The way I understand it is the following. The buyers of the notes hedge their position by one time shorting the equivalent amount in shares that they will be receiving during the convert. This is a one time thing. That is why you saw that 10x spike volume yesterday. For example, let's look at the last time this happened:
Short interest jumped from 36mil in Jul 2001 to 115mil in Aug 2001 during the time the convertible took place, and has stayed pretty much the same since then (if anything has gone down a little). The difference of 79 mil shares (+/- 10%) would be the short arbitrage positions that will be covered when the notes are called and are replaced my shares.
nasdaq.com 
Feb. 15, 2002 108,400,980 20,582,523 5.27
Jan. 15, 2002 120,696,487 28,626,985 4.22
Dec. 14, 2001 108,395,174 26,131,385 4.15
Nov. 15, 2001 114,617,460 20,818,204 5.51
Oct. 15, 2001 106,425,776 21,891,594 4.86
Sep. 14, 2001 118,783,300 25,537,900 4.65
Aug. 15, 2001 115,316,612 35,466,965 3.25
Jul. 13, 2001 36,397,035 23,386,917 1.56
Jun. 15, 2001 40,569,232 19,991,695 2.03
May 15, 2001 36,769,332 30,636,523 1.20
Apr. 12, 2001 37,047,310 29,178,395 1.27
Mar. 15, 2001 33,097,686 23,416,200 1.41 |
