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Long Idea: CHBT

|Includes:China-Biotics, Inc. (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