and sell them, hoping to buy them back later at a lower price. When a company declares a dividend, the short seller is obligated to pay that dividend to the person from whom they borrowed the shares.

Cash Dividend: The short seller simply pays a cash amount equal to the dividend. This is a common and predictable obligation.

Preferred Stock Dividend: This is where it gets interesting. Instead of cash, the company issues new shares of preferred stock to its common shareholders. Since the short seller does not own the common shares, they don't receive the dividend. They must, however, deliver the new preferred shares to the lender of the original common stock.

2. The Mechanics of a Forced Cover
The critical part of a preferred stock dividend is that the new preferred shares are not available on the open market before the dividend is issued. This creates a supply problem.

The short seller needs to acquire the new preferred shares to deliver to the lender.

However, the only source for these shares, at least initially, is the company's common shareholders who received them as a dividend.

The short seller may have to buy these shares from the common shareholders on the market after the dividend is issued.

If the short interest is high, this creates a sudden surge in demand for the new preferred shares. Since the supply is limited (only common shareholders have them), the price of the new preferred stock can skyrocket.

3. Triggering a Short Squeeze
This situation can lead to a short squeeze in both the preferred stock and the common stock:

Preferred Stock Squeeze: The high demand from short sellers trying to cover their obligation drives up the price of the preferred shares. This forces other short sellers to pay even higher prices to acquire them, creating a classic short squeeze on the new preferred stock itself.

Common Stock Squeeze: The financial pressure and forced covering in the preferred stock market can send a powerful signal to the market. Other short sellers of the common stock may panic, fearing a similar fate or anticipating a broader upward move. This can cause them to close their positions on the common stock as well, driving up its price and triggering a short squeeze there too.

Naked Short Covering

Naked short selling involves selling shares that haven't been borrowed or located. In theory, a preferred stock dividend would also force naked short sellers to cover, as they have an even greater obligation to deliver the new shares without a legitimate position. This scenario is less common due to strict regulations but would be even more dramatic.

Overstock is a famous example of a company that used a preferred stock dividend to directly target and pressure its short sellers.

Here's what happened:

The Digital Dividend

In 2019, Overstock announced a special non-cash dividend of new digital securities. It gave its common shareholders one share of Series A-1 Preferred Stock of its tZERO subsidiary for every ten shares of OSTK common stock they owned.

The key to this event was that the new preferred shares were a blockchain-based digital security that could only be traded on the company's own regulated alternative trading system. This created a unique problem for short sellers.

The Forced Short Cover

For a short seller, this dividend was a liability. Since they had borrowed and sold the common stock, they were obligated to deliver the new tZERO preferred shares to the person they borrowed from. However, because these were new and unique digital shares, there was no pre-existing market for them.

This created a massive supply problem. Short sellers had to scramble to acquire these specific shares, but the only way to get them was from the common shareholders who had just received the dividend. The shorts were essentially forced to buy these new, illiquid shares on the open market, which created huge demand and drove up the price of both the tZERO preferred stock and Overstock's common stock.

This event was a key factor that contributed to a historic short squeeze on Overstock's stock in 2020, as it became a widely cited case study of how a company can use a non-cash dividend to force short sellers to cover.