The Shorting of Frauds, Overhyped and Bankrupt Stocks Journal

D

Daal

In this journal I would like to discuss, share and construct trade ideas revolving stocks that are likely to
-Go to $0 for a variety of reasons(Assuming this will be a big move)
-Be delisted from main US exchanges
-Have enforcement action taken by the SEC or another regulatory agency that is likely to tank the stock
-File for bankruptcy

Currently 2 stocks that I'm short(through Oct and Sep puts) are FMCN and FSIN. These 2 are chinese frauds that are highly likely to be delisted within 1 year. The question is whether I was correct in constructing my trade through puts and whether I will have the patience to keep rolling over them. So far these stocks are defying gravity. Jim Chanos is short FMCN.

Here are the reports that lead me to put the trades on
FMCN
http://www.muddywatersresearch.com/research/fmcn/initiating-coverage-fmcn/
FSIN
http://www.zerohedge.com/news/muddy...hi-copperweld-fsin-represents-high-risk-fraud

Please post ideas that meet the criteria I set, overvalued/momentum stocks do not meet that criteria. FB, AMZN, etc they might be overvalued but are pretty darn unlikely to tank to the extend that stocks I want to focus on are likely to
 
I also own puts on OSTK. But this POS company has been undead for years, I might be premature there. IV is also high. I could have made a mistake on this one
 
my understanding is that the bulletin boards i.e. snpk are not marginable and cannot be shorted.
what do you say?
 
I found with these kinds of stocks, it can take quite a long time for them to blow up, I don't think 3-6 months is enough. For example, I bought puts on some shitty real-estate stocks in 2007 and it took until 2009 for some of them to hit $1 or below. I bought some puts on a China fraud in 2010 and it took a little over a year to blow up.

My advice would be to go out 18-24 months with the LEAPs. Yeah, you only make like 3-5 times your money instead, but at least your chance of making that is about 75%+. Alternatively if you do use short-dated puts, then trade much smaller and expect to have to roll them over for up to 2 years before a payoff.
 
Quote from zdreg:

my understanding is that the bulletin boards i.e. snpk are not marginable and cannot be shorted.
what do you say?
More...

There is no such restriction, its a broker to broker thing. IB wasn't even giving quotes on SNPK due some regulatory actions against the company but in some brokers it was totally shortable
 
Quote from Ghost of Cutten:

I found with these kinds of stocks, it can take quite a long time for them to blow up, I don't think 3-6 months is enough. For example, I bought puts on some shitty real-estate stocks in 2007 and it took until 2009 for some of them to hit $1 or below. I bought some puts on a China fraud in 2010 and it took a little over a year to blow up.

My advice would be to go out 18-24 months with the LEAPs. Yeah, you only make like 3-5 times your money instead, but at least your chance of making that is about 75%+. Alternatively if you do use short-dated puts, then trade much smaller and expect to have to roll them over for up to 2 years before a payoff.
More...

I'd buy the leaps for 2 years if I could make 3x to 5x. In the stocks I choose I was calculating a 6x-7x payoff in the short dated puts. In the longer ones it was probably much worse
Some of these stocks don't even have puts going out that long, its a pity
 
Maybe another approach is to short them on small size as a basket, with say 10-20% of your account. Just be careful at the end of corrections and bear markets, these things can skyrocket when funny money comes in.
 
You must log in or register to reply here.
Back
Top