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BS in Economics, MA in Public Policy (International Economic Policy). J is a well-known voice in the global shipping community, with unparalleled investment results and a penchant for activist investing. Mintzmyer founded Value Investor's Edge, a top-ranked deep value research service in May... More
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  • Why BBRY Made The Loss Announcement 30 comments
    Sep 20, 2013 4:27 PM | about stocks: BBRY

    Note: This is purely speculative, which is why I am posting an Instablog and not writing a full article.

    I believe today's trading activity in $BBRY is completely irrational and misses the bigger point of what is really going on here. We know that Blackberry is trying to sell itself. Part of that process requires access to "the books." Most of the current information (i.e. this quarter's results), which is VERY important to buyout firms, and they are looking at, is non-public information.

    In order to act on non-public information, firms or individuals need to persuade the company to make information public. Blackberry made the extra effort today to make this information public.

    The entire reason that (I believe) Blackberry made this announcement was to clear the way for a few funds (or individuals) to purchase stock on the open market while having insider information. In this case, the insider information was 'bad news,' but it was still legally "insider info."

    Now that BBRY has plummeted even further, I expect massive buying from a few key parties (I have no idea who they might be) over the next 1-3 weeks.

    I have previously shared my firm belief in a $BBRY takeover for $15-$20 either late fall or early spring 2014. I recently sold all of my BBRY in the $10-$12 range and have staked my entire position 50% on cash and 50% in $12 March 14 calls. I will probably buy some $10 June 14 calls if the stock price persists next week.

    I expect that certain parties will begin increasing their share of BBRY stock prior to making their first bid. If the market continues to value $BBRY stock at these (single-digit) levels, the first bid might be as low as $12. Regardless, I still see a final close at $15-$20, if not higher.

    Please keep in mind this is 100% speculative. I do NOT recommend any positions based on these observations, or anything else for that matter. I just want to share my thoughts in a public forum while the news is fresh.

    Disclosure: I am long BBRY.

    Additional disclosure: I am long BBRY via $12 March 2014 calls. I may add to my position or alter my position in any way at any time.

    Stocks: BBRY
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Comments (30)
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  • KJP712
    , contributor
    Comments (469) | Send Message
     
    I just bought some shares on your recommendation.Thanks for the tip!
    20 Sep 2013, 04:37 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » I didn't make a specific recommendation, but good luck.
    21 Sep 2013, 03:36 PM Reply Like
  • mpow
    , contributor
    Comments (51) | Send Message
     
    good gut check analysis...
    20 Sep 2013, 04:39 PM Reply Like
  • ciolan
    , contributor
    Comments (193) | Send Message
     
    Thanks J for this post, let's see what happens.
    20 Sep 2013, 05:22 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    JM - very interesting post. Accumulation/Distribution line for $BBRY today shows a sharp upward increase after the stock was 'de-halted'; so your theory about someone wanting to pick up the shares on the cheap could be correct.
    20 Sep 2013, 05:44 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (7572) | Send Message
     
    Don't understand the reasoning. The numbers are so bad that I rather see BBRY at 7-9 USD now, 5 of those for the cash (which is melting, hence BBRY board wants to close the sale before end of 2013).

     

    I don't see buyers paying well over 10 USD after today's news, the handet business probably has negative value now due to openpurchase agreements and contracts (off-balance sheet liabilities).
    20 Sep 2013, 08:17 PM Reply Like
  • Stock Jackal
    , contributor
    Comments (545) | Send Message
     
    I agree with you JM, been thinking the same thing.
    20 Sep 2013, 10:29 PM Reply Like
  • Stock Jackal
    , contributor
    Comments (545) | Send Message
     
    The only thing I'll add is with the 4500 jobs on the line and a significant support for the Kitchener/Waterloo economy the Canadian government is going to have to be really open to any foreign buyer now, otherwise 4500 people are going to be going on employment insurance and the ripple effects are going to be felt although Southern Ontario. The Canadian government will have to seriously consider not allowing this company to be saved in some form or another by keeping a "net" benefit open mind to any suitor.

