Monday, 31 August 2009 01:00

Worthless companies now rallying several hundred percent in price - What a market for stock pickers

For those of you who really believed that AIG was worth $55, more power to you. I couldn't resist putting a strangle on it at about $55 or so, even-though I never delved in depth. $10 lower and 2 trading days later... The company received $183 billion of assistance, then boasted that it turned a profit of a few million dollars due to accounting machinations. It is on the hook for practically everything that is wrong with the credit system now. Does anybody really think that there is any equity value left in this company? The US government doesn't, the sell side analyst don't. This may actually be a contrarian trading opportunity because I can't remember the last time I agreed with both the sell side and the government :-)

It is about $45 in pre-market trading now, and anecdotally, I believe that is about $40 too much, but that is just an uneducated hunch. I don't want anyone to get the impression that I am offering advice or suggesting that they take action. What I am doing is trying to illustrate the folly of what happens when momentum trading goes to the extreme. Obviously worthless companies are bid up 500% (that's right, AIG went from $10 to over $50). Look at this chart, and tell me if the right side of this trade was short or long over the last year.

aigbigchart.gif

I have a few banks that I feel may be as worthless or even more worthless than AIG, and are trading at $5, $15, and $40 plus. I will preview the $15 candidate for subscribers in the nest 48 hours and will extend my failing banks list for the non-paying readers.

Last modified on Monday, 31 August 2009 01:00

5 comments

  • Comment Link Reggie Middleton Thursday, 03 September 2009 09:45 posted by Reggie Middleton

    I prefer not to announce the actual positions, due to my increasingly paranoid (and apparently justifiably so) demeanor. Hopefully, you can understand.

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  • Comment Link persistentone Wednesday, 02 September 2009 03:15 posted by persistentone

    What were the strikes on your strangle Reggie? I sold a long dated $45 call and bought a way-out-of-money $65 near-dated call as insurance in case the madness continued. I figured this wouldn't take more than two months to trade back to something reasonable.

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  • Comment Link Reggie Middleton Tuesday, 01 September 2009 15:52 posted by Reggie Middleton

    3 trading days and nearly $20 lower in price. These profits are nearly free for the taking. For those that do not know, I simply leg out of a strangle when I feel comfortable the trend is for real, ala AIG.

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  • Comment Link NDbadger Monday, 31 August 2009 10:57 posted by NDbadger

    I continue to think AIG is worth zero.

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  • Comment Link shaunsnoll Monday, 31 August 2009 10:30 posted by shaunsnoll

    the volume on that AIG chart is totally NUTS. this market has become a circus.

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