The short position in Money Store Inc. has surged, apparently because the company issued convertible debt in early November.
Short interest in the Sacramento, Calif.-based finance company jumped to 3.1 million shares on Nov. 15, from 1.7 million on Oct. 15. Short interest is the outstanding volume of shares sold short - that is, borrowed and promptly sold.
Traditionally, short-sellers are betting that the stock price will fall, so their short positions can be covered profitably with cheaper shares. In recent years, however, short-selling is often employed in sophisticated hedging strategies.
In this case, analysts said, investors are short-selling Money Store's common stock to profit from the price differential between the preferred stock and the underlying common stock.
On Nov. 5, the company closed a public offering of 4.6 million shares of convertible preferred stock, raising $117.6 billion of capital. The preferred shares convert to common shares on Dec. 1, 1999.
As the conversion date approaches, the short interest related to the preferred stock is likely to decline, as the price differential shrinks.