Anyone need a shell company? Long $MCUR overnight

In light of the absurdity in KBIO, I am extremely bullish on shell companies. I want to buy companies that burn cash like Mike Tyson, by studying drugs with little hope of ever seeing a dollar of revenue. The more failed late-stage drug trials the better, but absolutely no less than 2.

Therefore, I bought some MCUR late in the day.

These types of trades are lottery tickets, essentially call options. Only lay down as much as you’re willing to lose. Unless you’re Martin Shkreli or his childhood friend, in which case you have balls of steel when sizing up in these trades.

 

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Those are words you never want to hear.

Unfortunately, for one trader who was caught short KBIO yesterday this is a reality.

 

Poor fellow started a gofundme.

Hello to all you traders out there.  I’m starting this page out of the recommendation of other traders in the community.

I hesitated on doing this but I literally owe Etrade $106,445.56 as of this moment what would you do if you were in my situation?  I’ll do whats needed and sell what I have to get them paid but if someone feels my pain and is willing to help out—who am I to say no?

If you don’t want to donate I understand, at least read my story of what happened today and protect yourself from the same happening to you!  This is a terrible lesson for me but if this helps just one person than I’m happy I wrote this.

I’m a fairly new trader, been trading since about March of this year.  I have learned alot about the community and trading…well not enough about trading as you will soon hear.

I have a fairly small account, but its over PDT.  As of this morning it was $37,000.  I keep it small because I wanted to manage risk, the most I can afford to lose is what I have in the account….$37,000.  When I get some profits I take them out of the account because I wouldn’t want to lose more than $37k.

I was holding KBIO short overnight for what I thought was a nice $2.00 fade coming.   At the close of the bell I saw the quote montage clear out and figured today there was no action after hours in the stock.  So I went to my office for a long meeting.  I got out of the meeting and saw a message from one of my buddys, he asked if I was ok since I was short KBIO….my heart dropped.  “Shoot did I blow up my account, everything I worked for?   I don’t want to lose all $37,000 that would be terrible.”  —It was much worse.

The stock was at $16 and my account was negative over 100k.  I figured it was a mistake, Etrade would never let that happen, they must have cut the position when my account got to $0….nope.  I immediately called them and they confirmed I still owned all the shares.  He says that it got out of hand too fast for them to cover me, he says that all he can do right now is cover.  I was devistated.  I asked him to cover at $16 and he waited trying to find me a good exit.  I told him to do it asap and the fill was around $18.50 avg.

At the moment not only is my $37k gone, but I now owe ETrade the negative balance of over $106k.  I always knew I could blow up an account and I was financially able to “afford” to lose the $37k.  Never in my wildest dreams did I imagine that Etrade would NOT have some sort of stop or circuit breaker in place that would automatically cut a position if the account went to $0…..how could they ever let it get to -$144k loss on a account that small!  Also, why did I have to call them to find out what was going on, why did they not alert me or call me when it went neg???

I’m never one to ask for a handout and honestly I’m kinda not sure if I should post this but here we go.   I’m sure it will cause lots of controversy on whether or not I deserve even a $1 donation but it doesn’t hurt to ask.  Anything you traders can do to help me get a little out of this hole would be a blessing for me.  Anything donated will go 100% to simply paying Etrade some of this $106,445.56.

My plan moving forward is to liquidate mine and wife’s 401k’s and try work out a payment plan with Etrade.  I’m also going to ask them to help out in some way…thats a longshot.  I will pay them and be back trading….only with set stops this time.  What an expensive lesson that was.

I hope my story helps someone else from the same.

Not being short low float biotech is a cardinal rule of this game to avoid being blown out. But a company that was planning on liquidating? This is complete fuckery and even more evidence that one should not short low float biotech.

For even more evidence, look at AQXP in August.

I would like to think I wouldn’t be cable of doing something as stupid.

Either way this story is scary and I don’t feel like trading stocks anymore.

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Most common responses:

 

1) Inflation

Ever since Bernanke made trillions of dollars rain on the economy, pundits persistently cried about inflation. Many years later, where is the inflation?

Instead of inflation, we got deflation. iPhone’s, Televisions, Computers, Oil, Copper, (almost any other commodity)… have all gotten relatively cheaper since QE.

Deflation happened because of innovation.

No one predicted deflation because innovation isn’t in old school economic/wall street/federal reserve models.

As long as we keep on innovating can’t we afford to keep this party going?

 

2) We need to stop punishing old people. They don’t collect enough interest on their bank deposits. 

Need not worry about the elderly, society ends up supporting 95% of their lifestyle anyways. How many 90 year olds need a $75k hip replacement? You have been walking for long time, sit down already.

Truth is, Americans don’t have large deposits at banks. Most families spend the majority of their monthly cash flow and don’t sock away cash savings. However, almost everyone has a 401k.

 

3) We just need an equity correction because its been ( insert amount of time), and we usually get a correction every ( insert amount of time).

Fuck off.

 

If you know of any good reason to raise rates, please let me know in the comment section.

 

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Even with a terrorist attack and some Friday panic, stocks are moving higher today. On the charts, they do have quite some room to bounce. My thought is that we will ultimately roll over either into the fed decision or as a result of it. Regardless, I covered my shorts and bought a few stocks.

