iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
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A Look at Ackman’s Recent $VRX Purchases

BBG view digged deep into the cash strapped (lolz) Pershing Square and how Ackman just took down another 12.5 mill shares of VRX, for just $75 mill.

That’s because he didn’t buy stock: He went to two derivatives dealers, Nomura and UBS, and bought call options on Friday that give him any gains in value of Valeant’s stock above the strike price of $95. He also sold those dealers put options, which put him on the hook for any losses in the value of the stock below the strike price of $60. And he sold other call options with a strike price of $165, capping his upside: If the stock gets above $165, he gives up any further gains. Then he did the same thing again on Monday, only with strike prices of $100, $70 and $130. The options he bought cost about $235 million, plus about $9 million of hedging costs; the options he sold brought in about $169 million. Here’s the accounting:

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The result of all of this is a set of payoffs that look, locally, a bit like buying stock; if the stock ends up above $95 but below $165, Ackman has more or less done the equivalent of buying $1.1 billion worth of stock, though with a bit of friction. Further away from today’s price, though, it looks different: If the stock ends up below $95 — and, again, it’s below there now — Ackman avoids some losses, though if Valeant really craters he’s on the hook. And if Valeant ends up back where it was when Ackman was first buying — that is, near $200 — then he misses out on some of the gains.

Ackman is either the most stubborn man on the face of the planet. Or, he is 100% sure, due to thorough investigation, that Bronte Capital and Citron Research are merely feces tossers, men yelling fire in a room filled with pyrophobics.

I am long VRX.

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10 comments

  1. Option Addict

    Synthetic long? Sell puts to buy the calls?

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  2. the_wolf

    how long are you good professor ? (no homo, of course)

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  3. Dr. Fly

    small size

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  4. pb

    As I recall, Buffett got his start as a ruthless insurance racketeer (essentially). If anybody thinks that these health insurance companies are going to continue taking it in the shorts from Turing, Valeant, etc. …think again. They are not a threat to be ignored.

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  5. pb

    Indeed, you’ll see drug price controls long before you see doctors taking a pay cut. And that’s a gold-plated guarantee you can take directly to the bank.

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  6. pb

    In our society, doctors wear halos. Drug companies, it has recently been revealed, wear horns, have cloven hoofs, club feet, and their skin color is a decisively red hue. The market agrees: THAT is why VRX got whacked. In theory, they have substantial opportunity to profit. In reality, the rug is being pulled out right beneath their feet. The power of a concerted propaganda effort is an awesome thing to behold.

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  7. snaketron

    how much edge did he have to give up to get this done? probably made a few peoples years with this play

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  8. dragun

    Let’s not forget this “smart guy” also piled into calls of a take over target and then coaxed Valeant into a take over.

    These hedgies have lost their allure. Unless they have inside information they arent performing. YTD data speaks for itself. Either you are acting on non public information, or you are just leveraged beta.

    Anyone remember SAC and their “expert network”? and how many countless other hedgies were caught for the same crap.

    All horseshit!

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