FREE MONEY

A zero-percent loan for a year. Just be sure you make the small monthly payments on time and then pay back the balance in full at the end of 12 months, before interest starts to accrue. Thanks, Citibank. Click here.

FREE ENTERTAINMENT

Ken Ritz: ‘For some terrific, and inexpensive (free, if you don’t count real estate taxes) entertainment, use the public library. Our libraries here in Rockford, Illinois (like everywhere else, I guess) have a Web site where you can reserve a book, CD, DVR . . . and they e-mail you as to when your selection comes in.’

FLU

Del Rickel offers this link to an argument that the avian flu threat is purposely overblown for the benefit of some drug companies (including one Donald Rumsfeld chaired before returning to the Pentagon). The author says that if we don’t make our living working with birds, it’s unlikely we have much to worry about. And that even if he’s wrong, billions spent on Tamiflu will do nothing to save us. Instead, he says, we should eat right, exercise, and stay clean. I don’t know whether he’s right, but don’t be offended if I rush to wash my hands after meeting you.

TEN MORE PUNS

Noel Serrano responded to the Patty Whack and Gandhi puns with a list of ten additional puns, hoping that one or more of them would make me laugh. But (stealing shamelessly from the list he sent), no pun in ten did.

SHORT SQUEEZE

Jonathan Walter: ‘I notice on Bloomberg that the short interest in NTMD is currently close to 50% of the float. I was wondering what your view is of the potential threat of a short squeeze, and of the future trigger point people might be waiting for to unravel this already reasonably chunky bearish position?’

☞ The Nitromed pie is divided into about 30 million slices, about a third of which are held by insiders and not traded freely, leaving a ‘float’ of about 20 million. Of these, shortsellers have borrowed about half to sell short. A short squeeze would occur if the stock starts going up and, scared by this (or forced by their brokers to cover their shorts lest they lose more than 100% of their account and cost the broker money), they buy shares to cover their shorts, driving the price still higher and squeezing more shortsellers to cover.

There is always this risk, which is why I suggested buying puts rather than shorting the stock directly. With puts, you can lose only what you bet – not more.

(There is also the risk that the owners of the shares short-sellers have borrowed will find ways to move those shares from their margin accounts, where the broker is free to lend them to short-sellers, to their cash accounts, where the broker is not . . . or even to demand physical delivery of the stock certificates. In other words, that they will be able to force a short-squeeze. But this doesn’t seem to happen a whole lot. And with about 65% of the stock held by institutions, which get paid to lend out their shares, it’s not clear it will happen with NTMD.)

Consider, also, that those who’ve shorted the stock think they have a pretty good reason. As companies go, Nitromed is not enormously complicated to analyze. It has one product. That product is the combination of two widely prescribed, readily available-at-one-sixth-the-price generics. Either it will sell well or it won’t. So far, it is not selling terribly well.

And consider, finally, that because they are sitting with profits as the stock has fallen from a high of 27.99 in February to $15.78 at Friday’s close, the shortsellers are in no rush to close out their positions and incur income tax on their gain. Nor may some of them ever have to cover their shorts. One can theoretically stay short a stock forever. Only once the stock becomes officially worthless is the jig up. You then have to report your profit as a taxable event, in effect ‘buying back’ for $0 the shares you shorted for $20 or $25 each.

So the shorts have a tax disincentive to cover their shorts before the end of the year . . . while some of those who own the stock, by contrast, may decide to sell their shares before year-end for the tax loss.

The company is scheduled to webcast a conference call Thursday at 9am. Bulls on the stock hope management will present good news that will drive the stock back up. Bears are betting the company will report the kind of sales results that do not justify a $500 million market cap. Don’t sell your puts.

 

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