I can think of two ways to play this one.
1. Use TA as an indicator of when the stock starts to head south and short then. Be patient and wait for teh townturn, so that you don't have to ride it up before the decline. My feeling is that once it starts coming down (for what ever reason), it ahs a ways go go and patient shorters can make a few points or roughly 35% of the short anmount. Why 35%?? Assume TSS is at $40 ( an arbitrary # representing 4x valuation relative to FDC. WHen the stock drops to $30, it's still at 3X valuation of FDC. You're conservative (and poorly timed), so you enter your short @ $30. The stock drops to $20, now at 2X valuation relative to FDC. 10 points over 30 is roughly 35%.
2. hedge by dollar amount TSS and FDC by shorting (arbitary #'s) $10,000 worth of TSS and go long $10,000 worth of FDC. With the exception of company specific risk, you are hedge from industry, market, credit, economy, and interest rate risk. This position will allow for profit if FDC is undervalued to TSS because FDC will go up (which is good) and TSS will come down (as in hte case TSS is overvalued). This is short of like the hedging (risk minimizing) strategy discussed on AOL's shorting folder a few days back. I wanted to contribute and also discuss Options as hedges, but did not have the time or patience for AOL's insistant problems.
Chester
BTW, I posted more complete information on STAR in the shorting foler. |
