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Nat Stewart  

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  • VXX: Investing (Short) In Volatility [View article]
    Sure. The issue with being short is that ones notional exposure and account equity move in opposite directions.

    This is a very simplified, conceptual example.

    Suppose that one shorts 1000 units of a VIX product at 20 (20K worth),and in one day it moves to 30. You just lost 10K, and are left with 10K, yet your notional exposure is now 50% higher than it originally was Moving from 20k to 30K).

    The ratio of your notional exposure to equity went from 1:1 to 3:1. Without a rebalance, you will lose 100% of equity if the product moves from 30 to 40 (the scenario of your question - VIX doubling, in this case 20 to 40).

    To prevent this, you must rebalance. Practically speaking, to avoid blowup you must get back to the original 1:1 exposure to equity ratio (or whatever the original intended exposure level was) - sell 667 units of the security, so that one is left with 333 units, or a 10K worth. The position will equal to account equity once again, as was the case originally.

    Now consider what happens if the VIX product drops back to 20 from 30.

    You lost 10 points on 1000 units, and made 10 points on 333 units. A net loss of 6670. This is a simplified, exaggerated example of what causes the "drag" - most would assume as you are back at 20 you would be "break even," but do to the need to reduce risk at 30, it is not true.

    The behind the scenes management of these products with futures and swaps creates the exact same issue, which is why XIV lags shorting VXX or VIX futures, but with the benefit of truncated blowup risk.
    Jul 11, 2015. 09:59 AM | Likes Like |Link to Comment
  • VXX: Investing (Short) In Volatility [View article]
    CompoundGrowth - It would be interesting to look at what their protocall is for extreme VIX moves. They must have some type of contingency plan for this event, or at least I would hope.
    Jul 11, 2015. 09:40 AM | Likes Like |Link to Comment
  • VXX: Investing (Short) In Volatility [View article]
    one more consideration for the ETNs is that the flip side of volatility drag is that XIV is a limited liability vehicle. U can stay long and never get a margin call, the price u pay is the "drag." The same is not true for shorting VXX. At some point one can be forced to "rebalanced" or reduce the position in a way that creates significant "drag". Shorting these without a well thought out risk management protocol is going to cause problems at some point.
    Jul 10, 2015. 07:49 PM | 1 Like Like |Link to Comment
  • VXX: Investing (Short) In Volatility [View article]
    Anyone with a decent sized account balance should consider utilizing the futures and avoid the ETNs all together. I have never traded a VIX etn in my life but have traded VIX futures for at least 5 years. The ETN's are relatively speaking, useless, at least to me.

    Good article.
    Jul 10, 2015. 07:39 PM | Likes Like |Link to Comment
  • Consolidated-Tomoka - Why I See 70% Potential Upside Over The Next 12 Months [View article]
    Value12, thanks for the update. Following along with property sales or attempting to anticipate them is definitely worthwhile. However, I do want to make clear, the exact timing is ultimately not that big of a deal. We have a great team working on our behalf - to the extent I can, I want to think like an owner and let the team get the job done over time.
    Jul 9, 2015. 07:58 PM | Likes Like |Link to Comment
  • Nathan's Famous Shareholders Are About To Get Barbecued [View article]
    I've been looking at this from a business value perspective absent the capital structure issue. Its a terrific business - A classic See's Candy type business. It really should be a private company, IMO. The royalty and Franchise biz is worth a great deal. I'm thinking that at this level it is actually a decent value, even accounting for the interest payments, which in terms of the price decline, are now fully factored in for the next 5 years. With 57M in cash and securities, they are in a great position to buy back stock at a discount vs. the intrinsic business value. Norbitz is 67 Yrs old, i don't think to much of that. The company bought his stock off him so those shares have been retired. Perhaps more buybacks are in the works. Lorber, the main shareholder is no fool, he would not shoot himself in the foot. Most likely, he has a plan.
    Jul 8, 2015. 10:41 AM | 2 Likes Like |Link to Comment
  • Cable One Spin-Off: Rollup Or Rolled Up [View article]
    The important question is what will this be worth to a company like Charter in a year or so, less the exess overhead of a stand-alone biz. For tax reasons, as the author said they can't pre-plan a sale, and they can't say anything that implies a sale was pre-planned. H

    However, in this environment is is extremely likely that CABO, the 10th largest cable operation in the USA, will be an acquisition target. As to free cash flow a major capex spend is winding down year-end 2015, and regardless valuing this as a stand-alone entity is going to create flawed reasoning, in my opinion.
    Jul 7, 2015. 08:26 PM | Likes Like |Link to Comment
  • Cable One Spin-Off: Rollup Or Rolled Up [View article]
    Great write up, really appreciate it.
    Jul 6, 2015. 07:17 PM | 1 Like Like |Link to Comment
  • Planet Fitness IPO: Investors Can Pump Up Their Portfolio [View article]
    A gym business insider told me that the secret to a highly profitable gym is to have a large group of "casual fitness" people to sign up (typically in January) using a credit card with auto-re billing, and soon enough most of them stop going to the gym and burdening the facility. They then stay on as members for years, as paying for the membership lets people feel they "might get fit at any time" even though they never work out again. This is how one small Gym can service so many customers on such a small fee and earn large profits.
    Jul 6, 2015. 06:29 PM | 1 Like Like |Link to Comment
  • Alliance Resource Partners: Answering Questions About Its Debt And Distribution [View article]
    They invested 320M for 20%, now just bought 80% for 50M? I wonder who the White Oak seller was. Was it a partnership with another coal company?
    Jul 6, 2015. 11:02 AM | Likes Like |Link to Comment
  • Why Beating The S&P 500 Is So Hard, And Why Even Protecting Against A 10-15% Correction Matters [View article]
    Beating the average investor in an S&P 500 index fund is much easier than beating the index itself. This "investor vs. investor" perspective is much more of an "apples to apples" comparison - Most Index investors badly trail the performance of the funds they invest in.
    Jul 5, 2015. 09:06 PM | 1 Like Like |Link to Comment
  • Scanning The SA Family For Alpha: Rosenose [View article]
    The market is the only judge. I for one don't write for the accolades of readers, though I very much appreciate the small number of informed ones.
    Jul 4, 2015. 07:50 PM | 1 Like Like |Link to Comment
  • Post-spinoff, Cable One maintaining rural focus [View news story]
    Anyone want to speculate what multiple this might be acquired for?
    Jul 2, 2015. 07:58 PM | Likes Like |Link to Comment
  • Female Health Company Transitioning To New Strategy, But Receiving Legacy Business Valuation [View article]
    Yea they have an NOL to work through. Once again though, their investor relations does not do a good job pointing this out to people. Their press release seems to have done nothing to ameliorate investor concern.
    Jul 2, 2015. 06:44 PM | Likes Like |Link to Comment
  • Why U.S. Lime & Minerals Should Consider A $20 Per Share Special Dividend [View article]
    the only thing that puzzles me is why the major shareholder does not buy this out. Hopefully they have some leads on substantial acquisitions or they are considering a major capital return as I suggested in this article. Its a good situation.
    Jul 2, 2015. 06:40 PM | Likes Like |Link to Comment