Trade Alert: Blood In The Streets
It might not be too late to bet against this disaster-plagued name.
Pamoni Photograph/Pexels
Sell When There’s Blood In The Streets
The old adage, variously attributed to Bernard Baruch, John D. Rockefeller, and Baron Rothschild is to “buy when there’s blood in the streets”, i.e., buy when prices are down due to a disaster. But sometimes it makes sense to sell short when there’s blood in the streets.
That’s what we did back in March, when we bet against Silicon Valley Bank when it announced it was headed for bankruptcy.
A Lesson From Silvergate
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.
We would have made more money betting against it earlier, but we ended up making 67% on that trade, so not too shabby.
Another Disaster-Plagued Name
The company we’re betting against today hasn’t filed for bankruptcy, but it is reportedly “exploring strategic options”, in the wake of a massive disaster that threatens to cause it to incur enormous liabilities. Our trades don’t require it to go bankrupt for us to make money, though.
Details below.
The Bearish Trades
The company is Hawaiian Electric Industries (HE 0.00%↑), the shares of which have been reeling from the disastrous wildfires in Hawaii.
The first trade is a credit call spread expiring on September 15th buying the $15 strike calls and selling the $12.50 strike calls for a net credit of $1.00. The max gain on 3 contracts is the initial credit of $300, the max loss is $450, and the break even is with HE trading at $13.50. Basically, as long as the stock is below $12.50 next month, we keep the $300.
The second trade is a debit put spread expiring on December 15th
buying the $10 strike puts and selling the $750 strike puts for a net debit of $1.10. The max gain on 3 contracts is $420, the max loss is $330, and the break even is with HE at $8.90.This one hasn’t filled yet. buying the $12.50 strike puts and selling the $10 strike puts for a net debit of $1.10. The max gain on 3 contracts is $420, the max loss is $330, and the break even is with HE at $11.40.This trade hasn’t filled yet. This trade filled at $1.10 on 8/28.Adding a third trade here, which is essentially our initial 2nd trade: a spread expiring on December 15th buying the $10 strike puts and selling the $7.50 strike puts, for a net debit of $1.10. The max gain on 4 contracts is $420, the max loss is $330, and the break even is with HE at $8.90.This trade hasn’t filled yet. Canceled this one on 8/28.The fourth trade is basically a straight bet on HE going bankrupt by December: buying the $2.50 strike puts expiring on December 15th for $0.40. The break even on those is with HE at $2.10, and the max on 8 contracts is $1,680 (if HE goes to $0), and the max loss is $320.
This trade hasn’t filled yet. This trade filled at $0.40 on 8/25.
Exiting The 2nd And 3rd Trades
Assuming they fill I’m going to set a GTC order to exit each of them at $2.25, and then lower that price if necessary as we get closer to expiration.
Exiting The 4th Trade
I may set a GTC order to exit it at about $2 (assuming a bankrupt HE’s shares may trade around $0.50 for a while).
The second trade filled. Incidentally, the proximate reason the stock is soaring today is a statement by HE pushing back against the county of Maui's lawsuit saying it shut off power hours before the big fire in Lahaina. This probably sparked a short squeeze (short interest as reported by Fidelity is under 2% of float, but that's as of 8/15; it was probably much higher as of Friday).
Canceled the third trade in light of today's premarket move.