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Global Macro Trading Journal
- Thread starter Daal
- Start date
Daal, for what it's worth, vol is coming in A LOT. Jan16 vol was 95 yesterday and 85 today. Last time the 100 strike vol was at 85 was just before the Citron report came out and the stock was at 150.
I would take that to mean that the market does not believe that the stock will crater from here. It's becoming a fundamental story instead of a news driven one.
I would take that to mean that the market does not believe that the stock will crater from here. It's becoming a fundamental story instead of a news driven one.
You are probably right. However I'm going through a health issue that is making me trading difficult. I'm having dificulity holding any positions that I'm not totally certain about. Truth is, I traded too much this year. No vacations, just holiday breaks. I overstressed myself and now im paying the price (I have condition called adrenal fatigue which makes me sensitive to stress). Today, I had a tough day as I day traded and fought AVXL short, this created more stress. I'm actually worried about my condition now. I will take a break from posting until I feel better
As far as VRX goes, I did some more reading today and it looks like a key part of the skeptics thesis is the belief that Cash-EPS (a metric management uses) is non-sense. That is requires trust in management that they say they do not deserve. I believe that is a good point and if they are right this presents a challenge for the company. Cash-EPS is like operating cashflow with a lot of stuff added back in because management says they are a one-time charge. If management is full of it, expenses will be high in the future and cashflow generation will be weaker than expected, this will make debt markets nervous and the company would have big problems (however, this will take years to play out). If management and Ackman are right, the stock is a steal here. Who's right? I believe its likely the guys like Ackman are right. He can beat the market by over 1000 basis points per year with billions of dollars, its unlikely he would be tricked so easily by management (which be met in person several times). But I can't say it have a huge conviction on his judgement, sometimes people make mistakes. So please, anyone, don't take my analysis of VRX as a stock tip to get in and hope everything will be fine.
There are risks. I don't want to see people get hurt. This is why I never take OPM, I suffer more from seeing people lose money because of me than me losing. So please, understand that VRX requires a belief that cash EPS is real. I think that is likely but I don't have big confidence on it. Maybe my confidence is shattered because of my health issue (usually I have more staying power) but maybe my instintic is telling me its dangerous. I don't know. I just wanted to put that out
Will be back soon
As far as VRX goes, I did some more reading today and it looks like a key part of the skeptics thesis is the belief that Cash-EPS (a metric management uses) is non-sense. That is requires trust in management that they say they do not deserve. I believe that is a good point and if they are right this presents a challenge for the company. Cash-EPS is like operating cashflow with a lot of stuff added back in because management says they are a one-time charge. If management is full of it, expenses will be high in the future and cashflow generation will be weaker than expected, this will make debt markets nervous and the company would have big problems (however, this will take years to play out). If management and Ackman are right, the stock is a steal here. Who's right? I believe its likely the guys like Ackman are right. He can beat the market by over 1000 basis points per year with billions of dollars, its unlikely he would be tricked so easily by management (which be met in person several times). But I can't say it have a huge conviction on his judgement, sometimes people make mistakes. So please, anyone, don't take my analysis of VRX as a stock tip to get in and hope everything will be fine.
There are risks. I don't want to see people get hurt. This is why I never take OPM, I suffer more from seeing people lose money because of me than me losing. So please, understand that VRX requires a belief that cash EPS is real. I think that is likely but I don't have big confidence on it. Maybe my confidence is shattered because of my health issue (usually I have more staying power) but maybe my instintic is telling me its dangerous. I don't know. I just wanted to put that out
Will be back soon
Just a quick update on VRX. I believe now the only prudent way to play this stock (on the bull side) is to use long-term calls. Here is an article that finally has a bear case that is not-shit like the ones from hempton and others
http://www.bloomberg.com/news/artic...bility-of-revenue-squeeze?cmpid=yhoo.headline
They have a razon thin margin over the interest coverage ratio. 24% of revenues are under pressure, if the pressure is big enough it might breach the minimum. They could also face a loss of confidence from insurance companies/supplies/clients etc and have folks delay payments because they think the company is in trouble (specially when there is an article saying the company is doomed everyday on newspapers). This would hurt EBIDTA and make them breach. A recession could also hurt volumes and make them breach. etc
Now, this is a real short case, not that crap about saying 'philidor' over and over again after the stock is down huge. No, I no longer can think the stock is low risk. I hedged my exposure and now I believe the way to play this is to buy long-term calls (2017 jan calls, in the case the bullish scenario plays out) and maybe, buy long-term puts (for the bear scenario). I don't know how expensive are the puts but its something to consider. I would imagine the put skew is significant over the calls
