Best of luck!
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Global Macro Trading Journal
- Thread starter Daal
- Start date
It appears that Hempton is no longer short (and if he is, it certainly is a very small left over position being done for fame/ego/asset gathering purposes rather than anything else), Chanos seem to be in this camp as well. They are not adding here. I suspect they know its a bad short, because, well, it really is. Last quarter the stock was down to $19, before earnings it was at $22 or so. They kept guidance and a few days later it was at $32.
It wouldnt take much to have the stock to double from here. I do know that
-Any bk, IF in the cards, will take years to happen
-They are planning to sell assets and the phone is ringing 'off the hook' according to an insider
-They are GAAP cashflow positive by almost $2b a year (and the problems related to adding back depreciation and amortization are likely to only show up years in the future, IF there is a problem there at all)
-There is little, if any, margin for error for a short position. Which makes the long side more attractive
Given those points, I dont think I will need luck
It wouldnt take much to have the stock to double from here. I do know that
-Any bk, IF in the cards, will take years to happen
-They are planning to sell assets and the phone is ringing 'off the hook' according to an insider
-They are GAAP cashflow positive by almost $2b a year (and the problems related to adding back depreciation and amortization are likely to only show up years in the future, IF there is a problem there at all)
-There is little, if any, margin for error for a short position. Which makes the long side more attractive
Given those points, I dont think I will need luck
Well, best wishes then... I urge you to consider all the other angles.
Well, I have. From the very beginning I considered that the stock was a possible $0. Thats why I hedged at $100. As a result, I only suffered half the loss from VRX all the way down to $30s. At that point I saw the long side offered a much more attractive side. So did the shorts, at least in part, Hempton was covering on the way down and the last time I read about his position he said he only had a small piece left and that was months ago. He might not even be short. So I added an extra stake when the reward to risk changed like thatWell, best wishes then... I urge you to consider all the other angles.
At $18-$20, as I said, the margin for error for a short is like nothing. You got to hope nothing happens (no positive catalyst) for like 2-3 years and the company files for bk and you capture your 100%. In the meantime, it doesn't take much of a catalyst for the stock to squeeze hard, as it happened last quarter. They kept guidance, the same guidance that they are likely to cut now. You cant get a clearer example than that, it was all nothing, yet, the stock rallied 30%. I wish I had taken some off that table (to more comfortably add lower now) but I didnt. Point is, this is a really bad short. The onus is on the short to make their case, the long side will actually be rewarded if they are right
So far the bears have been right about that sentiment trade (how the market would feel about the possible bullish and bearish realities) but for the actual reality (which reality is the correct one) that jury is very much out, and it will take YEARS to find out
I do know that now its the worse time since the beginning to join that sentiment trade. The risk reward is as bad it has ever gotten. Thats why the shorts are taking profits (or refusing to add and keep their exposure constant) and new longs are entering.
I do know that now its the worse time since the beginning to join that sentiment trade. The risk reward is as bad it has ever gotten. Thats why the shorts are taking profits (or refusing to add and keep their exposure constant) and new longs are entering.
If the shorts were to model the chance that the bulls are right (and the stock being worth $60+), very quickly a short at these levels becomes a negative expectancy bet. I'm not the one claiming to be 100% right...Well, best wishes then... I urge you to consider all the other angles.
Yet again, all the best and I hope it works out for you...
As as far criminal stuff goes, Merk suvived Vioxx, which actually killed people. Plus dozens of other settlements the pharma industry had over the years without a 'suit induced bk'. I dont think there is a presdecent to that. To think that an accounting suit will bring down VRX seems a big strech to me. Anyways, these are my thoughts on it. I'm comfortable long this but I wouldnt recommend most to get involved, otherwise you will be the guy to buys high and sells low