Citigroup - Symbol C recently cut the dividend to their common shares by 76% (if I am remembering correctly) and the stock got hammered. This was nothing earth shattering or amazing, the entire financial sector was selling off. There were rumors of nationalization and worse.
Now that the dust is settling, something pretty amazing is starting to come out. Some of this is clearly speculation, but here is what it looks like to me.
When they cut the dividend by 76% they also gave the holders of the common (not sure which percentage) the option to convert into preferred shares with a set price. What happened? It gave the holders of the common, now preferred owners with a minimum conversion level, the option to short the stock and have near unlimited upside.
Of course, these new shorts creamed ths stock, and this further reinforced the fervor of the naked shorts who piled on more with this newfound volume giving them the wind at their backs.
This is my take on the situation. Not sure, and surely will learn more about this as time passes on.
Good luck all.
I've enjoyed and appreciated your insight in all of your posts. Wish they were more frequent!
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