“Is it a sign of rampant speculation? Of market manipulation? Of a short squeeze? Or could someone possibly know something?” asks Floyd Norris in today’s New York Times.

“Whatever the reason, warrants, or options to buy stocks, that appear to be all but worthless have become one of the hottest and most active securities traded on the Nasdaq market over the last two days.”

“Yesterday, 14.75 million warrants to buy shares in the New Valley Corporation changed hands. That brought two-day volume to 21 million warrants.”

“There are fewer than 18 million warrants outstanding, providing for a phenomenal turnover. On Monday, before the surge of trading, 41,374 warrants were traded.”

“During the two days, the price rose from 8 cents a warrant to a high yesterday of 29 cents, before settling at 19 cents, still more than twice the price on Monday.”

“What do the buyers get? Each warrant, which expires next June 14, grants the owner the right to buy one share of New Valley common stock for $11.30.”

“Unfortunately, that does not look like much of a bargain. New Valley shares, which trade infrequently, have never traded above $5 in the four years they have been outstanding. Over the last two days, the share price has edged up, by 20 cents, to $4.34, but the volume has been only 33,810 shares. The action has all been in the warrants.”

“In other words, unless the stock nearly triples in the next seven months, the warrants will expire worthless.”

” ‘We know of no reason for the recent trading activity,’ a company spokesman said yesterday, adding that executives would say no more.”

“A money manager who owns a large block of New Valley stock, Andrew Shapiro of Lawndale Capital Management, said he was baffled by the movement. ‘There is nothing fundamental that I know about that would justify those warrants having any value,’ he said.”

“Such high volume movements have all the characteristics of a short squeeze, in which investors who bet that the warrants were overvalued at 8 cents are forced to scramble to repurchase shares as the price is driven up. But the Nasdaq report on short interest for November – based on trading through Nov. 11 – showed a short position of only 712 warrants. There is no indication from volume data before Tuesday of a huge short position having been taken since the short interest numbers were compiled.”