SHOP: I changed my mind

I sold about 40% of my shares today. I stated my reasons here:

http://discussion.fool.com/shop-do-you-want-to-be-right-or-make-…

I still think that further short term decline in the stock price is likely. I did not rebuy any of the shares that I sold today, but I have thought about this a bit more. Some additional things I’ve considered:

  1. I think I know this business well.

  2. I trust their CEO.

  3. I think there’s a very good chance that SHOP will crush expectations at the next earnings release in early November.

  4. I’ve been hoping for an opportunity to initiate a trade based on a stock price pop post-earnings, but I could not justify it because of my large position.

  5. I think SHOP will increase by a lot from here in the long run.

So the stock may continue to drop. I accept that risk. But toward the end of today’s trading day, I decided to “replace” most of my sold shares with the following trade:

BUY Jan 2020 $120 calls
SELL Nov 10th 2017 $127 puts

The trade was a even trade that replaces most of the shares that I sold today with upside calls options that don’t expire for another 2 years and 3 months.

The short puts are the risky part of this trade but if the stock spikes after earnings in early November then these puts may well expire worthless giving me my “shares” back. I have a large cash position now (11.3% of my portfolio) to protect me in the event that the short puts cause me problems.

The next month should be interesting…

Chris

11 Likes

I like the synthetic long.

I will likely buy some calls to try to capitalize on an earnings pop.

I have been thinking about Left/Citron’s strategy quite a bit with the Ubiquiti attack from week before last, the Shopify attack today, and prior NVDA attacks last December and then in the spring or early summer sometime (Note: my top 5 holdings in order are NVDA, AAPL, SHOP, MELI, and UBNT). I am debating my thoughts about just how sophisticated his attacks are.

It is apparent that if he times things right that he could cover his shorts on the day he releases his “reports” or shortly thereafter and could be quite successful, as his reports do appear to move the markets (note that I posted on this board on one of the days that he dropped an NVDA attack that I suspected that his attack may have somewhat triggered the overall NASDAQ drop that was substantial on that day, I’ll find that post and link it in a reply here for reference). I am apparently horrible at writing short sentences.

With Ubiquiti before and now with Shopify, I almost suspect that Left may be making money with the initial short, properly timing his cover, and subsequently also playing the upside for companies with legitimate great futures (like UBNT and SHOP). With Ubiquiti, I am anticipating a very solid, if not stellar earnings report that should justify a jump to nearly $70/share, if not higher. With Shopify, I anticipate continued huge revenue growth with their next report and POSSIBLY even a turn to legitimate profitability. The turn to profitability could be some nice fuel to the overall story of Shopify. I obviously can’t predict the future and don’t know how much longer Shopify might drop, but there may be a nice entry point that comes about from this attack.

Now to find that prior post, with my speculation of Left prompting the drop on a down day (thinking it was early June).

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I posted on this board on one of the days that he dropped an NVDA attack that I suspected that his attack may have somewhat triggered the overall NASDAQ drop that was substantial on that day, I’ll find that post and link it in a reply here for reference.

Now to find that prior post, with my speculation of Left prompting the drop on a down day (thinking it was early June).

Maybe I only made the post on the Stock Advisor board and not here. If you subscribe to SA, here it is (from June 9th):
http://discussion.fool.com/1081/i-wonder-how-much-extra-traction…

There were 2 much-replied-to posts on June 9th, 2017 here about just how much several folks portfolio’s dropped.
http://discussion.fool.com/taking-a-beating-today-32740925.aspx?..
http://discussion.fool.com/so-how-much-loss-did-you-incur-today-…

Here is a link to the Citron tweet from that day, that I suspect prompted a lot of the NASDAQ sell-off that day (particularly for NVDA), posted at 10:22 am that day, calling NVDA a casino stock and suggesting it should fall back to $130/share before going to $180.
https://twitter.com/CitronResearch/status/873183647095939072…

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3 day “rule”, which anecdotally I find holds true often:
First day of the plunge the fast money gets out
Second day, the smart money gets out.
Third day, the slow, dumb money gets out.
4th day - watch and see if volume is low and things have calmed down, then think about bottom fishing and knife catching. Opposite on the way up.

For a doomed stock like an Enron or WPRT, that rule won’t hold true.

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I sold some of my UBNT calls that I got right before and after the Citron report and rolled them into SHOP calls this morning. My UBNT position is still bigger than my SHOP position as I only had a small position previously. It pays buying a stock after Citron releases a short report…

" It pays buying a stock after Citron releases a short report…"

Sometimes… Citron/Left claim to fame was their short of VRX in the 200s. Dip buyers bones littered the market on the way down to the single digits. That said buying the dips on NVDA have proved profitable. I hope it’s the same with SHOP I added again at 95.29 this am for an average cost of my position at 65 and change.

