"Mark congraguations on your short position on Zenith, I did think it was foolish when Zenith was around 10 $ per share, but looks like you cleaned up. When is you exist point? are you thinking lower yet? do you have a protect limit on the upside?"
Thank you for your congratulations, but I think they're premature. I haven't closed the position yet, and who knows where it will be when I do?
My view is that ZE is worth around $4/share as long as it's still being supported by LGE. I like to cover a short at about a 50% premium to my appraised value. Therefore, I would sell around $6. I might be leaving money on the table, but that's life. Incidentally these numbers are a little old. I haven't re-run them recently because the stock has been so far from my covering point. If we broke $7, I would bring out the pencil again.
On the upside, if the stock were to run up to $15, I would cover temporarily and reshort when I thought the momentum was gone.
All of this presupposes that my current analysis does not change:
1) LGE continues to "charge" ZE for their guarantees.
2) ZE does not look like it will become consistently profitable. If things look that way, then all bets are off. That doesn't mean that I doubt Zenith's earnings will markedly improve. I wouldn't be surprised by a profit improvement of even 10% of sales, which would be a huge turnaround--about the size of IBM's. That would still leave ZE losing about $40,000,000 a year. I believe that I can make money long-term if ZE loses $10-40,000,000 year.
This has been a painless short so far. Shorts are not supposed to be like this. I would expect far more turbulence in the future. I agree with most of the longs here that, if ZE were to become consistently profitable, then its price would skyrocket. My belief, however, is that this is a very unlikely possibility, and thus my position is sort of like the house in roulette: high likelihood of consistent, modest returns but with a remote possibility of an outsized loss. |
