A Lesson From Silvergate
You don't have to be early to successfully bet against a stock.
Silvergate account manager Majid’s corporate family is sadly shutting down.
Silvergate Shutters Its Bank
If you follow the financial press, you know the news about the so-called “crypto bank”, Silverlake Capital Corporation (SI); if not, you can read the press release below.
My first thought when I read that news was “I wish I had bought puts on it before that news came out.”. But then I remembered I felt the same way last week, when Silvergate tanked 58% on news it was delaying filing its annual report as it reconsidered whether it could continue as a going concern.
While it would have been better to bet against Silvergate last fall, as George Soros did, you would have still made money if you bet against it after last week’s 58% drop: Silvergate is down another 24% today as I type this.
With that lesson in mind, I placed limit orders on new bearish bets today. Details below. Before we get to that, a reminder: I’m planning on posting our updated top ten long names tonight, as usual.
One of the bearish bets I placed a limit order on was Silvergate itself. I bought $3 strike, August expiration puts on it for $1.26 each. Silvergate has recovered a bit intraday, so those puts are currently trading at $1.20.
The other bets I’ll let you know about as soon as they get filled (if they do).
Just got filled on the 4.00-4.50 Long Put Verticals expiring 3/10 (tomorrow) and 3/15 for .35 on each spread.
The max potential return is 42.8% per day for the spread expiring 3/10 and 42.8% per week for the spread expiring 3/17. The max return hits if SI is at or below 4.00 strike price at expiration. Current SI price =3.82. Max risk is 0.35 per spread.
Executions were on BOX and EDGX complex order books.
David A. Janello, PhD, CFA
Exited the Silvergate puts today at $2.10 for a profit of 67%.