Chris DeMuth Jr.'s  Instablog

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Perkins Cove Comments (474)
 
So, anyway the little guy wins in all of this? Other than trading?
15 Feb, 03:27 PM Reply Like

Chris DeMuth Jr. Comments (1751)
 
Net? Probably no.
15 Feb, 03:40 PM Reply Like

rootbeer Comments (49)
 
This has to be the funniest thing I have ever read on SA. Thanks.
15 Feb, 07:03 PM Reply Like

Chris DeMuth Jr. Comments (1751)
 
You're welcome. Enjoy the long weekend.
15 Feb, 07:07 PM Reply Like

TheCompleatAngler Comments (59)
 
I may be mistaken, but I think that Dan Loeb attended the University of California at Berkeley in addition to Chapman. Also, Icahn and Tilson are in solidarity with Netflix. Chapman yesterday told Bloomberg that he either sold or hedged his entire position in HLF on the stock's dramatic yet short lived price rise to the upper $40s in reaction to Icahn's 13D.
16 Feb, 01:42 AM Reply Like

Chris DeMuth Jr. Comments (1751)
 
This is even more complicated that I thought! Thanks for the added details.
16 Feb, 08:11 AM Reply Like

Todd Johnson Comments (6692)
 
Chris, have you taken a HLF position (that you want to share): short or long?

I am backing Icahn.

TJ
16 Feb, 05:55 PM Reply Like

Chris DeMuth Jr. Comments (1751)
 
It is a complex, ongoing situation so not one that is too suited for me to go into our position. That being said, the one potentially useful thing that I can share is that I believe that Ackman is set up so that it is unlikely that there will be a short squeeze (whether HLF is worth more or less than its cost is another matter).
16 Feb, 07:47 PM Reply Like

TheCompleatAngler Comments (59)
 
As far as I can figure, if Ackman weren't vulnerable to a short squeeze, then he would have had to hedge his short position so that he's not net short even though he could rightfully claim to be short $1B of HLF or whatever figure it was that he said. I suppose he could accomplish this by entering into some sort of swap with a dealer. He could also do so, I think, by selling enough put options against his short position to be delta neutral. Option premiums for HLF are very high, which I've tried to exploit by selling put options of short duration at times that seem opportune. (I've been selling put options with strike prices 10% to 12% below the prevailing market price during sell-offs in the stock and received premiums in return equal to around 10% or so of my committed margin capacity on a monthly basis. The risk is elevated, but in return I've been receiving premiums equal to committed margin of 120% on an annualized basis, which seems like an attractive reward given the risks as I perceive them. The contracts, mostly weeklies, that I've sold have expired without exercise so far. ) Through his activities, it' easy for me to believe that Ackman single-handedly caused HLF options premiums to become extreme. If he were to have been selling put options against a huge short position, then the premiums he would be collecting could far exceed his borrowing cost, making the trade profitable like a carry trade in a sense. By grandstanding as he has been doing, he could continue to pressure HLF's valuation multiple and keep implied volatility for HLF options at extreme levels indefinitely, all the while maintaining a fat net margin. It seems to me not beyond the realm of possibility that in disclosing his huge short position, Ackman could have omitted details about the nature of his position in HLF stock that has led many market participants to an incorrect conclusion about he how stands to profit from his activities with HLF stock and what his risks really are.
17 Feb, 12:18 AM Reply Like

Todd Johnson Comments (6692)
 
Chris, yes, it's complex.

At the end of the day - I believe I have read Ackman is not hedged, although I may be wrong - Ackman is taking OPM & placing it at great risk.

Why do it? Even if he is right - the timing can be off. His ego is off the charts. His high intellect may be his biggest weakness.

TJ
17 Feb, 12:15 PM Reply Like

Zeus2012 Comments (460)
 
Or Ackman could have entered into a stock loan agreement with one of the index funds that holds HLF (and will be holding HLF as it's in the index). Such arrangement is lucrative for the index fund as they earn are "rebate" on the borrow amount and the stock loan is fully collateralized so there is no credit risk to Pershing.
17 Feb, 10:51 PM Reply Like

Squeeky Wheel Comments (179)
 
Also Einhorn is not short HLF - he was very clear on that at the end of his cnbc talk about aapl. He asked some pointed questions, but apparently the answers were acceptable enough that he didn't short.
16 Feb, 10:15 AM Reply Like

apppp Comments (321)
 
At least someone else noticed. For weeks they kept saying einhorn was in on this when he wasn't and He said it was becuase the risk reward wasn't favorable to him.
17 Feb, 10:16 AM Reply Like

Squeeky Wheel Comments (179)
 
I wouldn't be surprised if he *was* short - say when he noticed the data missing from the 10K until shortly after the earnings call. I would happily have taken profits on that.

There's an interesting side-note that isn't mentioned in the media/SA discussion on this. HLF is in China but MLMs are explicitly illegal in China, so HLF sells out of retail shops there. If I wanted to see if there are normal customers for HLF I'd look at the China sales.
17 Feb, 01:37 PM Reply Like

herbs4mike Comments (242)
 
The inside word from distributors in China who I talked to about 2 months ago is this is about to change fairly soon. I sure hopes so
26 Feb, 05:09 PM Reply Like

poortorich Comments (2011)
 
Chris

I really like your chart!
18 Feb, 02:14 AM Reply Like

FEARANDLOATHINGINTHEMARKET Comments (6)
 
This will be a required case study in business schools the world over...Residents in psychiatry will probably be forced to analyze this saga..Construction of the pyramids of Egypt?....pure GOLD.....bravo Chris!
4 Mar, 07:50 AM Reply Like