GM - Why is there any value left to their stock?

[chsbla]

Quote from stock_trad3r:

bailout is guaranteed

right, but thats not why i started this thread.

I wanted to discuss the reasons why one would not want to get short/puts on the common when we all know that there will be massive equity dilution with a bailout/debt for equity swap.

 

[Daal]

m22au
I think GM stock will be destroyed in most scenarios
-bankrutpcy(stock goes to zero)
-creditors swap debt for equity(massive dillution)
-government bailout(paulson said the difference is when there is the possiblity of private capital coming in, in those cases like in C, they dont wipe out shareholders, in GM there is no possibility so using paulson as a guide I think they get crushed)

 

[CaptainObvious]

Quote from chsbla:

right...so why is the common trading at near four fity. Im just wondering if im missing something here, there is no way that common is not going to get diluted no matter what happens. anyone else holding a bunch of puts?

Never under estimate the stubbornness of the gamblers. They'll hold and double down to the bitter end.

 

[m22au]

I'll raise my hand and confess to being long the JAN 2009 $6 puts.

Pointing out the obvious, its important to keep in mind that there is a lot of time premium in GM puts.

That's why I took the opportunity to sell the JAN 2009 $2.50 put in a 1:1 ratio against my holding of $6 puts.

Quote from chsbla:

right...so why is the common trading at near four fity. Im just wondering if im missing something here, there is no way that common is not going to get diluted no matter what happens. anyone else holding a bunch of puts?

 

[m22au]

Thanks Daal.

I think one of the Congress plans mentioned giving the Treasury warrants to the value of 20% of the loan size.

So if we assume a loan size of 14 billion, the Treasury would get 2.8 billion of warrants. At a share price of $4, this represents roughly 50% dilution, so a theoretical share price would be about $2.

We'll wait and see, the latest media reports make it sound like some progress is being made, and my gut instinct tells me that the bailout will be finalised before Christmas.

For the gamblers out there, the December 2.50 puts are offered at 8 cents - could be a lazy 25 bagger if the stock declines to 50 cents before expiration tomorrow.

Quote from Daal:

m22au
I think GM stock will be destroyed in most scenarios
-bankrutpcy(stock goes to zero)
-creditors swap debt for equity(massive dillution)
-government bailout(paulson said the difference is when there is the possiblity of private capital coming in, in those cases like in C, they dont wipe out shareholders, in GM there is no possibility so using paulson as a guide I think they get crushed)

 

[chsbla]

lol someone just let something leak about the talks. stock is down 12% to 3.80.
its prob on the chrysler rumor being nixed. lol glad to be long these puts

 

[CaptainObvious]

Quote from CaptainObvious:

I don't think that GM is going to get the Christmas present they're expecting. It's looking more like they, the Bush administration, are trying for a orderly crash landing. This will be a lump of coal in the GM Christmas stocking for sure.

Yep, looking like a gut punch for the UAW. Bush wants a orderly BK. This won't sit well at all.
Chrysler is done either way. They've shutdown for a month and my guess is they'll never open those plants again under the Chrysler name. If they merge with GM, maybe 6 of those 30 plants will open again.

 

[noisebasement]

GM even with potential bankruptcy there is still the hope of new intervention... either way i hope im righ i just went long today