David Schrader

Why I'm Buying Circuit City Calls

User137777
I've noticed something interesting on this site. If someone has something negative to say but doesn't have any evidence to support it, they remain anonymous. Yet all the others who have pointed out actual flaws and not attempted a shameless and baseless personal attack attached their site ID. Intriguing, no?

I haven't even picked up the Calls yet, and didn't plan to until after publication. You may be correct on the operating leases, and if so, point well taken. However next time you should leave personal attacks on a stranger out of your argument as it detracts from your credibility.

It would seem as if the consensus is that the risk outweighs the potential reward. I thank everyone who has published comments up to this point and any after. I've noted your points and will ensure to provide a more thorough evaluation in my next article. I do hope you all will read and critique the next one as well.

Dave

Why I'm Buying Circuit City Calls

SmartGuyStocks

I appreciate the comment. You're 100% right. Thank you for clarifying for folks who may not have gathered the risk level (mainly since I failed to mention it). Sometimes I forget people trade based off of other's info and not their own research. In terms of praying, I doubt God participates in the financial markets. From what I gather, our money is no good up there haha. Patriots all the way baby!

Why I'm Buying Circuit City Calls

If this spec position were to represent a larger portion of my portfolio or I were more confident in the company I would agree 100% that the equity would be a better play. The risk of bankruptcy is fairly large (as I mention in the article). However, the purpose of using options in this particular situation are as follows:

1- I have zero faith in the company's current management. The company is poorly run, their stores are dirty, their customer service is miserable, and their employees tell you to spend your money at Best Buy (BBY) (haha true story). Even with all of this their sales have not plummeted (though they are falling). In my opinion the company would become profitable in the hands of different management. If you look at the current holders (as of the last filing date on Bloomberg) you'll see some smart money in the top ten with significant positions. I'm of the belief that something is going to change soon (CC gets taken private or acquired).

2-Calls provide me with an outlet to leverage my idea. If I were to hold the equity I would need to invest over 10x the capital to control the same amount of shares. YES, I understand that options expire worthless and equities retain some value. However, in my estimation this company is headed to one of two places: bankruptcy or corporate action. I don't foresee a middle ground. If CC does go bankrupt the equity loss will be so large (and immediate) that the value derived from holding the equity versus the option will be minor. If CC sees some corporate action, the option may produce a ROI of >2x+ that of the equity holding.

In terms of time frame BillB, you have a solid point. 5 1/2 months is not much time. Perhaps I'll extend the Calls to JAN 09. Within the next 12 months I expect something significant will occur.

Why I'm Buying Circuit City Calls

ULM
I couldn't agree with you more. For my money, that's where the risk/reward comes in. I've found that by investing in Calls for this type of speculative play one is able to make a solid return if they're right and lose a minor amount (relative to an equity stake) if they're wrong.

Why I'm Buying Circuit City Calls

Something I forgot to include is that my position will be minor relative to my portfolio. This is a high risk trade but one in which I believe the risk/reward makes sense.