     

    Crazy buying after the drop and the run on the stops. Some party is still scooping up shares....
    20 Sep 2013, 11:34 PM Reply Like
  • Rico Kastilani
    , contributor
    Comments (169) | Send Message
     
    Crazy buying? That is called short covering. And just to add, it is down 2.86% after hours.
    21 Sep 2013, 01:24 AM Reply Like
  • KIA Investment Research
    , contributor
    Comments (13454) | Send Message
     
    Rico, thanks for that.
    What do the shorts do now that they own the shares, dump them at the first opportunity? Or were they likely selling them as quickly as they buying?
    21 Sep 2013, 01:28 AM Reply Like
  • jjmc2001
    , contributor
    Comments (1357) | Send Message
     
    I normally like your thinking but I think the terrible quarter is going to be known by all the major M&A bankers so BBRY had to disclose. I would not touch this stock. I do think we will see a lot of buyers just speculating on the breakup value so there may be a buck or two to be made by the arbs.
    20 Sep 2013, 11:49 PM Reply Like
  • sfinvestor
    , contributor
    Comments (1954) | Send Message
     
    It would have been terrible Sep 20th or Sep 27th. The end result is the same. Down on huge down volume.

     

    They annouced it because the auditors are giving the audit committee hell to disclose material facts. The audit partner told the CFO to do an early warning disclosure or they will resign and report non-compliance with the SEC. This is on the backdrop of Q1 silence so the investment community and SEC is alreadt in the edge of suing the company and open up non-compliance with disclosure. The SEC is probably all over BBRY and their auditors which in turn pressured mgmt to disclose. Sorry, if the WSJ can disclose a 40% layoff, BB mgmt and their auditors would be sued if they wait til earnings. The auditors are sweating heavily based on 1000% increased risk of getting sued.

     

    I work for the CFO so I know what goes into these things. lol It's really that simple.

     

    Whether institutions are loading up ahead of a takeout is uncertain. This is where techincal experience and knowledge comes into play. You'll have to see follow through over a period of time to confirm a reliable signal of quiet buying. But for the disclosure, the reason is as simple as I desribed above.
    21 Sep 2013, 12:23 AM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » Thank you for the update. It seems I was more focused on external compliance than internal compliance issues.
    21 Sep 2013, 02:36 PM Reply Like
  • Larryled
    , contributor
    Comments (3) | Send Message
     
    This stuff is heartbreaking. BUT It's either the best opportunity I have to buy more or this is going to BKRPT me!
    21 Sep 2013, 04:35 AM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » Be very careful with your capital exposure. This why I am playing calls. If the thesis is right ($15-$20), the return is 200-700%, if not you lose what you risk.

     

    If you go long the stock, the best you will (probably) get is 100% or so, while still risking 100% on the same thesis.
    21 Sep 2013, 03:35 PM Reply Like
  • Andreas Hopf
    , contributor
    Comments (19256) | Send Message
     
    See http://bit.ly/12EOIiv and http://bit.ly/13cpMUD before you might be tempted to "average down" - which could mean averaging down to $0 in the worst case. Be very careful!
    21 Sep 2013, 04:48 PM Reply Like
  • jjmc2001
    , contributor
    Comments (1357) | Send Message
     
    Very good point about using calls. The problem is time is your enemy when buying calls to speculate. I did the same thing on NOK and while I ended up OK I left a lot on the table as time decay ate up my positions. The BBRY situation may take some time.
    22 Sep 2013, 10:44 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » I disagree jjmc. If $BBRY does not have an offer on the table by March of next year, it's game over for them anyways. Remember, the deal doesn't need to close, just a serious offer and the stock will trade up, likely above the (first) offer.

     

    I'm sorry about the $NOK position, but remember to be happy with gains.

     

    I wrote 50% $4 calls and 50% $5.50 calls, so I also left a lot of money on the table, but I wrote those at NOK $3 and NOK $4 respectively, so I'm happy overall.
    23 Sep 2013, 12:44 AM Reply Like
  • KIA Investment Research
    , contributor
    Comments (13454) | Send Message
     
    I think with the new cross platform BBM epic screwup, it may all be over before you know it. Unbelievable. http://bit.ly/18Q9kaj
    23 Sep 2013, 12:50 AM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » Tried to buy Jun 14 $8 calls (approx. $1.30) this morning, but I got hit with the T+3 settled funds in my IRA account. I'm pretty frustrated at Scottrade's archaic policies, but I should have known....

     

    If the market trades under $10, I'll still buy options in the $10-$12 range. The $9 is clearly a lowball offer, reminds me of $BBY last summer.
    23 Sep 2013, 01:41 PM Reply Like
  • KIA Investment Research
    , contributor
    Comments (13454) | Send Message
     
    The market doesn't seem impressed .. We've all but given up the S/P gains for today. back down to $8.75
    23 Sep 2013, 02:27 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » That's true-- I was forced to buy regular stock and I bought the second it opened for $9.12 (limit $9.20). I expected market to place a slight premium, but it looks like they are recognizing the offer isn't binding.

