What are you buying today?

[no_free_lunch]

LMCA.  Malone has levers.  He should be able to use them to produce some decent alpha. 

[alertmeipp]

Bought OTM puts on IWM early today to add to the pile of SPY puts we own.  Nice pop with the IWM puts up about 65% at the close.  Have been rolling some of the ITM SPY puts into longer duration OTM puts.

It's definitely nice to have an increasing store of potential dry powder in this decline.  It remains to be seen if, in the immortal words of George W. Bush, "This sucker's going down."

+1. Let the discussion continue on whether it makes sense to hedge or not but it sure feels nice to have no impact on your portfolio when the markets go down 2%+, especially when you are at that time trekking in northern thailand's jungle! :d

It sure feels good when you timed it right... the thing is how often you timed it right. If one has the ability on timing (some do), there is much better way to make money than doing "hedges"

I give him credit.  He timed it perfectly and he had a reason...WSBASE...he called it on the way up too.

you are very kind. However, there is a big difference in predicting a major turn in the market and making money on that prediction.  Our hedge is tricky. I don't have the guts to in effect go short with TRS as Watsa did because of the huge adverse movement if the market against all reason continues to go up.

We started out in mid January with slightly OTM Feb SPY puts. These waffled back and forth mostly under water until the last few days of Jan. Today, we closed out the last of these with a nice gain. In the meantime, we have been rolling about two thirds of these gains farther out on the volatility curve, buying March and then April SPY and IWM puts that are longer dated and a little bit farther out of the money than the February puts when we first bought them.  We also took some $$ off the table so that if the market is sluggish to decline or pops back up, we won't lose money on the hedge.

Now, if the market goes down fast or a lot, the greater volatility exposure will give us an extra kick. 

twacowfca,

Nice. So, I switched some of my VXX to SPY puts (my logic is the VXX up alot while market actually did hold up well - so VXX is overpriced?)... is that a right thing to do? TIA.

[twacowfca]

VXX is good as volatility goes up dramatically when there is the smell of panic on the wind and people pay up for near dated protection..  It's also nice because movement in the VIX leads what's going to happen to the VXX when people get scared.  Thus, one can tell when it's time to get in the VXX or out of it.

Otherwise, the VXX will eat your lunch 95% of the time that you are long

I loved the XXV and successors when it first came out before they advanced up to the limits. It didn't have the frictional costs of many other such funds. It certainly saved a lot of time reading the tape daily to decide when to buy back the short positions on the index as they got near dated.

If the market gets very ugly, you are almost certain to make a lot of money shorting the VXX as it peaks near the levels it reached in 2008 and 2009.  All you have to do is hold on until the VXX mean reverts. That's easier said than done. Most sure things are pretty simple, but surprisingly difficult to execute.  

[alertmeipp]

Thanks, nice overview on VXX.

[frommi]

Buying OTM options with only 1-2 month DTE is like buying heavily overvalued stock. They simply have no value, when you buy them you have to prey a world collapse happens, because otherwise you won`t make money. You can be right with your directional call and still lose money. An experienced option trader calls these types of options junk and sells them, >75% of these options are worthless on expiration. They are only good for one kind of trade and that is when you go long volatility. But you don`t go long vol when the 1 year IV-Rank is >50% (as it is since 1 week in SPY), you are doomed to lose statistically on these kind of trades.

[dpetrescu]

Im a bit frustrated, I've been selling ATM puts on SORL Feb 2014 for 25% of strike price. I managed to get a decent position but I placed a mid-spread ask price and price is up for no reason. My plan was to keep doing this until the end of the year or until a position is exercised. Either way I'm happy.

[Mephistopheles]

SHLD. The market cap is now down to $3.7 billion.

Enterprise value is near $8 billion though when you include their debt. I'd like to see some insiders make some purchases. It's just tough to value a company bleeding over a billion in cash a year.

I'm estimating roughly $8.1 billion EV at the end of 4Q if you count total debt of $3.9 billion (based on an $800 million reduction in the domestic credit facility in the update press release), $3.7 billion market cap, $1.8 billion in cash from the press release (included $500 million pro forma from Lands End), and I even included $2.4 billion in pension from 3Q which should most likely be less after the market run up.

Then if you subtract roughly $300 million equity value for LE, $1.8 billlion for KCD, $4.4 billion in net inventories (estimate for 4Q), and $500 million for the warranty business, you are left with $1.1 billion for the real estate, home services business, and anything else I missed. Of course Sears Canada is consolidated so that needs to be adjusted. But I think $1.1 billion is extremely cheap. As far as the cash burn, a good chunk of it is coming from the pension, which I accounted for here. And then the rest of the waste is SYW, which I've heard estimates for up to $800 million.

Hopefully that comes down. I think Eddie has talked about cutting advertising spending and having SYW points replace that, of which the former is twice as much as the latter at $1.6 billion (2012). It's come down from 4.4% of revenues to 4% from '11 to '12. So there is a lot of fat to cut there if SYW membership points are truly going to replace much of traditional advertising. I wouldn't be surprised if ad spending continues to decline anyway since they keep closing stores.

Overall I see a great collection of net assets, and cash burn which really can be controlled.

As far as insider buying, even though Lampert may not have bought in a while, we all know how invested he is.

[bmichaud]

We started out in mid January with slightly OTM Feb SPY puts.

To Cardboard's exact point - who can possibly utilize this strategy on a consistent basis? TWA is BRILLIANT - and as with Ericopoly, the "DO NOT TRY THIS AT HOME WITHOUT ADULT SUPERVISION" disclaimer should come at the bottom of every post 

[bmichaud]

Market refusing to go down on terrible jobs report....

Best of luck to put holders...

[wescobrk]

Another pass to weather.
If the next report is like this that can't be good.
Eventually all the prominent CEOs have to come out and say they are wrong about 3percent GDP this year and we are still at 2 -2.5.
Maybe productivity is increasing or we will eventually get revised up.
Dec was only revised up 1k.
Is it just me or is mark Zandhi always terribly wrong on all his predictions?
Jeez, a broken clock is right twice a day but that guy I wonder how he keeps his job.