Jim Leff:  “Per yesterday’s post . . . at this point, I’m neither ‘very confident’ [like Mr. Hudson] nor ‘very hopeful’ [like you] about the lawsuit.  I certainly know what ‘should’ happen, and Glenn Hudson outlined some of that in his Seeking Alpha article. But the Delaware Supreme Court surprised me by making new law in their ruling, and the case has returned to the hands of a judge who already made one outrageous ruling.  So the end result is anything but clear.  Anyone who’s in SIGA to wager on this legal outcome is taking a speculative bet when a smart one lies just beyond it.  Even if the baby were to remain split 50/50, half a gold mine is still a fantastic outcome. I’m both confident and hopeful that we’ll win either way.  What I can’t tell you is the timing. I retain my near-Borealis level of patience.”

☞  Ah, well, I’ll get to Borealis in a second, but a bit more on SIGA.  One big thing I don’t know is the value of what else the company has in development. But its entire market cap is currently just $150 million, and my own sense of these things is that this is too low.  So I happily sit on a lot of this stock with money I can truly afford to lose . . . even as, with money I am all but itching to lose (not much, but some), I yesterday bought December $4 calls at 30 cents each.  Which means I’ll probably lose my 30 cents.  At the same time, I did something normally insane: I sold some December $3 puts.  Someone paid me 55 cents each for the right to “put” SIGA shares to me at $3 any time between now and December 21.  If the stock is $3 or above in six months, I get to keep that 55 cents; otherwise, I wind up owning yet more shares at a net cost of $2.45 each — the $3 I will have to pay less the 55 cents I’ve already received.

There are limits to how much SIGA I want to own, even at a price as cheap as $2.45.  But I haven’t reached those limits, and I just couldn’t resist.  Please take me seriously when I say that normal, healthy investors are best advised simply to own some of the common shares and leave it at that.  Options trading — let alone “naked” options trading — can wreck lives.


I bought a bit more after the Paris air show, when it turned out Honeywell/Safran had not signed up any airline customers after all, as they hinted they would announce they had . . . and when I read of some potential disadvantages of their system.

I paid about $10.50 for the shares . . . and as I did I wondered — as I basically have for a decade — who is selling?

People do die, so their estates could understandably be selling shares when they do.  And I have one friend who forgot to pay his taxes and had his brokerage account “garnished” (with a radish cut in the shape of a rose?) which led his broker to sell 231 shares without even asking.

But surely death and taxes can’t account for most of the daily volume in Borealis, modest though it is.

Presumably, most of the people who own the shares have some clue as to the speculative nature of the holding (or why would they have bought in the first place?) . . . why would they be getting out now? 

One theory is that most of those shareholders aren’t selling — that short-sellers are.

Not your garden variety, “oh, I think this is a dog, I’ll short some,” short-sellers — why would anyone expose themselves to the risk? — but, rather, market makers who, the theory goes, don’t even know which specific stocks they’re shorting . . . and don’t bother to “borrow” the shares before they sell them . . . they just meet demand for hundreds of different dodgy little stocks by selling the shares without owning or borrowing them (“naked” short-selling), as orchestrated automatically by some computer algorithm premised on back-tested data that shows that, over time, most of the companies they’re shorting will just disappear.  As so many dodgy little companies do.

It sounds risky (and, if they hold their naked short positions overnight, let alone for years, illegal).  But it’s not as though insane (and possibly criminal) things don’t sometimes happen on Wall Street when the temptation is there.  Packaging sub-prime mortgages into triple-A rated collateralized mortgage obligations springs to mind.

If this is what’s happening — computer-generated short-selling of dodgy little companies — then the market makers get use of the cash they are paid for shares they don’t own; and if once in a while they get hammered (losing $20 bucks each on 100,000 shares, say) — well, what’s the occasional $2 million loss to a big market maker who’s got the odds right?

There’s a site called that tracks stuff like this, for a fee, and I was sorely tempted to pay that fee to see what they’d come up with on BOREF.  But, on reflection, why bother?  WheelTug will eventually either be very valuable or not.  In the meantime, if naked short-selling is keeping the price of the stock artificially low, that’s good for the buyers.  And, for the foreseeable future, I’m a buyer.




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