So,
I’ve been overwhelmed due to unforseen circumstances (birthday, MBA BS, etc.). I’ve come across a couple interesting situations where I’d like to poll the audience (that’s you). Here goes.
I know that I don’t know. These are special situations where there may be some really easy money/huge gains.
——————————SITUATION 1 CIT———————————————————-
Good evening fellas. I’ve been doing this trade with multiple accounts today…As much as I could…I can now share the wealth with others.
This is the deal:
Buy CIT-A at $1.75 (current price
)
We will get a MINIMUM of 4.4 shares of common per share of CIT-A, right? (I know its over 4.2, do the math yourself for exact #)…Maybe as high as 6 if the minimum bondholders tender. Let us assume 4.4.
$1.75 / 4.4 = $0.40 cents per share of common.
Sell 4.4 $1 Nov(or January) calls per CIT-A share bought. Current calls with bids: 0.35(Nov) and 0.40 (Jan).
Net effect? With January calls sold, we are buying the CIT-A for *FREE*. We pay like 4 cents with the November calls.
If company goes bankrupt
? calls worthless, we break even.
If company does not go bankrupt and exchange works? Two cases:
a) Common above $1, we get $4.4 per CIT-A when call exercised. 4.4 / 1.75 = 250% gain in 2-3 months with ZERO risk.
b) Common below $1, calls expire worthless. We thus get (common-price * 4.4) / 1.75 percent in profit.
One thing with this deal: Selling naked calls can be expensive with regards to margin requirements. I had to sell MANY positions, the ones which were 100% margin requirement, to put as much into this trade as I could.
One further point:
Bankruptcy sucks with this scenario. You can easily ‘spend’ a little of the guaranteed profit from the non-BK scenario and buy some Nov $1 puts. This easily gives you huge profit in BK or no-BK scenarios.
Enjoy the trade.
————————-SITUATION 2 – TMI ————————————————-
Warrants are basically rights to buy the stock at $5.5 until 10/2011. Their value is comprised like options of a time-premium and intrinsic-value.
Right now there is almost 0% chance the acquisition does not go through. What is unknown is how many IPO shareholders (roughly 10M shares) will choose to liquidate at $7.01, but the company has cash to pay the ones who do.
So the cash-after-acquisition will range from 20-25M and 100M. The share-count after acquisition will range from 23M to 33M or so.
For the company to make their 2009 performance-bonus of 1M shares, it needs a net income of 42M (15M in 1h 09 but second half is usually stronger). If it makes the 42M target, that means $1.8 EPS if 23M shares or $1.27 if 33M shares (but 100M cash balance, or $3 per share).
So the warrant to buy at $5.5 would be a P/E of 3 or 4.33 under those EPS numbers.
The fact is, just the TIME value of the warrants alone will be worth more than the current $0.40 level.
——————————————-SITUATION 3 EAR HearUSA + AARP = $90? ——————————–
estimates:
Profit margins 20/5, so they take 75% of their hearing aid revenues as gross profit.
Center operating expenses are $10M, which is currently equal to 1/2 their revenues.
Spun off helix for $23.1M
$63M market cap
Average hearing aid is $2000, so they are tracking about 40K a year
1/5 of people that can use hearing aids use them. (low estimate, age increases use up to ½)
50M of AARP potential buyers — 10M will likely use them, 500K in unit sales/year probably (5%)
500,000*$2000*0.5=$500M
50% profit margins (lower than 75% with AARP)
$500M in gross profit probably in the next 3 years.
Price per share: @ P/E of 8
$89.16
Time to call ear doctors and ask them what they think about AARP people and getting hearing aids.
Glen
——————-CT—————
forward P/E very low. most of their losses are from writing off their portfolio. looks like this could be more easy money if you can wait 5 years.