Short Squeeze in IOC?

On a pay-to-play board I frequent, one of the posters has been enjoying a massive run-up in this stock lately.  I was interested, because this stock has been kind to me in the past, though scary at times.  Part of the saga (from 2010) are here, and here, here, here, and here.

While we were discussing the question of the current move in the stock, another member of Valueforum pointed out that a single money manager is buying the stock like there’s no tomorrow.

Two years ago, IOC was potentially sitting on one of the world’s biggest deposits of natural gas, and rumors abounded that they were about to partner with one of the biggest integrated energy companies to bring it up, liquefy it and ship it.  Since then, every hole in the ground in tornado alley in the US has been getting fracked, and the price of gas has collapsed.

Meanwhile, IOC’s potential is still just that — potential.

Being by nature a contrarian, I checked with one of my brokers to sell short.

No shares available to borrow (at least for us retail peons).  That supports the idea that a squeeze is on.

The thing about a squeeze is that they don’t last very long.  A few days, or at most a few weeks, in all but extreme cases.

I took a look at the July puts, and the 70’s looked to be reasonably priced.  Even a 50% retracement of the past few days’ move would make their premium look “cheap.”

So, here we are, in real time, with how I intend to play IOC on the short side, in the short term.  Note that I’m using play money only, and not much of that.

I bought two July 70 puts for $940 ($4.70 apiece), plus commissions.

My intention is to sell July 65 puts for $5 as soon as the squeeze pressure abates (if it is a squeeze).  That would generate approximately $980 after commissions, and leave me with no capital at risk in the trade.

I will exit if the $70 put options trade for $2.20 or lower, losing roughly $500.



2 Responses to Short Squeeze in IOC?

  1. hhill51 says:

    Here’s an object lesson in the hidden cost of using options to exercise bull or bear opinions:
    If I had been able to borrow shares to short when I inquired this morning, I would already be up more than $300. Instead, I’ve barely covered the commissions, and if I sold my put options right now, I’d have a loss.
    Just a reminder.
    When I was first using options in the 70s, it was in the “bad old days” of fixed commissions, and those commissions were ten times what they are today. BUT…. the bid/offer spread on options were much narrower in the 70’s, that the cost today of trading in these suckers is actually much higher than it was back then, even with the vaunted “penny” pricing.

  2. theoutlawsloppyjoe says:

    If this ever got to new highs over $80 it could really take off.

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