This is a small position for me that I bought puts yesterday (Nov 5). At the time, I did not realize that earnings was today. The implied volatility on CHK options is in the low 30s for the 2016 LEAPs and seems to be rather low. The historical volatility in the past 3 years was 40.97 according to Morningstar. I think that the stock is a little overvalued (see my CHK post) and that the put options are a little undervalued. This trade doesn’t have the greatest margin of safety.
Other minor trades
Short KUTV common shares
The operating business is like the Chinese version of one of Youtube’s smaller competitors. The economics of video streaming sites may be awful for the smaller players. For example, DivX’s extremely popular Stage6 streaming service was losing money before it was shut down (the real story behind Stage6 may be a little more complicated; the business could have been worth a lot to venture capital, but politics led to the service’s demise). KUTV seems to have declining revenues so the business doesn’t seem to be doing that well.
The financial structure is fairly complicated. The company does lend money to insiders at lower rates than it borrows- this is a red flag. The company repurchased several million dollars worth of shares from insiders at around $2.91 per ADS. The company also purchased shares on the open market (only $0.1M) at around $0.98 to $1.00. It’s a little sketchy that the company would pay high prices for insiders’ shares and low prices for shares on the open market. The company also bought very little shares on the open market, so it seems to me that the company doesn’t think that its shares are undervalued.
For the bull case, see this article by Christopher Drose.
Sold 1 Gastar call option
Gastar is like many other independent E&P companies. It constantly raises capital (equity + debt) and fails to generate value.
This position is mostly a waste of time as my maximum upside is less than $23.