Bourbon, yesterday I had a similar CYDY thought. I cant nail the price but it will be multiple times higher.
It will not be impossible to cover shorts. If a Buy Out hits there is always 20 trade days before it is finalized.
In day one short sellers will have the choice to transfer in huge dollar amounts under demands of every brokers Margin Clerk. If the meet that margin call they are betting that the Buy Out will fail.
Once started, very, very few fail. Option two is buy the shares to cover the short.
In the example of Maxwell Smart's grandson; Notso Smart, is short 10,000 shares of CYDY at 5$ and fully Margined. At 10$ he will receive a demand notice to bring the account to 50% equity.
10$ X 10,000 shares = 100,000$ 50% is 50,000$ Today Notso has 10,000$ invested due to a bad weekend with the Horses. Thus Notso needs 40,000$ instantly.
After that add 5,000$ demand per 1$ increase. If a buy out hits at 50$ the share price will be around 46$. this is a best guess indicating an estimated 8 to 10% discount which is an Arb Investor opportunity.
BUT, But; the broker holding the short's accounts have the option to make a full demand. I knew Margin Clerks that always did in this case. Meaning? If CYDY trades at 46$ our short friend Notso will receive a margin call that brings his account to 460,000$
10,000 shares X 46$ + Remember my warning. Notso, just because you have parked on this Rail Road Crossing for a month and no trains have arrived does not Short Position.
Most short sellers have never experienced a buy out. I have. This is how it happens. If you can not meet that call on your 10,000 CYDY short you will be bought in.
A demand letter will be arrive that day by currier. If not met a law suit will follow.
If by chance a Broker Firm's Margin Clerk or higher Exec reads this; shorting CYDY has risk. This is just one. This risk can wipe out an entire Broker Firm. Why. Because Notso Smart can not meet that call.
The other and more severe risk? CYDY has sales / Revs, followed by earnings, and the shares march ever higher. That is the most dangerous risk to short sellers.
In the 1970s I ended every call when I knew I was discussing one of my companies with a short by saying; "Sleep Well Short".
I knew exactly how almost all shorts have the sense of severe financial devastation in their dreams. This is because the losses can be unlimited. It was my way of helping them reverse and become a long. I knew a man that was wiped out. Quit the broker business. A travesty. One mistake and out.
Yes a long explanation. I believe it is best to cover the entire series of events that can occur. Again, I have experienced this. Twice. Survived. Covered my short and went long. Did well on one, fantastic on the other. Olympia Brewing and Equitable Savings and Loan, circa very early 1980s. Investors must be flexible.
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