Discussion in 'Trading' started by vladiator, Dec 13, 2002.
talk about contrarian investing...
Almost got my butt kicked, but ended up in the green...
Tried to short UAL all day, unable; anywhere from 1K to 5k shares, at prices ranging from 1.75-1.90??!! Using Fidelity
Sure was a heavy amount of their shares being traded...
PS Cramer had a piece on RM tonight re UAL
UAL's Shares Look More Like Lottery Tickets
By James J. Cramer
12/13/2002 02:35 PM EST
Click here for more stories by James J. Cramer
People gamble, and you can't stop them from gambling. It is human nature. Some gambling games, though, are simply luck. It doesn't seem like luck while it's happening, but it is certainly happening.
It's the same, sometimes, with stocks. The common stock of UAL (UAL:NYSE - news - commentary - research - analysis), the parent of United Airlines, for example, shouldn't be at $2. It shouldn't be at a dollar. It is at $2 because it wasn't canceled, which I argue it should be. It has doubled this week. If you bought it, you got lucky. There was nothing else to it. So many hedge fund managers shorted this stock without first getting a "borrow" that brokerages are "buying in" customers.
Let me explain how that works. Let's start with the supposition that the stock is worthless. We know that it is worthless, because this company's assets now belong to the lenders. There is no doubt about that. The lenders will not allow the common stock to survive, because they now own the company. And there is nothing the common stock's holders can do about it.
So if the common stock is worthless, why isn't it going down? Because so many people know it is worthless that they have sold it short -- too many people. You don't have to own the stock to short it, but the buyers still get something. You have to provide them with stock borrowed from someone else. Right now, though, brokers can't find any stock to borrow for you. So you sell it short, and then they come right back and buy it in when they can't find any stock to deliver to the real buyers.
This can go on either until sellers materialize -- and the employees should do everything they can to get the stock they own freely traded so they can dump it -- or until it is canceled.
But we have no idea how long that process will take.
In the interim, everyone who bought the stock will feel as if they are geniuses. If you did it, congratulations. You got lucky. You hit the lottery. Don't let the lottery compound. Take it off the table, because you don't deserve the win. It is only because the market isn't working well that you are profitable. That will end, and if you don't sell, you will give it back.
Because UAL's stock is worthless.
I normally don't trade stocks like UAL ... basically worthless stocks that are caught in a vicious, technical short squeeze, but today I was forced to because I was holding Dec 2.5 puts and I needed to buy in to hedge my puts, which were losing value with every tick.
It wasn't actually as bad as I thought. UAL was easy to get in and out of, fills were instantaneous.
Funny how everyone agrees this stock is worthless yet it closed at 1.75 or so. Next week should be equally interesting. Hope it just crashes so I can just bank on my Dec 2.5 puts, but I know it's not that easy, and I'll probably have to go long again.
ELK GROVE VILLAGE, Ill. (Reuters) - UAL Corp. the parent company of United Airlines, said it secured a bankruptcy court order to prevent holders of large stakes in the airline from selling or transferring their holdings.
The Elk Grove Village, Illinois company said in a written statement that the order applies to entities that hold $65 million or more in claims against UAL or 2.5 million shares or more of the company's stock.
UAL said the court order, in effect until a Dec. 30 hearing to reconsider its appropriateness, would help preserve its current operating losses.
UAL Spokesman Jeff Green said State Street Bank and Trust, its employee stock ownership adviser, will not be able to sell its UAL shares because of the order, which was entered in the court on Tuesday.
State Street raised concerns by United employees, who own 55 percent of the company, when it said in a regulatory filing in late October that it might sell up to a fifth of its UAL shares.
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