Profiting from a Basket of Commercial Real Estate Shorts

I created a 3 name basket of shorts in commercial real estate last Friday [Mar 13: Bookkeeping - Beginning to Build a REIT Short Portfolio] - Kimco Realty (KIM), Macerich (MAC), and Duke Realty (DRE). All 3 have fallen 15% or so just in the 2 sessions since I shorted so I am covering about half of each - effectively this trio was a 5% exposure so I am cutting it to about 2.3%. I bought a basket because you never know which one is going to fall the most, but ironically they have fallen all about the same percentage. The only risk here is they fall below $5 and I can no longer put new short exposure on.

I am taking a partial profit in Wynn Resorts (WYNN) and Capital One Financial (COF) as well - these are about 7% gains. Instead of breaking out all the trades for these, basically what I have done is noticed COF faded each time it got near $14 the past 3 sessions so I added in good proportion there and cover below $13... WYNN a very similar strategy between low $20s and $18s.

EDIT 11:30 PM: Someone just sent me a message that WYNN priced a stock offering at $19/share - and there ya go.


I plan to hold all 5 positions and trade around them, similar to what I would do with a long position... but instead of buying on dips (as I'd do on a long) and sell on surges (while keeping a core position), I will be selling short on surges and covering on dips. So far so good; as we discussed many times we lacked the ability to short individual names in 2007 and 2008, so we were stuck with very dangerous (and useless long term hedges) Ultrashorts - and our performance should have been far better since we called some enormous drops in casinos, retail, restaurants, financials, Franfredron, and individual stocks like Whole Food Markets (WFMI).

In early 2009 these sectors had already fallen so much that I wanted to find a higher price to begin shorting them... and instead chose to short "quality" companies that were due to fall because of technical reasons - instead of picking companies with poor fundamentals or in bad sectors. After this quick & violent rally, I am refocusing on sticking my shorts on the fundamental stories and it has already paid off in spades. But until (when/if) S&P breaks 741 I will still be darting in and out and taking quick profits when the market gives them to us.

I have no strong feeling on the market here - the backdrop of economy is awful but "hope" can always drive us up. We are in one of those white noise areas where I have little conviction but if the bullish case would be some backfilling and consolidation without breaking S&P 741, before the next leg up. The Federal Reserve meets today and tomorrow and then Obama goes on Jay Leno Thursday night to reassure us that sending all these people out to reassure us is not hiding a very big problem.

Disclosure: Short all names mentioned in fund; short Captial One Financial, Wynn Resorts, Kimco Realty in personal account.

Comments

[Centvalu:]

I remember when traders holding short positions were fearful of being discovered. Nothing more painful than a short squeeze considering your downside is unlimited. Today, Trader Mark, et al wave their short positions around like they are a badge of honor. Absolutely no fear. I am amazed, although I guess not surprised, the shorts are so bold when many stocks, including some of those mentioned by TM, are at historical lows relative to fundamental measures of value.

Mar 18 05:21 PM

[yellowhoard:]

Way to let it fly Trader! I totally respect anyone willing to lay it out there for all to see. Kill em. Kill em good.

Mar 18 06:04 PM

[wobatus:]

A bit of a blind squirrel moment with KIM. It ended today only 7 cents off last friday's close. Had a big trip down and back since then. A lot of this market is just traders (and it is Trader mark after all). Nothing much fundamental changed for KIM since last Friday. I think a lot of the last leg down in the market and this bounce back are just people overeracting either way,and momentum pushing it all along.

KIM is in the mall biz, so some tough sledding, but a very well run reit and it got oversold. Could see it pulling back from here (short covering fueled some of this). But in the fullness of time folks will wish they bought some kim under $10.

Mar 18 06:06 PM

[2houndz:]

Centvalu - as long as one uses an intelligent stop loss strategy I can't see much difference between trading long or short. Both directions scare the hell out of me right now, so if you can stay long OR short for any length of time, kudos to you. It makes me too nervous. I used to be a swing trader. Now it's mostly intraday trades.

Mark - good info as usual. TCO has also had some good price action lately. I ride it up, then I ride it down.
KIM is a well-run company with limited exposure to "aspirational" retailers, so in the long run I hope they are OK. Their occupancy has been so high for so long there's no wonder this has been painful for them. Milton Cooper is one of my heroes in a business where very few have earned real respect.

COF - I saw an article yesterday stating that credit card debt was only paid down 17% in January, as opposed to 20.5% being typical for January. The way I understood it, a significant amount of debt was carried over into January as compared to normal, suggesting more people are unable to pay down their cards. Mark, since you have a short position here, did you see this and can you opine? Did I understand it correctly? Thanks

Mar 18 09:54 PM

[sr9web:]

Can't short below $5? Says who?

www.investopedia.com/a...

Mar 18 11:41 PM

[Centvalu:]

As I am sure you are aware, markets are not continuous. Stop Loss orders give a false sense of security and provide little protection to the short seller that wakes up to news of M&A activity in a short position well above the buy stop price. Recent history has been incredibly kind to short sellers. Remarkable how popular, and chic, it has become.


On Mar 18 09:54 PM 2houndz wrote:

> Centvalu - as long as one uses an intelligent stop loss strategy
> I can't see much difference between trading long or short. Both directions
> scare the hell out of me right now, so if you can stay long OR short
> for any length of time, kudos to you. It makes me too nervous. I
> used to be a swing trader. Now it's mostly intraday trades.
>
> Mark - good info as usual. TCO has also had some good price action
> lately. I ride it up, then I ride it down.
> KIM is a well-run company with limited exposure to "aspirational"
> retailers, so in the long run I hope they are OK. Their occupancy
> has been so high for so long there's no wonder this has been painful
> for them. Milton Cooper is one of my heroes in a business where very
> few have earned real respect.
>
> COF - I saw an article yesterday stating that credit card debt was
> only paid down 17% in January, as opposed to 20.5% being typical
> for January. The way I understood it, a significant amount of debt
> was carried over into January as compared to normal, suggesting more
> people are unable to pay down their cards. Mark, since you have a
> short position here, did you see this and can you opine? Did I understand
> it correctly? Thanks

Mar 19 11:12 AM

[2houndz:]

But exactly the same thing happens on the gaps down if I'm in a long position. It is neither evil nor magical. Those gaps are why I haven't been holding overnight lately on either side of the trade.

Mar 19 01:04 PM

[Catherin:]

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Mar 21 10:25 AM