     

    Doesn't seem a very rational market to give near $0 value to the takeover offer though... Weird things at play here...

     

    It's a rather poor analogy, but remember $BBY- nobody took that offer seriously either and now many people (especially the investment bankers & PE) wishing they had...
    23 Sep 2013, 02:31 PM Reply Like
  • markrpat
    , contributor
    Comments (245) | Send Message
     
    Hi J, I'm down 75% on my Nov $6 strike puts since Friday. As I said, it was "pure gambing here" meaning I was willing to lose it all on the gamble. Holding the rest on a gamble as well. Your thesis on buyout seems to be partially correct, you smelled it. The problem is they dealt it, the whole timing is sinister, calculated and not worthy of a primary holding. There are so many other opportunities that don't require myopathy on a destitute outfit. Smells bad to me. Just my simple opinion, and definitely wish you the best.
    23 Sep 2013, 06:30 PM Reply Like
  • slickvguy
    , contributor
    Comments (497) | Send Message
     
    J,

     

    Was wondering if you might see something that I am missing given my current losing position:

     

    I got caught by the Fri/Mon flim-flam. Went long 5K shares last week at $10.40. Bought 50 DEC $8 puts as a hedge, and sold 50 JAN $14 calls against the longs. Closed those short calls for a profit on Friday afternoon after the stock got whacked. Nearly the worst case for me has taken place: a bid by Watsa emerged, but at a measly $9 instead of the $11+ I anticipated. Right between my hedge and my ACB on the long position. lol. Which also killed the time value in the options and now I'm in a lousy position. This morning, the puts were at $1.10. Now they are at .34.

     

    Only way I make back to a b/e (which I would gladly take) with my current position is if a superior bid comes along. I'm not very optimistic about that happening. This "deal" gives Watsa all the cards. He can walk away w/o paying any fee.

     

    I don't want to close the puts, because they are the DEC's (i.e. after the DD period) and I there's a good chance that NO deal will happen, in which case they will protect my downside on the long position if the stock collapses. I don't want to sell the $9 NOV (or further out) calls, because they're dirt cheap and *IF* a superior bid actually does come along, that would kill the one chance I have of breaking even (or better). The DEC $10 calls are bid .20 (which would stick only $1K in my pocket).

     

    Any suggestions/ideas? What would you do in this position. FYI, I'm a financial advisor, and been trading for decades, so don't worry about giving advice, etc. Just looking for some ideas that may not have occurred to me. Thank you.
    24 Sep 2013, 03:56 AM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » You understand that I'm just hypothesizing about potential ideas then...

     

    I would consider looking at the following options:

     

    1) What is the cost to extend those puts? (i.e. March 14) Deal could get pushed back and non-binding upbids might come out. It looks to me like $8 puts are roughly 50c for December and only 60c for June 14. I'd trade those up for more time.

     

    2) You closed the covered longs, okay, so now you still have 5k shares. I'd go out on the market now and buy (50) Jun 14 $8 calls for roughly $1.10. DO NOT CLOSE YOUR LONG

     

    3) Promise yourself, to hold emotions steady, that you will sell your shares after 30 days. IF $BBRY stays flat-ish or down, sell and take your tax loss. You still have full upside exposure by the calls. If $BBRY goes up on a bid, sell anyways, but maybe break even- you still have exposure on the upside.

     

    I personally think this improves the hypothetical situation you mentioned. If this account is non-taxable, IRA, etc, then ignore #3 and consider selling the shares today (after buying calls)
    24 Sep 2013, 11:33 AM Reply Like
  • slickvguy
    , contributor
    Comments (497) | Send Message
     
    Thanks for the reply. A few interesting ideas.

     

    I closed the puts today, since the stock is off a bit.

     

    After thinking it through more, I think that if no other offer appears - which is unfortunately what I believe will happen - PW will take it for $9 or perhaps a bit lower. I don't think the financing will be that difficult, given PW's substantial position being rolled into the new deal, plus BBRY's cash on their balance sheet, as well as the Federal govt's desire to see BBRY remain both Canadian and viable. In that case, the $8 DEC puts don't really help me in this situation. Sold for 51 cents, the stock would have to go to $7.49 to justify keeping them. Also, as you expressed, DEC might not be far enough (delays due to lawsuits, financing, etc).

     

    At $8.58, it sure is tempting to buy some more longs, but I don't want any more risk in this play.

