How to profit from CFC and WM going BUSTO in 2008

[BLUE FIRE_IHB]

Common opinion (including mine) seems to be that CFC and WM are quite likely to go busto in 2008. As such, I'm curious to hear about various investing strategies that readers might carry out to take advantage of this situation. The obvious is to short (buy puts), but my question is which puts would you buy, or are there better plays? Is the time-decay premium too expensive to make it worthwhile to purchase Jan 2009 puts? I know many readers also carry out short-term put plays on CFC, but premiums have made this a bit more difficult over the last couple of months. At the same time, I'm not sure I'm interested in playing with the daily/weekly swings....

So in summary, what are some good long-terms plays (sit and wait) on the inevitable failure of CFC and WM?

I also already have positions in SRS and SDS, both of which should generally benefit from these outcomes (SKF is another option I suppose).

 

[morekaos_IHB]

Not to give option advice off-handedly but you may want to look at a married short to call strategy. Short the stock buy calls to cover you behind in case things go the other way. Holding a stock short when some guy comes in and buys it out (not out of the question with these two stock) could ruin your day. Nice to have some insurance

 

[awgee_IHB]

I am no longer short WM or CFC nor am I long the puts. The easy money has been made on the short side and the chances that either will get bought when the price gets into the low single digits is great. Ever been short an equity which announced it was getting bought out? Not pretty.

The premium on the puts is expensive to the point of prohibition for me. Too much interest to make it worthwhile.

You said it yourself: "Common opinion (including mine) seems to be that CFC and WM are quite likely to go busto in 2008"

If the opinion is common, which it is, the risk vs. reward is too great.

Anyways, just my opinion.

If you have interest in being a short seller, you must be willing to go against the crowd and what is common knowledge.

 

[morekaos_IHB]

Actually I agree with awgee. Even though I have a small put position on CFC it is deep in the money now and I have the luxury of time. My shorts on WM CFC and DSL happend when they were $43.00 $22.00 and $60.00 respectively. Back then few thought this would happen. As Awgee said "easy money has been made here" Move along

 

[lawyerliz_IHB]

Lennar is now under 17, if you are willing to add them to your busto list.

Tho the Dow is up.

 

[awgee_IHB]

For shorting opportunities, I am looking at discretionary retail.

 

[morekaos_IHB]

this is exactly what I reffered to when I said cover you behind. One piece of takeover news can ruin your whole day

 

[awgee_IHB]

I am enthusiastic at finding some shorting opportunities during this "The Fed is going to cut" rally.

 

[screwrealestate_IHB]

Yea Cramer today was calling this a bottom for the financials. I gotta say I strongly disagree. He said that last time things went down 50% (early 90s) it marked the bottom and as of this morning we were at the same 50% mark. Something tells me we will need a bit more than 4 months to shake this all out. I will be reloading strongly into SRS and maybe SKF once things go up a bit...

 

[graphrix_IHB]

Yup, you gotta love Cramer. Please, please do not forget the winners of the new world.

Here are some gems of the bottoms he has called.

Centex on 8/8/07, but on 8/1 and 7/31 he said stay away from housing and homebuilders.

Thornberg and Countrywide are the survivors in the mortgage mess. 8/6/07

Holy mother of stock picking hell! Geez.... I hope Thornberg blames Cramer for the kiss of death into that death spiral.

Countrywide 8/1/07

Even before that, he said Merrill Lynch was going to buy them, and the time to buy CFC IS NOW! 4/18/07

Citi 8/1/07

Pulte 7/13/07

Bear Stearns 6/22/07, I mean... everyone is overreacting to this subprime thing.

Hey, back on 4/16/07 Wachovia, WAMU, and again Countryfried (see 4/18/07 CFC chart above for serious tanking).

OMG! That chart is fugly!

I take Cramer's word of bottom calling on financials and housing seriously, about as much as I take Lereah's or Yun's. Which means I just laugh at them.

Hey, he has been right on google.

 

[morekaos_IHB]

did go long puts on WM and DSL again last friday. Somebody got a bit too happy and moved em up as if all the problems were gone. As of todays price action, i think not.

 

[morekaos_IHB]

covered on WM today for a quick triple