Bought Puts on Virgin Media

Virgin Media (Nasdaq: VMED) caught my eye on the Short Screen screener last night. In addition to having an Altman Z"-Score in the distress zone, the company has been losing money for the last four quarters (though those losses have narrowed somewhat over the last three), and has a fairly high debt load (about $9.5 billion in net debt, versus trailing revenue of $6.6 billion and a market cap of about $5.5 billion). Despite that, its share price has rocketed up from a low of $3.76 back in March, to $17 as of last night's close¹. A quick search on Twitter showed several bullish tweets on the stock over the last few days, based on its technical trends.

Since Virgin Media has options traded on it, I figured I'd buy puts on it instead of shorting it to cap my downside risk. I bought a few of the Jun 10 put contracts with a $10 strike price (NUDRB.X) this morning for 30 cents each.

¹The shares of a number of financially distressed companies have had similarly explosive run-ups from their March lows, including one we mentioned here previously, BAGL.

Update: Perennial contrarian "Commodity" makes the bullish case for VMED in this comment thread on GuruFocus. He could be right, so if you're thinking of going long or short VMED, you may want to check out his comments first.

Covered short of a David Einhorn stock for 27% profit in less than two months.

On September 17th, I mentioned that I had shorted one of David Einhorn's holdings, Einstein Noah Restaurant Group (Nasdaq: BAGL), at $13.78. I found BAGL initially using ShortScreen's screener: at the time, it was one of the 50 most-distressed stocks trading at $10 or above. Earlier today I covered my short position at $10.05, for a 27% profit in less than two months.

If you had followed me on this particular trade but shorted only 100 shares, your capital gain would have paid for an annual membership to ShortScreen more than twice over.

Bagel Dog

Last month, I mentioned I shorted Einstein Bagels (Nasdaq: BAGL) ("New Short Position: BAGL"). Today, BAGL was added to the Zacks #5 Strong Sell list.

New Short Position: BAGL

I mentioned this in a previous comment thread, but I shorted a few shares of Einstein Noah Restaurant Group (Nasdaq: BAGL) earlier today at $13.78. This company has an Altman Z"-Score¹ of -3.2. A score below 1.1 suggests a company is at risk of bankruptcy within 1 to 2 years. It wouldn't be the first time an Einstein Bagels went bankrupt; a previous iteration of Einstein/Noah Bagels went bankrupt nine years ago. Insiders have been selling BAGL this year. The company also has negative working capital, over $117 million in total debt, less than $4 million in cash, and it's had a big run-up this year that doesn't seem to be justified by fundamentals.

On the other hand, David Einhorn, one of The Guru Five, is the largest investor in BAGL², so bear that in mind. For my part though, I'm not going to let a guru's ownership of a stock keep me from shorting it. I did that last year, when I was bearish on USG, but didn't short it because Warren Buffett owned it. These guys put their pants on one leg at a time like the rest of us, and they often have different considerations than the rest of us do with these sorts of positions.


¹Z"-Score is the designation for the modified, four-term version of the model recommended for publicly-traded (non-financial) non-manufacturing companies.

²Einhorn appears to have acquired his stake when he helped recapitalize the company after its bankruptcy, so his average cost here is probably very low. I don't have the energy to look up the exact figures, but feel free to do so yourself if the spirit moves you.