The Jailhouse

[FrankNG]

"What some buyers of the death rides do is to play them like they do Reg S shares. They deposit the convertible shares into a brokerage account and then short sell a like amount of the common stock. The short selling activity helps drive the common share price lower, which means the convertible is worth a higher amount of common shares. The additional common share equivalent is then sold short, driving the share price even lower. This almost never-ending cycle is why these instruments are called "death spirals". Since the short sellers own the convertibles, this is also considered by many to be covered shorting and not naked"