Five new long put plays.

music selection:  “It’s Only Love” — Bryan Adams featuring Tina Turner

My portfolio has been very tilted long for quite some time.  Over the last couple of days, I have bought into some small positions – about a thousand dollars each – in five short ideas via long puts.

Hertz rent a car (HTZ) is very exposed to the inevitable turning of the credit cycle.  You can think of the business as a leveraged bet on the used car market.  HTZ regularly has to sell inventory into the used car market to fund capex.  A lot of the domestic car market has been propped up for years by sub prime auto lending.  Delinquencies are beginning to rise and many leased vehicles are due to come off lease in the next 18 months.  Used car prices are likely to fall.  I bought two 17 strike puts on the LEAP 15JAN2021 expiry for 4.40.

Tenet Health (THC) is an over leveraged company that lacks the scale to compete with the increasingly integrated health care space.  Debt downgrades are looming in its future.  I bought one 27 strike put on the LEAP 15JAN2021 expiry for 7.45.

Ally Financial (ALLY) is what remains of General Motors Acceptance Corp after the 2008 financial crisis and bailout.  It is enormously exposed to subprime lending and must compete in a fierce environment for online deposits.  I bought three 25 strike puts on the LEAP 15JAN2021 expiry for 3.65.

Wage Works (WAGE) is a digital company mired in an accounting scandal.  Their accounting was enormously aggressive and the SEC called them out on it.  They are struggling to restate past years of earnings and face a looming deadline, else they will be listed from the exchanges.  I expect they are in a double bind.  If they don’t report timely, the stock tanks.  When they do report, it will be clear exactly how erroneous previous statements and guidance were.  I bought three 30 strike puts on the 16AUG2019 expiry for 3.70.

Capital One Financial (COF) is a short I’m putting back on after closing several months ago.  The thesis remains the same.  No one in the banking industry has a greater percentage of their book exposed to subprime credit card lending.  Their reserves are rising but still insufficient.  They are similarly heavily exposed to subprime auto lending.  A turn in the credit cycle could realistically wipe out ALL of the bank’s equity.  This is based on the losses they took in the 2008 cycle.  I bought one 80 strike put on the 15JAN2021 LEAP at 9.50.

Altogether, I added 4,780 in leveraged exposure to shaky companies most of which are over exposed to subprime lending.  This should provide some nice insurance against another sharp downtown like in December.

Devour your prey raptors!

Adding Short Exposure

Never miss another opportunity to devour prey!

2 thoughts on “Adding Short Exposure

  • March 2, 2019 at 5:47 pm

    The protected puts strategy I entered last summer paid off. I sold my SPY and QQQ puts and bought more stock when my preset “20% down” rule was triggered. Soon thereafter, the rocket took off. Now I can buy back my hedges for a couple thousand less than I sold them for two months ago. I am in the process of doing so, returning to my IPS baseline allocation of 95% stocks + hedges (which is about 87% stocks, 8% long puts), and 5% junk bonds / speculation. In hindsight, I’m happy with this growth strategy. It is equities heavy at low risk, my retirement timeframe is a certainty, and I know exactly how to profit AFTER a correction is underway. Perhaps next time I’ll sell my puts and buy calls, or VIX puts. Having a pre-written plan was crucial to maintaining discipline during execution.


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