Friday File: My “Top Ten,” plus Some Adventures in Shorting and A Check-in on Gold Royalties
by Travis Johnson, Stock Gumshoe | June 21, 2019 4:15 pm
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Source URL: https://www.stockgumshoe.com/2019/06/friday-file-my-top-ten-plus-some-adventures-in-shorting-and-a-check-in-on-gold-royalties/
I still think there is a decent chance KERN options start trading over the next week or two, which would permit some more hedging – I think the stock volume could make it interesting to options market makers – one point I’m not sure on is whether it satisfies the 2000 holders criteria for options trading – and how regulators even monitor this given most securities are held in broker name – anyway, I guess we’ll see…
Interestingly, an SEC filing on June 20 revealed that about 5 mil MTEC shares chose to redeem for cash – which means KERN has fewer shares outstanding and less cash (making near term M&A less likely), and that a whole bunch of MTEC holders probably felt pretty silly when the stock hit $70…(and probably still feel silly with the stock at $27)…
Here’s to hoping it holds that price!
BTW, it looks like PHUN remained elevated for a few months post IPO – did that leave time to exercise the warrants, and did the warrants eventually trade to economic parity?
No, PHUN warrants didn’t trade to parity while the price was wacky — the elevated price persisted for a bit longer probably because the registration of shares took longer than usual due to the govt shutdown.
re: IIPR. I agreed with you on the crazy rise in price. Yesterday I actually sold 40 % of my shares to take my initial investment in IIPR off the table and will let the remaining shares ride. The “ride” declined $17.19 at the close today. Great timing, Travis, with your discussion. Thanks again for all your insights.
I enjoy both going long and going short, but as you point out, shorting shares can be frustrating, especially when the shares are not available. So when I want to go short, I sell naked calls. Now don’t give up on my post until you’ve read my reasoning.
In MBA Finance courses, I was always taught, “Selling naked calls is the RISKIEST thing you can do in the stock market!”
Baloney. The riskiest thing you can do in the stock market is to get over-extended. If you have a margin account, that can result in a margin call, when you’ll either have to ante up more cash or sell something at a bad time. Even if you don’t have a margin acct, but are 100% stocks and no cash, then if the market drops, you’ve no flexibility. You can do little other than sell some of your worst positions, or else wait it out. Neither is a great way to go.
You can also lose lots of money buying long calls, especially with the 3-5-month time frames until expiration that many newsletter writers recommend. If the catalyst for your zooming profit takes longer than a few months, then you can easily lose every penny you put into the calls, and the $$ can add up quickly. When I buy calls, unless I’m pretty sure something is about to happen, or if the chart says it’s a no-brainer, I go for an 8-12-month time frame.
Back to short (naked) calls: If you keep the number of contracts manageable, then short calls are less risky than shorting the stock, because you get to pocket the option premium. Keeping your time frame brief — 2-6 weeks — limits your exposure.
And short calls are almost always available. I saw almost, because in 2008 when I sold naked calls on banks, the government CANCELED my position, essentially snatching $16,000 right out of my hands.
One more thing: The same B-school profs who seem to hate shorting calls also hate shorting stock, ostensibly because “The potential losses are unlimited!”
Not true. If there’s ever been a deal where a company got acquired for an unlimited price, then I haven’t run across it yet.
If you’ve read this long post to the end, thank you. Best of success.
Good points and perspective, thanks.
Travis, it looks you are having more fun than ever in these times.. which is so gooood! Keep it up
Being în the industry for the last 20 years, I’d say it will come a time when the shares of 5G vendors will go down as the rollout will be slower than the market expects, at least this was the case with 3G and 4G, so don’t go all in right now, the opportunity will present itself.
Could be, I can’t say that I’ve often been successful at choosing an “all in” point for any investment… always better to scale in and out if you’re focused on something long-term in nature (like the telecom investment cycle).
Travis, that is the best explanation of shorting, and the pluses and minuses that go with shorting, that I have read. You explain with real examples that the average investor, such as myself, can readily understand.
An additional risk with NPSNY is the lunacy of South African politicians.
Indeed, though gradually getting some of the assets out of S.A. Listing could ameliorate that over time.
On China stocks, take a look at KBA. Also interesting is the $5 movie produced by Dr. Sjug. Kraneshares is doi
Your response reminded me of a very active discussion on Kraneshares and MSCI’s inclusion of China A shares on this site a little over a year ago. If my memory serves me correctly, the 2 Chinese stocks that Dr. Sjug highly recommended were sluethed out to be Ping-An Insurance & China Merchants Bank. The excitement fizzled soon after with the launch of a trade war. Good to keep in mind should there be an truce in the near future.
Obliquely related to finding recession-proof stocks, does anyone here use a “Correlation Table” and is willing to share a good site or app to use?
What ARE the kernw SHARES? What is the fine print on the warrant?
KERNW are 5-year warrants on KERN at $11.50 per share. There’s probably an early exercise clause of the stock trades above $15-20 or so for an extended period of time, not sure. The MTech Acquisition prospectus would have other detailed fine print if you’re looking for that.
Great article Travis. I learned years ago that put options were a lot safer to buy than attempting to short the stock. The most one can lose with puts is the cost of the contract while one can virtually lose their first born with a run away short. Furthermore, I think I’d also lose my better half if I suggested we go back on margin!
Regards,
Frank
Margin should scare us all, for sure — and yes, puts are safer, though not available on all stocks.
Relatively minor update, but a larger “borrow” did show up for KERN so my short position was filled in a bit. Will update the details in the Real Money Portfolio at the end of the week.
Hi Travis; Do the TradeStops posted in the RealMoneyPortfolio spreadsheet get updated? It seems like they stay the same as they were when originally posted.
I update them regularly, usually about once a week (though some of them have been roughly the same for a long time).
RE shorting I am with TD Ameritrade and they do not charge a fee for borrowing shares that are readily available.