Strike

AIG: Details of Its Punishing Bailout

It seems nobody noticed one crucial and positive fact in the Loan Agreement, which is that AIG's extremely valuable and lucrative foreign subsidiaries are off-limits to the Treasury. These alone are worth well over $ 85 billion "under normal circumstances", which means that barring global financial Armageddon and the re-establishment of "normal circumstances" in 2 years' time the 20 % remaining sharehoder stake will be worth far more than the $ 1 it is worth today and, based on forward projections after repayment of the loan the 20 % stake should be worth minimum $ 10, and with unlimited upside potential in ensuing years when it could reach anywhere between $ 10 and $ 100. So at these prices AIG represents a cheap Call option with no expiry date!

Disclosure and strategy:

I bought a sizable stake in the $ 2.20 - 2.25 area (sold half my position at $ 4.90) and will re-purchase on any further pullback that will solidify the long term technical base. I will keep selling half the position at $ 5.00 (= below the double top) and keep the remaining half as a long term investment.

Since I expect this extremely volatile stock to keep bouncing between $ 2 and $ 5 for the foreseeable future I expect to gain several $ 100 % gains while waiting for the stock to eventually break out.