     

    Your idea of buying the JUN 14 $8 calls (currently $1.23) is interesting, but what bothers me is to be giving up quite a bit for theta *relative to the $9 price of the LOI*. Even if a competing bid emerges, it does not have to be much higher. Could be $9.50. If the PW LOI deal goes through at $9, those calls are losers (23 cents). Why pay for all that time when this will likely be settled - one way or another - quite a bit before then? I understand that generally you like to do that because you want your decay to be slow, but in this case, I think it's not in sync w/ the specifics. However, I like the idea of calls, so I might "roll" my longs into ITM calls, DEC or JAN, pay a little time value, and very likely have clarity by that time.
    24 Sep 2013, 03:02 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » The general thinking was you can take your $42.7k+ off the table, slap around $6500 back for similar exposure on the upside, and then place that $35k somewhere else.

     

    The risk here is: what happens if BBRY goes private for the $9? You then lose all of your $6500 instead of gaining around $2200. But, with the sensitivity implied with 5000 shares, you also have the same downside if BBRY slipped to $7.30-range.

     

    Looking deeper at the return profile, I agree the $8 puts are redundant, good move selling them.

     

    You haven't mentioned if you are in a taxable account. If you are, the move above might give you tax benefits of up to $3000. Although now that you sold your puts- it's a risky 30 days...

     

    However, I doubt a bid DROP will come within 30. Likely they will drop (b/c of lack of financing) at the last available time (November).
    24 Sep 2013, 03:10 PM Reply Like
  • slickvguy
    , contributor
    Comments (497) | Send Message
     
    I'm Canadian. It's a taxable account, but of course our taxation differs from yours. At this point, a capital loss does me no good because I have no gains to offset them. Have not been trading much the past few years (personal reasons). Have sat in cash mainly. This is currently my only position.

     

    re: the timing of a big drop: it'll happen in part BEFORE the November deadline (unless they extend the DD/go-shop period). The information will leak before the deadline that he's a)backing away, b)can't get financing, or c) lowering the bid. First you get the news leak drop, then you get the "it's true" drop. lol.

     

    I read something today from one of the analysts that I agree with: If no other bid emerges, it is very likely that Watsa will try to get away with a lower bid. $8?

     

    One thing I've learned from playing many so many of these over the years - a) expect the unexpected, b) expect DELAYS. Things almost always take longer than anticipated. We could have lawsuits, extensions of deadlines, etc. That's why buying OTM options are so risky in these situations. Deeper ITM options, as a proxy for a long or short, make more sense.

     

    Not sure what I'm going to do. Might just close it and take the loss.
    I'll keep analyzing and see if I can come up with something that I like, but given the number of variables and uncertainty, it's a tough play. Probably not something I would touch if I was on the sidelines today. I don't want to take another position to try and avoid taking a loss.
    24 Sep 2013, 10:56 PM Reply Like
  • slickvguy
    , contributor
    Comments (497) | Send Message
     
    J,

     

    Just wanted to give you an update.
    I did a few different things, but the main one is as follow:

     

    I sold the $9 DEC puts and bought the $8 DEC puts. Credit spread.
    It's a weird thing to sell ITM puts, but after looking at all the options (no pun intended), I think the risk/reward makes sense. Why?

     

    My bet is that PW takes the company at $9. If someone else out bids - I'm good. PW pays $9 - I'm good. PW pays $8.50 - I basically b/e. No deal or deal done at $8 or lower, I lose. The DEC give me plenty of time. We'll know in the next few weeks - we won't have to wait till Nov. 4th.

     

    My net credit was .57. So (commissions aside) my max profit is .57 per contract, my max loss .43.

     

    Compared to buying calls or shares, this makes more sense to me, with the stock at $8 and the likely upside only $9. If one bought the DEC $8 calls for around .70, you'd actually be making only .30 but risking .70 if PW pays $9. But, if another bid materializes, then the calls would outperform my short put spread. I'd rather not be a pig and go for the $9 and lose less if I'm wrong.

     

    I also opened some NOV15 $9/$7 credit spreads as well. A bit riskier, but better reward too. Net credit (max gain) was .98. Max loss is $1.02.

     

    I held ALL of my positions over the weekend - hoping for a miracle outbid announcement (lol) - but will close my other positions on Monday or Tuesday. Don't want to carry too many contracts and shares overall.
    27 Sep 2013, 05:51 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8465) | Send Message
     
    Author’s reply » I understand on the shares-- enormous waste of capital. I closed mine as well for a substantial (12%) loss in only 3 days. I decided to go with Jun14 $8s. make a tiny profit on the original deal with big upside if it gets outbid. I only needed to place 1/9 of the capital down.
    27 Sep 2013, 08:28 PM Reply Like
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