Quick Update on our Options
THE LONGS
THE SHORTS
AGN – We have the July $55 puts and we’re solidly in the money. Earnings released and they were better than I expected. I was right about the Botox slowdown. Botox is 30% of their business and it’s slowing.
Then there is the valuation challenge. They have slowed from 32% to 23% and the P/E is 32. Maybe they will hit $50 and we cash out.
AN – AS I expected, profits took a beating. Down 37% Year-over-Year. No wonder: Autonation is the largest retailer of new and used US cars, and sales are down, down, down. Operating income is down from $185M to $147M but the EPS looks better because they have reduced shares 15% from 210M to 180M.
I shorted them because I expected more blood on the way.
Indeed, their books aren’t that great.
Assets are $641M in receivables and $2.3BM in inventory. I ignore the goodwill assets
Liabilities are $2.01B in payables, & $943M in liabilities
Not only are the hard assets barely covering their costs, I notice that the inventory has been stable ~$2.3B but the payables keep increasing $120M each quarter for 3 quarters. Their bills are piling up.
The last 4 quarters drove $1.31 EPS and it’s safe to assume a continued 30% drop from here, for ~$0.90 EPS. At an 11 P/E, that’s a price of $10. That’s why I selected the $10 puts, but I expected much more negative sentiment by now.
For whatever reason, Lampert keeps buying shares. Meanwhile, shorts seem to be rising: another 1M shares shorted last month
HOG – GMAC announced that they won’t finance things like boats and RVs. What about motorcycles? HOG is actually up since their horrible earnings release. Another bad quarter should do the trick.
MGM – They are hurting in every way. Fewer travelers, lower hotel rates, less gambling activity. Earnings were down 30%. Bear in mind that MGM is different form the Tropicana and Sands in that the MGM customers are high end: Monte Carlo, Bellagio and so forth. These are the folks who are supposed to be immune to a contraction. Apparently not. The short term pain of the fire at the Monte Carlo continues (about 600 rooms remain unavailable). Fix that and a few million comes back to the bottom line.
But I expect the pain to accelerate as more and more companies cancel conventions and Vegas business meetings.
We have the Sept $50s and are doing well. I’d like to sell soon, perhaps if they pullback closer to $45 and we can get $9.
NKE – Uggh. It’s just sitting there. Unless the market has a major pullback and these guys drop, I think we lost big here.
VMC
Missed earnings and guided down EPS from $4.65 to $3.65 and even that is probably high. VMC is a big asphalt and concrete maker and I expect road projects and construction projects to get delayed and cancelled. Also as an asphalt maker, VMC has deep exposure to rising oil costs. Margins have dropped precipitously.
Already Colorado and Florida are slowing public infrastructure to meet budgets.
They have a P/E that is way too high for their business. Their PEG is 1.6.
And they have ~$4B in debt and no cash.
I can’t understand why their stock didn’t get hammered after the major miss. We have the $50 puts and this thing is hanging in the low $60s. I was counting on a 10% haircut into the $50s to put some meat on the puts . Interestingly enough, massive put activity on the Jan 09 $50s and $40s. Almost 350 contracts each
ZLC – Another one that makes no sense. We know business will be bad. We know that things are hurting. This is another RSH that took forever to finally crash and burn. I was right in my assessment but my puts ran out of time. Lets hope that isn’t the case this time.
It is possible that we just saw a bit of a short squeeze: ZLC has 32% of shares shorted. With options expiring next week, a market pullback should hit them harder.
LONGS
ETFC – A pullback in sympathy with the market and with FNM’s weak announcement yesterday. The short side is pretty heavy here but it’s clear that $4 is the price point. Which is to say, one big buy move will drive the shorties to panic and cover and then hello $5. The longer ETC stays at $4, the more incentive there will be for the shorts to leave their position.
We have 2000 shares under the May covered call $4 strike price and I’ve been sitting on another 1000 shares. I had hoped to sell more covered calls a few days ago but the pullback made me wait.
For May, there are 44,000 options at the $4 price, out of 64,000 options. So I expect us to stay there pending some major move
Shift to June and there are only 13,000 total options, and most of those are calls.
Then looking at July, the volume is up again with a whopping 77,000 contracts of which 60,000 are calls and 38,000 are $5 or more strike price.
So you can see a bit of ebb and flow. The $4 price next week is the hammer keeping things bottled up, then the money is on a big upwards move. Let’s try and wait another 2 weeks to take advantage. I’d love to write some $5 calls on 3000 shares.