Another way to play is to short the stock as a swing trade IF there is news on this front that is very bad. Ackman, Sequoia and others will liquidate and that will tank down the more a lot, even if the short is done from a huge gap down. What I'm saying is that chasing the short down (usually a no-no) is likely to work because those folks will have to bail
I'm off to vacation next week
http://www.bloomberg.com/news/artic...bility-of-revenue-squeeze?cmpid=yhoo.headline
They have a razon thin margin over the interest coverage ratio. 24% of revenues are under pressure, if the pressure is big enough it might breach the minimum. They could also face a loss of confidence from insurance companies/supplies/clients etc and have folks delay payments because they think the company is in trouble (specially when there is an article saying the company is doomed everyday on newspapers). This would hurt EBIDTA and make them breach. A recession could also hurt volumes and make them breach. etc
Now, this is a real short case, not that crap about saying 'philidor' over and over again after the stock is down huge. No, I no longer can think the stock is low risk. I hedged my exposure and now I believe the way to play this is to buy long-term calls (2017 jan calls, in the case the bullish scenario plays out) and maybe, buy long-term puts (for the bear scenario). I don't know how expensive are the puts but its something to consider. I would imagine the put skew is significant over the calls
Another way to play is to short the stock as a swing trade IF there is news on this front that is very bad. Ackman, Sequoia and others will liquidate and that will tank down the more a lot, even if the short is done from a huge gap down. What I'm saying is that chasing the short down (usually a no-no) is likely to work because those folks will have to bail
I'm off to vacation next week
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I'm feeling better now and have been trading over the past 2 weeks (I took 9 days off in Thailand in November). I'm not seeing any huge opportunities right now. Bill Gross gave some tips that probably are great for US investors, specially with tax sheltered accounts
"He said investors might want to consider such closed-end funds as Reaves Utility Income Fund, Duff & Phelps Global Utility Income Fund Inc. and Pimco Dynamic Credit Income Fund, which trade at significant discounts"
These funds got dragged down in the high yield carnage and are trading with 10-15% discounts to NAV. This increases the yield in the securities by quite a bit. Now, because I'm a non-US based trader, I get hit with a 30% withholding tax, this makes quite unattractive to be in these high yield funds. But for a US investor this looks like a very nice opportunity (specially in a 401(k) or IRA)
If you think about these close end funds, they tend to trade at a discount to NAV, this is annoying and the discounts tend to last forever as they reflect a liquidity discount that seems to never dissipate. If you buy something at bellow its true worth but the gap never closes, then one could argue the value was 'wasted' because the market never saw it. But this case is different because these funds are paying 10%-11 a year. You will get all of your capital back in a little over 9 years and keep collecting the dividend for a long-time
Also, when the carnage ends, the discount is likely to decrease to what had been the average historically. The pimco fund seems to be quite nice because its a bond fund, not a dividend stock fund. So its less volatile, less risky and likely to create less headaches.
It has rallied quite a bit since the low but if I had a US tax sheltered account I'd be on the lookout to pick up these assets in the future
"He said investors might want to consider such closed-end funds as Reaves Utility Income Fund, Duff & Phelps Global Utility Income Fund Inc. and Pimco Dynamic Credit Income Fund, which trade at significant discounts"
These funds got dragged down in the high yield carnage and are trading with 10-15% discounts to NAV. This increases the yield in the securities by quite a bit. Now, because I'm a non-US based trader, I get hit with a 30% withholding tax, this makes quite unattractive to be in these high yield funds. But for a US investor this looks like a very nice opportunity (specially in a 401(k) or IRA)
If you think about these close end funds, they tend to trade at a discount to NAV, this is annoying and the discounts tend to last forever as they reflect a liquidity discount that seems to never dissipate. If you buy something at bellow its true worth but the gap never closes, then one could argue the value was 'wasted' because the market never saw it. But this case is different because these funds are paying 10%-11 a year. You will get all of your capital back in a little over 9 years and keep collecting the dividend for a long-time
Also, when the carnage ends, the discount is likely to decrease to what had been the average historically. The pimco fund seems to be quite nice because its a bond fund, not a dividend stock fund. So its less volatile, less risky and likely to create less headaches.
It has rallied quite a bit since the low but if I had a US tax sheltered account I'd be on the lookout to pick up these assets in the future
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For income investors, its nuts to be long anything other than these sorts of funds. You effectively are getting a discount on a discount and getting paid a lot of your capital back every year. Sure, the discount might widen, but thats an opportunity to buy more, not freak out and sell at the lows like retail is doing
A point that Gross made is that because HY bonds have 1/3 of the volality of stocks, if you lever 3-1 on them you can get such huge implied returns that it makes it very attractive to own that vs US stocks. I don't believe this stock rally will last but at the same time I'm not looking to fight it. Fed is likely to do a dovish hike tomorrow, this might be supportive of stocks