Rob
BTW I bought VRX in the 11s and hope that it recovers to the 30s.

Rob

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The short puts are the risky part of this trade but if the stock spikes after earnings in early November then these puts may well expire worthless giving me my “shares” back. I have a large cash position now (11.3% of my portfolio) to protect me in the event that the short puts cause me problems.

I don’t understand this logic. Having cash doesn’t prevent you from losing money, your losses are the same whether you cash-settle the puts or simply buy them back at a big loss.

If you wanted to get longer, why wouldn’t you just buy today at 93-95 and retain the option of selling those shares immediately if it bounced back and you wanted to cash in, or sell them off as more bad news comes out?

How did you determine you were getting a fair price for the large risk you are taking?

Given the fees, commissions, and much wider bid-offer spread on options, especially Leaps, why do you think would this ever be a superior strategy to a long stock/long cash position?

There’s a 4% b-o spread on the puts, and a whopping 12%[!] spread on the 2020 calls. Versus a 0.12% spread on the underlying. You’re just giving money to the market-makers.

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There’s a 4% b-o spread on the puts, and a whopping 12%[!] spread on the 2020 calls. Versus a 0.12% spread on the underlying. You’re just giving money to the market-makers.

Of course a day trader would get killed by the spread. My option trades are all for longer. I ignore the spread and set my price (I never trade options at market). If I get it fine, if not I’ll try another day. All I’m interested in is how much I make net of commissions, fees, and taxes. If someone gets rich along with me that’s just peachy. :wink:

I posted on another board that by concentrating on the skim you ignore the glass of milk. If the glass is full the skim is negligible, if the glass is empty the skim is all there is.

Denny Schlesinger

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" It pays buying a stock after Citron releases a short report…"

Sometimes… Citron/Left claim to fame was their short of VRX in the 200s. Dip buyers bones littered the market on the way down to the single digits. That said buying the dips on NVDA have proved profitable. I hope it’s the same with SHOP I added again at 95.29 this am for an average cost of my position at 65 and change.

Yes, I should have put a disclaimer that this is the case when Citron’s short report is filled with weak arguments and can be easily rebuffed as was the case with UBNT and now the case with SHOP. I don’t follow VRX, so I don’t know if they got it right or were just lucky. It seems like Citron has more misses recently, but I don’t think it matters for them in the short term. With UBNT, they would have made money if they covered right away. With SHOP, they could be making money if they are covering today. I think both UBNT and SHOP will be much higher next year than they are now and these Citron reports have given me good buying opportunities for both.

3 day “rule”, which anecdotally I find holds true often:
First day of the plunge the fast money gets out
Second day, the smart money gets out.
Third day, the slow, dumb money gets out.
4th day - watch and see if volume is low and things have calmed down, then think about bottom fishing and knife catching. Opposite on the way up.

I agree that this is anecdotal and each situation is different. Citron’s short after UBNT and right before SHOP was VERI. On the day of the report, VERI fell from 65.91 to 45.95. On day 2, it went down to 36.88. On day 3, it popped 23% to 45.45 and another 9% to 49.71 on day 4. The point is that each case is unique depending on the accuracy of the short report, the float, the valuation before the attack, the reaction by the company (e.g., buyback announcements), sophistication of the investor base, the opinions expressed by analysts about the short report, etc. I think the weaker the report, the quicker the bounce back.

I think I got lucky buying SHOP calls when the stock was around 95 as it has already recovered to 100. Given the weakness of Citron’s report, hitting low in early part of day 2 seems right to me. On day 1, there is complete panic. That night, uniformed investors put in their panic sales orders causing an additional fall in the morning. By this time, most investors realize that the short report is weak and start viewing it as a buying opportunity. I could be wrong and ultimately this is just my best guess at this point in time.

7 Likes

10 point swing…approaching positive territory. Held all my original shares but just couldn’t resist some rare(for me these days) day trading…94 and change in…101 out. Good day. What a wanker this Leftie is.

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You’re just giving money to the market-makers.

As I see it, you’re buying leverage, not just giving away money. Leverage is a good and valuable thing (when you’re right).

-IGU-

I think I got lucky buying SHOP calls when the stock was around 95 as it has already recovered to 100. Given the weakness of Citron’s report, hitting low in early part of day 2 seems right to me.

I opened a position yesterday at 103, then doubled it today at 94.50. I sold naked 2020 180 puts. I think Citron is just running a raid. But given the massive amount of research into SHOP conducted by members of this board, I’m convinced that it will get back its losses due to Citron’s reprehensible actions. This sort of thing should be prosecuted.

-IGU-