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Time for options? I love options, because of the leverage. I hate options because of the time limit and erosion of premium. How about SFE spinoff options? CMPC, CVSN, USDC, ISCG, DTPI, OAOT, and DOCC are being priced like options. Like options, they offer the potential rewards of highly leveraged moves to the upside. Unlike options, there is no expiration date or erosion of time premium. Like options, one does not have to put up a lot of $ to get big leverage. Every one won't work out, so buy a package. Think logically about what has happened from a supply and demand standpoint. Selling is not dramatic [with exceptions] but who is there to buy? Institutions? No way! They must have liquid positions and especially small cap mgrs. are seeing redemptions. Individuals? Hardly! If they like these companies, they probably already own them and are not sitting on wads of cash to buy more [or are being forced to sell because of margin calls]. Those that do have cash are in fear of catching a falling knife, especially with the daily market volatility and headlines. Obviously for every seller there is a buyer but in this situation, it it takes continued and dramatic declines to scare up buyers to meet selling. At some point it gets absurd. That is, prices get inefficiently priced compared to the value of underlying business. Examine CMPC. Please weigh the evidence carefully. Stock price around $2.80. Book value $4.39. 1997 engs. $35.2 M. [despite Dell giving it fits which it is]. It was a great buy in 1993 at $3.00 but in 1993 sales were half of those today and book was $1.78. In 1993 interest rates and inflation were higher [higher PE ratio justified now]. P.S. ratio now .06! '97 engs. est. $.48 sh., '99 est. $.70. SFE which has CMPC stock running out their ears is buying at over $4.00. OK, CMPC is not the best company around, but given the above facts, ask yourself, what is the risk vs. the reward. This is an option without a lot of long term risk I.M.O. Don't just buy CMPC, run the numbers on the others and buy a package of 4-6 of them. Or don't run the numbers, and just go by the supply/demand imbalance that has resulted in these stocks being priced like options, and buy a package, plan to hold. Three or four months from now prices should be considerably higher after this madness and tax loss selling is a memory. Even though tax loss selling will be considerable on these stocks in November, I would guess that absolute lows either have occurred for some, or will occur over the next two weeks. A less preferred but viable alternative is to buy one half a package now, and the other half the second or third week of Nov. Should SFE trade at NAV. or close, I would prefer to buy it rather than do multiple buys of small stocks with bad bid/ ask spreads, but the generous premium continues. Good investing to you. Mike |
