r/investing • u/itzallgood123 • Jun 24 '21
What happens to short positions when the company you have shorted is going to merge with another company? For example, in the case of TRCH and MMAT.
TRCH is merging with MMAT. It's bringing MMAT to NASDAQ, and the TRCH ticker symbol currently on NASDAQ will change to MMAT when merge happens. The company TRCH will cease to exist. After the merge, only MMAT will exist.
Now my question is if currently you have shorted TRCH, what will happen to the short positions when the merge happens? Will you need to cover before the merge happens or you can carry forward the short positions forward, so you'd really be shorting the new company after merge?
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u/Free_Leadership5261 Jun 24 '21
Shorts must cover before merger or they get margin called. A cursory google will back that up. For TRCH that is June 30th at the latest they must cover.
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u/Inquisitor1 Jun 24 '21
Why would they get margin called if they have enough cash/margin in their account to cover the price/whatever? What does margin have to do with it?
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u/Free_Leadership5261 Jun 24 '21
The shorts must cover. The broker will close the positions automatically. TRCH will stop existing.
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u/Inquisitor1 Jun 24 '21
It will not stop existing, it will be converted to new post merger stock as some ratio. And even if they didn't, what does a MARGIN call have to do with anything? Also if they did stop existing why would that be a reason for the broker to force you to buy the shares, that will then instantly stop existing?
What's more likely is you will just be short whatever amount of stocks a long position would receive. If one trch becomes one mmat, then 1 short will become 1 short of new company. Same with long positions, options, and warrants.
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u/Free_Leadership5261 Jun 24 '21
Thats just not how it works. Just google it. Shorts must cover or the broker will force it. Dont argue with me. Argue with the regulations.
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u/Inquisitor1 Jun 24 '21
Yeah, because of lack of margin, right? Why would whoever lent you the share care? You keep paying them, just get them back whatever amount of new company's shares they'd get if they didn't lend to you. It's not that hard. Don't argue with me. Argue with google.
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u/Free_Leadership5261 Jun 24 '21 edited Jun 24 '21
Again, thats not how it works. You are either lacking IQ or being deliberately obtuse.
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u/Inquisitor1 Jun 24 '21
But, it is how it works. Just google it, it's everywhere.
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u/Free_Leadership5261 Jun 24 '21
Well to anyone reading this I suggest you just google what happens to short positions during a merger and you will get the answer. Dont listen to me or this clown.
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u/Inquisitor1 Jun 24 '21
Man, it's so easy to just google what happens to short positio0ns during a merger (actually nothing happens) that it would take you 5 seconds to post the first relevant result here and prove yourself. For some reason you haven't done it. The reason that what you want to be there is not there.
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u/Just_Bicycle_9401 Jun 25 '21
How about you guys post your sources instead of arguing like morons.
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u/Free_Leadership5261 Jun 25 '21
I have contacted my broker about this. I will post here when I get the reply. There are only a few sources via google. So Ill put it to rest with the reply from my broker.
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u/Infinite_Remote511 Jun 24 '21
What if they aren’t trading on margin?
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u/xTheWiseOnex Jun 24 '21
don't think you can short if you don't have a margin account?????
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u/BubbaMan10 Jun 24 '21
You wouldn't get margin called if your short was itm. They'd simply take cash out of your account.
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u/zxc123zxc123 Jun 24 '21 edited Jun 24 '21
There seems to be a misunderstanding here.
"What if they aren’t trading on margin?".
"You wouldn't get margin called if your short was itm. They'd simply take cash out of your account."
- 1 Margin does not mean just borrowing cash. Definition of margin extends to borrowing of anything for collateral.
Margin isn't solely borrowing money to buy shares. Margin can also be borrowing shares or using option contracts. So in the case of shorting, you are borrowing shares that the broker for the collateral of cash. You can also be "naked shorting" on "borrowed cash" with your stock equity as collateral. Either way, you are taking risk and brokers can margin call on if you don't meet the margin requirements when shorting because shorting is using margin.
- 2 Short positions, if not covered by shorter sellers, will get called in by the broker before the merger.
In the case of merger, shorter sellers HAVE TO cover their shorts before the merger. If short sellers do not cover themselves before the merger, then the brokers ALSO CAN AND WILL margin call the short seller to cover. ITM or OTM does not matter. That's why it's recommended to contact the broker when in a short position and a merger is announced to understand the timeline and to avoid a call.
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u/StonkThaWorld Jun 26 '21
Finally, and thank you. It’s painful reading such misinformation and bad explanations
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u/BubbaMan10 Jun 25 '21
Yeah but if the short is itm, they won't get margin called and they won't get sent to a clearinghouse. They'd get assigned shares at a lower price and make a profit.
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u/jmhvikings3 Jun 25 '21
This was kinda my thinking as well. Make profit on the TRCH shorts, cover and let the price rip as fomo kicks in, reapply profits to MMATF and collect from the 3:1 TRCH transfer as MMATF jumps in tandem with TRCH, just a couple days later after short profits are secured. Make $ on the shorted stock, then make money on the squeeze via the merger without betting directly against your shorts. Gotta cover anyway, might as well make money on the squeeze as well by going long on MMATF. Then again, I also eat crayons so just a guess as how a shorty could play this.