THE SHORTS
AGN – We have the July $55 puts and we’re solidly in the money. Earnings released and they were better than I expected. I was right about the Botox slowdown. Botox is 30% of their business and it’s slowing.
Then there is the valuation challenge. They have slowed from 32% to 23% and the P/E is 32. Maybe they will hit $50 and we cash out.
AN – AS I expected, profits took a beating. Down 37% Year-over-Year. No wonder: Autonation is the largest retailer of new and used US cars, and sales are down, down, down. Operating income is down from $185M to $147M but the EPS looks better because they have reduced shares 15% from 210M to 180M.
I shorted them because I expected more blood on the way.
Indeed, their books aren’t that great.
Assets are $641M in receivables and $2.3BM in inventory. I ignore the goodwill assets
Liabilities are $2.01B in payables, & $943M in liabilities
Not only are the hard assets barely covering their costs, I notice that the inventory has been stable ~$2.3B but the payables keep increasing $120M each quarter for 3 quarters. Their bills are piling up.
The last 4 quarters drove $1.31 EPS and it’s safe to assume a continued 30% drop from here, for ~$0.90 EPS. At an 11 P/E, that’s a price of $10. That’s why I selected the $10 puts, but I expected much more negative sentiment by now.
For whatever reason, Lampert keeps buying shares. Meanwhile, shorts seem to be rising: another 1M shares shorted last month
HOG – GMAC announced that they won’t finance things like boats and RVs. What about motorcycles? HOG is actually up since their horrible earnings release. Another bad quarter should do the trick.
MGM – They are hurting in every way. Fewer travelers, lower hotel rates, less gambling activity. Earnings were down 30%. Bear in mind that MGM is different form the Tropicana and Sands in that the MGM customers are high end: Monte Carlo, Bellagio and so forth. These are the folks who are supposed to be immune to a contraction. Apparently not. The short term pain of the fire at the Monte Carlo continues (about 600 rooms remain unavailable). Fix that and a few million comes back to the bottom line.
But I expect the pain to accelerate as more and more companies cancel conventions and Vegas business meetings.
We have the Sept $50s and are doing well. I’d like to sell soon, perhaps if they pullback closer to $45 and we can get $9.
NKE – Uggh. It’s just sitting there. Unless the market has a major pullback and these guys drop, I think we lost big here.
VMC
Missed earnings and guided down EPS from $4.65 to $3.65 and even that is probably high. VMC is a big asphalt and concrete maker and I expect road projects and construction projects to get delayed and cancelled. Also as an asphalt maker, VMC has deep exposure to rising oil costs. Margins have dropped precipitously.
Already Colorado and Florida are slowing public infrastructure to meet budgets.
They have a P/E that is way too high for their business. Their PEG is 1.6.
And they have ~$4B in debt and no cash.
I can’t understand why their stock didn’t get hammered after the major miss. We have the $50 puts and this thing is hanging in the low $60s. I was counting on a 10% haircut into the $50s to put some meat on the puts . Interestingly enough, massive put activity on the Jan 09 $50s and $40s. Almost 350 contracts each
ZLC – Another one that makes no sense. We know business will be bad. We know that things are hurting. This is another RSH that took forever to finally crash and burn. I was right in my assessment but my puts ran out of time. Lets hope that isn’t the case this time.
It is possible that we just saw a bit of a short squeeze: ZLC has 32% of shares shorted. With options expiring next week, a market pullback should hit them harder.
LONGS
ETFC – A pullback in sympathy with the market and with FNM’s weak announcement yesterday. The short side is pretty heavy here but it’s clear that $4 is the price point. Which is to say, one big buy move will drive the shorties to panic and cover and then hello $5. The longer ETC stays at $4, the more incentive there will be for the shorts to leave their position.
We have 2000 shares under the May covered call $4 strike price and I’ve been sitting on another 1000 shares. I had hoped to sell more covered calls a few days ago but the pullback made me wait.
For May, there are 44,000 options at the $4 price, out of 64,000 options. So I expect us to stay there pending some major move
Shift to June and there are only 13,000 total options, and most of those are calls.
Then looking at July, the volume is up again with a whopping 77,000 contracts of which 60,000 are calls and 38,000 are $5 or more strike price.
So you can see a bit of ebb and flow. The $4 price next week is the hammer keeping things bottled up, then the money is on a big upwards move. Let’s try and wait another 2 weeks to take advantage. I’d love to write some $5 calls on 3000 shares.
posted by Andrew at
8:47 PM
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