IDM Pharma, Inc. (IDMI)

[tzm]

I'm more inclined to believe that there are a lot of investors that are upset that they missed buying below a buck. I just can't imagine how somebody is still naked shorting this stock. That trade is over and sticking with it is suicide. The majority of short interest is more than likely people who are hedging something or other such as the warrants.

If you own the warrants, you basically own a long term call with a 4 dollar strike (I think it was 4). So when the stock hit the high threes, a warrant owner would be well advised to short stock so that his warrant/call ownership is now converted into a straddle. This allows the investor to take advantage of a move in either direction and the investor is long gamma which allows him to sell more as it rises or buy back his short as it falls.

It's all a random walk but those of you who are interested in options should read a book by Sheldon Natenberg. It is the bible for option traders though you should be more than a beginner to get this book.

Once you understand that calls and puts are the same thing, you are no longer a novice option trader.

Oh and Bow, I think you wondered if the warrant holders would ever excercise the warrants if the stock went above 4 and then IDM would get some cash; the warrants would never get excercised prior to expiration because you can keep the warrant and short the stock and you have locked in your riskless profit while still collecting short interest for the remainder of the life of the warrant. PLUS, a long warrant and short an equal amount of stock is basically being long a put and why excercies and lose this free put. The only time you early excercise a call is if collecting a dividend outweighs the short interest you'll earn and the put value.

Understanding put/call parity is crucial for trading options. Here's a starting point for those interested:

http://en.wikipedia.org/wiki/Put_call_pa...