Just peachy

David at Tradingmarkets.com was nice enough to set me up with a free account to use at their trading site in exchange for mentioning them if I use their ideas. Nice trade I thought, Thanks Dave. It’ll be interesting to see what they have to offer. From the looks of it, it’s oriented towards short term traders, which sometimes I am. The thing to remember with news sites is that the most important factor is the filter in your head. Take the good, chuck the bad. Easier said then done, but nice to keep in mind nonetheless. There are plenty of investment ideas out there, the key is to know how to make use of them.

The portfolio performed fairly well today, with the long Amazon/short Overstock pair doing what they’re supposed to do. Amazon is down 2.2% while Overstock is down 5.5% for a net gain of 3.3%. Dollar wise, the OSTK short position is a little bigger than the AMZN long position, so it’s a nice bonus. Ideally you want pairs to make money in any market. You give up some of the upside on up days to hedge against ugly days like today. Overall, the portfolio is up $107.50 including all commission costs (we’re rich!).

Amazon seems to be keeping above its support I charted out yesterday. Hopefully it will hold.

According to the prospectus, Overstock will distribute shares to the bidders in its secondary auction on May 18, which is tomorrow. They didn’t mention a time frame, however, if they handle it like other secondaries it should be during the trading day.

The thing to watch is of course how the trading progresses after the secondary. This is where that Family Feud analogy comes into play. What do the bidders on the secondary do with the stock after they receive it? Do they flip it at the open? Do they keep it on and hope for the best?

It’s an academic exercise, which is to say it’s useful until the shooting starts. But it’s always fun to play out scenarios. Since I have a vested interest (I’m short OSTK), obviously I play out the ideal scenario first. As of close today, the bidders of the secondary are in the money. OSTK closed at $31.04 today. The secondary is priced at $30.50. Flip it at today’s closing price, and you have a free 54 cents courtesy of W.R. Hambrecht & Co. Ideally they will be nervous. The market is topsy turvy, and that 54 cents instant profit starts to look not too bad compared to the red on their screens. If OSTK opens up anything, I would guess there’s a temptation to sell. They know more supply will be on the market since not every bidder for the secondary will hold. Why not take a little profit? Ideally it will break the print price of the secondary. If it does, then the bidders on the secondary will feel hosed. Ideally they will then want to contain the damage, and flip it ASAP.

That is of course, the ideal scenario.

What’s the worst case scenario? Nobody sells from the secondary. The print price holds, and OSTK goes up. The market rallies, and OSTK gets squeezed. This is hopefully where that AMZN long comes into play. I call it bounce insurance, i.e. if the market bounces, you capture some of that upside.

One rule of thumb I like to follow with scenarios is that usually, you take the best case scenario, take the worst case scenario, and somewhere in the middle is what will happen. Simplistic, but again I like to keep things simple.

Can’t wait to see what happens tomorrow.

Long AMZN, short OSTK

2 thoughts on “Just peachy”

  1. ICN, I’m posting this here because it’s kind of relevant – seems Gandhi declined to run India.

    Rantburg’s got the story.

    I’m not good enough to day trade, but I smell opporunity here.

  2. Thanks for the tip Sandy.

    Don’t know if it’s possible to play this as I’m not familiar with any Indian companies or ADR’s listed in the U.S. Political turmoil also is unpredictable since it’s dependent on politicians. For example, the day to short Indian companies would have been Friday, and the day to go long would have been at the peak of fear on Monday India time. So basically one big mess, and very very hard to predict. It would be interesting to see how it works out though. Let me think about if there’s a way to profit from this.

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