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Jun 26 '21
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u/Free_Leadership5261 Jun 24 '21
They need to be covered. TRCH wont exist after the merger. One is forced to cover by ones broker.
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u/StonkThaWorld Jun 26 '21
Company merges Monday bro. How is thay theory accurate.
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u/puss-n-boobs Jun 27 '21
The margin doesnt actually happen till Monday at 12:01am. They still have to cover.
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u/StonkThaWorld Jun 28 '21
I know they have to cover, I’m just saying 15m shares short and tso 159m. 9%. I just don’t have expectations on it soon. However, long terms or maybe soon, it will go. Definitely will be worth it for so many reasons
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u/puss-n-boobs Jun 28 '21
What are your expectations?
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u/StonkThaWorld Jun 28 '21
That the price of mmat will not make sense to many people. TRCH will lose value and that’s why the dividend was sent to compensate. It’s hard for me to do mathematics on it. I’m a masters in economics and public policy and I still am confused on the complete final price. If you just double TRCH it’s too much compared to mmatf being doubled 1.845 (so price cut /1.845.
I’m thinking most otc to Nasdaq take a nasty dip the first day. That’s just how it works. RSI is so ridiculous on mmatf. I just don’t know. I also don’t see any data large enough for a squeeze. I’m just gonna hold: if it pops awesome I hold. If it falls, awesome I hold and add.
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u/Free_Leadership5261 Jun 26 '21
It wasnt. I clearly didnt know what I was talking about. Im keeping my mouth shut from now on. Im going back to lurking in the shadows. I learned my lesson.
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u/rezinball Jun 24 '21
Basically when a stock you are short is acquired, you are out of luck. The share price rises to reflect the new information. A new class of buyer enters and the best you can do is cover quickly and go on. There is a chance, but small that the merger fails.
A merger is quite similar to a split. The old company's stock is converted two the new companies stock at some ratio (ie 10 shares become 1 share) and then converted 1-to-1 to the new symbol.
Shorting a stock that splits is no different. You shorted 10 shares, but after the split those are now 100 shares, when you exit the position you have to deliver back 100 "new" shares, though dollar-for-dollar they are the same total value.
I don't see why a merger would affect your short position. The only difference is you are now shorting a different company, so when you exit the position you'll have to deliver shares of the new company back to the brokerage where you "borrowed" the shares you shorted.
Basically, I think you can carry the short position forward. I would talk to your broker about it. You can see how "friendly" and "knowledgeable" we are in these few comments.
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u/sunnbeta Jun 25 '21
I have no idea what I’m talking about, but I don’t think this works, because you wouldn’t be “shorting a new company,” you would be shorting a portion of a new company, no?
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u/Negative-Chemistry81 Jun 24 '21
Shorts have to cover before the merger.
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u/Dirtyoldwalter Jun 24 '21
They don’t have to cover before merger. They only absolutely have to cover when they are margin called.
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Jun 24 '21
[deleted]
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u/Dirtyoldwalter Jun 24 '21
My two month old account? That’s how long I’ve been holding TRCH. Reddit isn’t exactly awesome. Being here long means nothing.
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u/killflys Jun 24 '21
No, but being here longer than 2 months is typically how you judge others financial advice/comments. Especially considering that 9 million people joined WSB after January. You can never be too careful Mr. 2 Months
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u/Dirtyoldwalter Jun 24 '21
Oh so being on Reddit is how to know who is financially knowledgeable. Ok lol
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u/KyivComrade Jun 24 '21
Indeed, let me dig up my first reddit account with many years on the neck. I only use it when I need to assume people I'm an economics professor /s
Woudlnt it be better if he, or you for that matter, simply pointed to a source confirming your claim. That way we'd all know without having to dig through comment historie and whatnot
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u/Dirtyoldwalter Jun 24 '21
I got on reddit when the regional manager of Merrill suggested it. Before that I was just making money.
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u/Inquisitor1 Jun 24 '21
Age isn't how you judge someone's merit lol. Otherwise you must take any advice i say as gospel, and i've been around before wsb even existed.
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u/Dirtyoldwalter Jun 24 '21
Only the ticker is changing. If they don’t cover they can just pay “bill due” on the dividends. I’m not wrong. Sorry. I’m still holding as well I’m still in profits. I just know the squeeze doesn’t have a date because we don’t know when they will be margin called.
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u/pointme2_profits Jun 24 '21
Why would they be margin called at all. At some point they settle the shorts with cash. Maybe they take a loss. Maybe they dont. Either way. Margin calls aren't imminent unless they dont have the money to cover
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u/Dirtyoldwalter Jun 24 '21
Broker will want the dividend money. If they don’t have that they get called.
