$OPEN: Why I think next earnings call will be disastrous (a follow-up to my dilution post).

Context for the dilution post here: https://www.reddit.com/r/stocks/comments/1nqq6by/massive_open_dilution_incoming_october_1_seems/

Now, I'll admit, when I made that post I hadn't quite deep dived into things and was looking for more clarification from other users out of curiosity. I am realizing now that my post might have made it sound like October 1 was going to be some kind of doomsday. I wanted to make a follow-up post to update on some things I have learned since and why I think things are still extremely bearish for Opendoor (outside of the profit and macro issues which most people are aware of already I think).

I will preface this by saying that what I have learned has been through reading filings, tracking data, talking to others more knowledgeable than me but I still may not have fully accurate info.

What I will say is that it is abundantly clear by all interpretations I look in to that the 207M convertible notes are very much eligible for conversion as of October 1. I don't have any doubt about that as everything I look in to confirms this is the case, especially when poring over the wording of the filing.

The other thing that is clear to me is that at the current price Opendoor is at, there is NO logical reason whatsoever not to convert (whether to cover a short position OR to sell at mass profit). Anyone arguing otherwise…I have yet to hear a convincing argument. ESPECIALLY when the notes were issued when Opendoor was under a dollar.

What I did NOT know when I made my previous post are the following things:

1. Notes are NOT converted automatically. A conversion request can be made and Opendoor has 4 trading days (to the best of my knowledge though this could be wrong) to consider the request and either issue shares or settle with cash. Given Opendoor's financial situation, it only makes sense to settle with shares. This means, that a conversion request occurring on October 1 would not "immediately" become an added share to the float the same day. I feel many people misunderstood this part. In addition to this, it would make no sense for note holders to convert and sell/cover 207M in a single freaking day. That would obliterate the stock price and ruin their own profit on the notes.
2. I've learned that note conversion DOES NOT require an immediate SEC filing. In addition, free float counts reflected in market data DO NOT get updated without a filing. This is important here because previously, I thought one would be able to see the float or share count increasing as this conversion was occurring. Thus, the only time we will see the impact on the float of conversion FOR SURE…is the next 10-Q…earnings day.
3. I've noticed some weird activity with Opendoor's shares available to short since I started monitoring it October 1. What was odd about that day (but could be total coincidence) is that I noticed shares available to short jump significantly AFTER which, a mini rally of the price occurred…which was then soon quashed. Coincidentally, we learned later that day AH that the ex-CFO has sold a block of his shares during that rally.

Since then (as I've been watching it), I've noticed interesting price movement such that shares available to short jumps….the stock rallies AFTER….shares available to short jumps back down, stock falls soon after.

Now I THINK this might be related to exit liquidity activity (ie. selling converted notes). Some notes need to be used to cover shorts, some to sell for profit. So I think short covering is occurring to spark a rally to sell converted notes into. Maybe it's a just a conspiracy theory though.

1. Interestingly, starting October 6 (around the time when note conversion requests would start becoming actual shares), we have seen some pretty crazy activity with massive spikes being pummeled right down, sometimes almost instantaneously. I believe this is a combination of the short covering and conversion selling occurring in tandem.

2. The short share borrow rate has been falling each day, even on rally days. Even though the short interest has been steady. While this could be for various reasons, I think it is likely because supply of available shares to short is increasing each day (dilution).

Given this "theory" (and let's face it, it is just that)…I am curious what impact this plays on the stock price leading IN to earnings because clearly insiders AND note holders know if conversions are going on and should act accordingly. But I also wonder what happens when other shareholders suddenly see the float potentially jump by up to 207M shares on earnings day unexpectedly. I can't imagine it would be good. Thoughts?

PS: "But Eric Wu bought shares!!!!!"…..yes, under an agreement that diluted the float since he didn't open market buy and at a price of $6.65…well below market…

Just an aside, but I'd also like to point out that mortgage and real estate data has been showing a softening trend since earlier in the year, and I can't help but think that doesn't help for next earnings date as well