The New Playbook

April 18, 2012

Same as the old playbook.

Last week, I noted the extreme premiums being paid for options on Arena, and also noted that CNBC had given airtime to a hedgie who opined that Arena was a “great short.”

I expressed my skepticism about encouraging the public to join in on short sales that the hedge fund pros already had in play.  Basically, the way the math works, a short seller can keep recycling their capital on a good short until they’ve shorted every share available to borrow, so letting others in on the trade limits the potential profit.  On the other hand, if a short is getting away (the statement in question happened the same day Arena was setting a new two-year trading high), then any help is welcome, especially if an independent event is looming that could make the short position a disaster.

That said, the short sellers playbook has a number of other plays in it, plays I’ve seen far too often for my financial health.

I’m reminded, for example, of Dendreon, which collapsed spectacularly after its promising prostate cancer treatment was sent back for more studies.

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Tax Break

April 15, 2012

I’ll bet you thought I was talking about saving money on your tax bill.

No, I was just taking a break from estimating my own taxes by reading Mike Kimel’s brilliant yet simple exposition of the failure of “supply side” tax theory, supported, amazingly enough, by an economist at the American Enterprise Institute.

As Mike points out, there are other, more ethically challenged economists at that tax-subsidized slush fund for the occasionally unemployed policy advisors to the GOP (I’m talking to you, Hassett and Hubbard).  Those others don’t let troublesome facts get in the way of their opinion-slinging.

The article also had a couple of excellent summaries of Keynesian macro theory, which has, these past thirty years, been given the Elders of Zion treatment by our partisan right-leaning thought leaders.

My favorite short form summary of Keyne’s General Theory follows the break.

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Update on ARNA Trade

April 13, 2012

Arena pharmaceuticals has been quite the roller-coaster lately, with daily trading ranges as high as 10% or more of its price.  The near-dated options are now trading with implied vols between 250% and 300%.

As if to underline the danger of playing a developmental drug company awaiting approval, a prominent hedge fund manager was quoted this week saying ARNA was an excellent short.  While I’m sure he was talking his book and hoping to see some others jump in and add to the selling pressure, it does help us see how this game is played.  More on that after the jump.

Still, I added in a small way to my exposure yesterday when I saw that the May call options have huge premiums.

Specifically, I bought the stock and sold May $2.50 calls.  Here’s my thinking:

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A Little Help?

April 3, 2012

For a number of years, I’ve been on the Board of Directors of Justice for Children, a “shoestring” supported charity that provides legal representation and therapy for abused children.  It’s the most efficient charity I’ve ever heard of, handling whole cases for just $200.  I am quite sure that the volunteer lawyers that do the work must be giving more than their time, since the one lawsuit I was involved in had well over a thousand dollars in copying charges!

Abused children can be “trapped” in a system that often cuts funding to Child Protective Services if children aren’t being reunited with their parents often enough.  Sadly, some of those parents just shouldn’t be with their children even when “family values” put reunification at the top of the priority list.

If you ever attended a Family Court session where abuse allegations are flying, you’d be surprised, as I was, that there are lawyers for each of the parents, for the State, but too often not for the child.

A technology firm has offered to develop a free social networking fundraising arm for one charity.  All you need to do to help JFC become the chosen charity is to click on this link and vote.  No money, no e-mail, just a vote.

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