David Schrader's  Instablog

David Schrader
Send Message
Dave is currently working as an Account Rep at a prominent financial services firm in Manhattan. In addition, he serves in the iMentor program and is under contract with a startup hedge fund for use of an algorithm he discovered. Prior to that David worked as an Equity Associate at First... More
  • Long Idea: CHBT 5 comments
    Nov 18, 2010 10:24 AM | about stocks: CHBT

     Disclosure: I or people I know are long the stocks/options mentioned in the following article.

    The February 2011 $7.50 calls in CHBT are being offered as of $10.15am 11/18 at ~$3.90/contract. 

    Quick Facts:

    x. Short position = approximately 40% of the float
    x. Historically, December has been an EXCELLENT month showing 4 consecutive years of advances in a row, with an avg return of approximately 24%
    x. The firm is trading ~1.3x book with excellent liquidity (quick ratio > 2). Mkt cap = ~240m, $44m TTM EBITDA, trading @ ~5x TTM EBITDA with positive FCF for at least 4 consecutive quarters

    Your breakeven, if executed at $4.00 per contract, would be $11.50/share. The stock is bid $11.07 as I type (10:17am) which means you'd pay a premium of $0.43 (or ~4%) for 3 months of time. In addition you're opening the position with $3.07 of equity in the option so you have a buffer against the decay.

    May be worth a look. The offer size is 390 contracts as of 10:20am.

    I'm viewing this as a leverage play with seasonality, short size, and general market sentiment closing out the year as the various catalysts. I have not dug into the company itself further than this basic level so there very well may be considerations regarding their business model, etc that I have yet to acknowledge. I will do so and provide an update in the comments section. Do your own research prior to investing/trading.

    My loss exit is $10/share in the equity.


    Disclosure: Long call options

    Stocks: CHBT
Back To David Schrader's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (5)
Track new comments
  • David Schrader
    , contributor
    Comments (58) | Send Message
     
    Author’s reply » FYI...

     

    insiders own 12mm of the 24mm shares.... which is where the shares outstanding of ~10/11mm was derived from.

     

    Below is a profile of the CEO
    investing.businessweek...

     

    Also, there's a recently-launched shareholder lawsuit mentioned on BusinessWeek.com...

     

    "Saxena White Files Class Action Complaint Against China-Biotics, Inc
    10/14/2010
    Saxena White P.A. filed a class action complaint in the U.S. District Court for the Southern District of New York against China-Biotics, Inc. and certain of its officers. The class action is filed on behalf of investors who purchased the securities of the company during the period between July 10, 2008 and August 30, 2010. The complaint asserts China-Biotics and certain of its present and former officers and directors made material misstatements and omissions about the company's true financial condition. According to the complaint, defendants misled investors about the quality, nature, and quantity of China-Biotics' purported retail outlets and stores, during the class period. The complaint also alleges that the company's fiscal 2008 financial statements filed with the SEC are materially false and misleading. Further, the complaint says that the false statements inflated the price of the company's securities and allowed it to complete a public offering in September 2009 of 4.6 million of its shares of common stock at $15 per share. The complaint asserts that when the adverse information concerning the company's operations began to enter the market, the price of China-Biotics securities dropped significantly, damaging shareholders. The complaint seeks to recover damages caused by defendants' violations of the federal securities laws."

     

    Even with all of this potential negativity I maintain my conviction on the trade. Again, my loss exit is $10/share on the equity.
    18 Nov 2010, 10:56 AM Reply Like
  • David Schrader
    , contributor
    Comments (58) | Send Message
     
    Author’s reply » Also, a convertible note.... maturity 12/11/10 @ $12/share.

     

    "On December 11, 2007, the Company sold a 4% Senior Convertible Promissory Note in the amount of $25,000,000 (the “Note”) with a maturity date of December 11, 2010 to Pope Investments II LLC, an affiliate of Pope Investments, LLC, in a private placement. In connection with the sale, the Company entered into an Investment Agreement and a Registration Rights Agreement. In addition, Mr. Song Jinan, the Company’s Chief Executive Officer, Chairman, and largest stockholder, entered into a Guaranty Agreement and a Pledge Agreement pursuant to which Mr. Song agreed to guaranty the Company’s obligations under the Note and to secure such guaranty with a pledge of 4,000,000 shares of China-Biotics’ common stock owned by Mr. Song. The principal amount of the Note is convertible into shares of the Company’s common stock at an exercise price of $12.00 per share at any time until the maturity date subject to adjustment for subdivision or combination of the Company’s common stock and similar events. If the Note is not converted at maturity, the Company will redeem the Note to provide Pope Investments II LLC with a total yield of 10% per annum inclusive of the annual interest."
    18 Nov 2010, 11:02 AM Reply Like
  • David Schrader
    , contributor
    Comments (58) | Send Message
     
    Author’s reply » Based on the outstanding shares, the short of float is approximately half, or ~20%
    23 Nov 2010, 10:02 AM Reply Like
  • David Schrader
    , contributor
    Comments (58) | Send Message
     
    Author’s reply » www.prnewswire.com/new...

     

    14 new bulk customers
    13 Dec 2010, 01:49 PM Reply Like
  • David Schrader
    , contributor
    Comments (58) | Send Message
     
    Author’s reply » It's been a solid run... would consider taking profits here
    20 Dec 2010, 01:02 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • PPD ripping on only 2x avg volume
    Oct 25, 2010
  • PPD looks to be gaining support here... if you had taken profits when discussed, now may be a great time to re-enter the position.
    Oct 11, 2010
  • Lots of nearly parabolic movement going on... don't be greedy when everyone else is
    Sep 29, 2010
More »

Latest Comments


Most Commented
  1. Long Idea: CHBT ( Comments)
  2. Sell ( Comments)
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.