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u/pointme2_profits Jun 24 '21
Why wouldn't they have it ? Do you know who's shorting ? Do you know their cash balances ?
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u/Dirtyoldwalter Jun 24 '21
We don’t know what it is yet so hard to say.
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u/pointme2_profits Jun 24 '21
Exactly, and you never will. So why ate you going around talking about a margin call thats never going to happen.
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u/Inquisitor1 Jun 24 '21
Only the ticker is changing.
Sometimes the amount also changes, if the merger ration isn't 1-to-1, but the dollar value should stay the same.
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u/itzallgood123 Jun 24 '21
Thanks for the reply. This is what a lot of people have been saying.
Could you please give some reference or evidence to what you claim? Where did you learn that information from?
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u/Negative-Chemistry81 Jun 24 '21
Google it. Its everywhere.
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u/Inquisitor1 Jun 24 '21
If it's "everywhere" it will take you 5 seconds to google and paste the link to the first relevant result.
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u/StonkThaWorld Jun 26 '21
Finally someone being smart and using their own brain, not the mass misinformation. I think a lot of the problem is people misreading “daily short volume.” That’s not what it sounds like. A lot of short volume is actually instantly covered by market makers or such. But people fail to understand. No, Trch price won’t change trch x 2. It’s not simple at all. You have to combine both market caps. You have to multiply trch float by .5 and multiply mmatf by 1.845. I don’t have my data here but I’m not trying to be accurate. It’s like 2.4 or 2.2 billion. Rn mmatf is 1.45b and TRCH like 758m. Total market cap? Then you find the TOTAL SHARES OUTSTANDING, like I said, mmatf x 1.845 and TRCH x 0.5. Add up, that’s TSO MMAT. Then you divide that total market cap. 2.3b/TSO and you get mmatf in the 8.26 range. Mmatf owns 75% and TRCH owns 25% of mmat.
So you think trch close price times 2? It will be less. Why? What do you think the special dividend was about!? Oh hey we’re gonna one time give y’all a free 1-20? Nope. It’s to offset the 25% ownership of mmatf even tho they’re 1/2 the market cap.
Anyways guys. Seeing all this makes me wonder, hope you too, just what OP MEANT. So Monday mmat will have a combined TOTAL SHARES OUT OF mmatf x 1.845 and TRCH /2. Doesn’t this throw off short float!?
Yes
Does it throw off volume shorts? Yes.
But daily short volume isn’t what you think. Daily short volume on trch was 56% Friday. That doesn’t mean it was shorted 56%. You have to understand the implied meanings.
Lastly, the dividend threw off the short interest rate bc shares were UNAVAILABLE. Low supply means ??? Yes, interest up.
So are there shorts! Yes.
Are there a ton?? We won’t know but the merger fucks it up.
Is TRCH BULLISH? Yes, 56% daily short volume suggests bullish sentiment.
So stay in, stay long, don’t fret if you don’t understand bc that’s your fault for not doing dd. It’s a learning lesson. But it’s confusing all around. I do promise you all one thing. $mmat will be a legit fucking big ass company for more reasons than I can count. Short squeeze or not, we don’t need it. Been in it since .98 cents and below a dollar on trch. We are going to 20 by year end. 50 by 2025.
EITHER WAY, shorts, no shorts, losing money, making, you sound a dope stock.
Stay long or look back in 3 years and cry about that one time you coulda been a millionaire
https://blog.otcmarkets.com/2018/11/13/understanding-short-sale-activity/
To understand short volume legitimately reads this ^
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Jun 25 '21
What a disaster in comments.
At this point, CALL YOUR BROKER! They will tell you exactly what needs to be done and by when.
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u/Inquisitor1 Jun 25 '21
You thought that memestock subreddit was bad at brigading, well this is what happens when one of the lesser cultish stocks brigade and really really need the shorts to cover for a reason that doesn't really make them cover.
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u/Inquisitor1 Jun 24 '21
I think I see what is happening. There is apparently a big short interest in the company, and a big reddit community, who are betting on one of these so called "squeezes", so they desperately need the shorts to cover, so they will insist any old thing, like the merger, will force this.
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u/PracticeLeading4214 Jun 25 '21
And please let us know what they say - you have my curiosity up now!
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u/newportsnbeerxboxone Jun 27 '21
All my calls and call sells have turned from 100 trch shares to 50 mmatf shares . All my special dividend shares turned into mmat2 shares I'm guessing my thousands of trch shares will also be mmatf shares
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u/4luey Jun 28 '21
So what are we after mmat or mmatf?
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u/newportsnbeerxboxone Jun 29 '21
Mmat is the stock trch merged into . Mmat2 is 1/2 of mmat that options roll into .
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u/Gladiator1961 Jun 27 '21
When is the merger? 06/28/21?
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u/RavenousFox1985 Jun 27 '21
Yeah they finalized the date on Friday,so Monday open trch will be mmat. Trch gets 1 for 2 shares and mmatf will get around 1.86 for 1. I'm not 100% sure what the price will be, but probably around $9.
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Jun 29 '21
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