I think AMBA is an a good spot. Risk down to $49, and the trade has decent risk reward.

AMBA is not a one product or one trend story. They benefit from Home Security, Police Body Cameras, GPROs, Drones… all great stories.

Lots of short interest.

>25% EPS growth over the next 5 years trading at ~15X forward earnings

terrorism = more investment in defense = more video security = more AMBA

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This week’s price action made me question previous convictions and dramatically altered my capital positioning.

Last week’s employment report was a positive for the US economy, but also a signal that periodic rate hikes will be the new normal going forward. The market absorbed the news near all-time highs and has been accelerating down ever since. Looking at the indices from a technical perspective, earlier in the week, most certainly by Wednesday, one could justify from a risk/reward perspective, taking most or all their long equity exposure off the table.

Now I am positioned like this;

HYG Short

HACK Short

W Short

TASR Short

BID Short

YHOO Short

UUP Long

AAPL Long

AMBA Long

Obviously my initial call to buy TASR was absurdly wrong. To be honest I am not sure what I am missing from the demand-side of body-cameras, but I could see how the valuation is arguably high. Also, their main customer is government. Selling to the government sucks, they’re bureaucratic and slow with decisions. Depending on who wins the election, their budgets may shrink. I honestly don’t know whats going on with TASR, but I felt compelled to reverse my position around $18.5. Hopefully I make a little $ back after booking my biggest loss of the year.

More importantly, what happened in Paris is horrible. I would short ISIS right now, in the last month they given enough reason for Russia and the EU to step up their offense. I hope we can create a world alliance to stomp these guys out.

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Beyond Taser’s infamous stun guns (which still sport double digit growth rates), the Axon body camera could provide this small cap company with one of the greatest growth stories over the next three years.

The idea of equipping police officers with body cameras became a national issue after Michael Brown was shot in Ferguson earlier this year. President Obama immediately endorsed this proposition and the White House approved $263M to match 50% of camera purchases by local police forces over the next three years.

At a cost of a few hundreds dollars, initial camera purchases aren’t very exciting. What is of particular interest to me is the reoccurring service revenue stream collected every month to provide unlimited storage of the HD video officers collect.

Taser charge’s $79/month for this service, per camera. The margins on video storage are in excess of 60% with triple digit growth. The camera/service segment of TASR’s revenue is now about 25% of their business.

The top police departments in the country (NYC, LA, Chicago) have all started pilot programs for wearable cameras and plan on equipping the majority of their force in the near future. Beyond the US, London is also in talks to purchase 20k Axon’s from TASR.The wearable camera will inevitably be standard police equipment around the world.

The only significant competition for TASR is Vievu, which plans on going public next year. From my research on police blogs, officers seem to prefer the Axon camera over Vievu.

TASR has the opportunity to grow EPS by over 30%/yr over the next few years and right now I believe the company’s intrinsic value is easily $30/share.

Despite being down as much as 15% this morning on a missed EPS number, TASR has confirmed my thesis that the potential market for their cameras is enormous. According to their CEO the total available market is ~$3B annually. The reason for the EPS miss seems to be the uptick in R&D spending, which will ensure they retain position as the market leader.

I added to the position I’ve been holding for a few weeks this morning around $20.50. Currently the stock is reading oversold on technicals, and has a tendency to bounce off such levels.

PS. One of my other favorite stocks at the moment is AMBA, they supply the video technology in the Axon Camera

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New information changed my mind about a Santa Claus Rally…

The November ISM report  came in at 49.5… declaring the manufacturing sector is contracting…New orders fell from 54.2 in October to 50.3.

The market didn’t rally when the White House said there has been progress on the fiscal cliff… naturally the market should have… unless it is starting to realize any agreement will still mean taxes go up and spending goes down.

The only scenario that would have been positive for the market would have been a “kick-the-can-down-the-road” type deal… and this is no longer a possibility in my opinion.

Even the glorious “Grand Bargain” financial media is blaring about will still raise revenue (taxes) and cut spending.

I think there will be another shakeout before a deal is reached… and maybe another shakeout after a deal is reached… as the market realizes the United States is entering into an era of austerity.

The price action today was horrendous from a Bull’s perspective… After making a fresh high on recent rally Mr. Market pulled back below the last three session’s closing prices.

That is why I got net short today.

There is a significant amount of support in SPY from $141.75 through $140 so I will keep a tight leash on this short – starting with a stop slightly above $142.

Below $140 SPY could make a swift move down to the $135’s… so I bought DEC put options with strikes at $140.

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Along with the long positions I illustrate below, I am currently holding a short on SPY that proportionally offsets the risks of said positions. The short position is a result of my belief we are overbought at these levels and are due for an immediate and brief pull back. As the market retreats I will reduce the short position, as I anticipate a September rally in the name of QE3 and iPhone 5.

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Stock	Weight
NKE	5.62%
MCD	4.88%
AAPL	4.85%
PBCT	4.56%
SO	4.52%
INTC	4.06%
ALXN	3.81%
MOV	2.82%
UTX	2.37%
VIAB	2.23%
CAT	1.82%
FOSL	1.75%
AKRX	1.50%
ROK	1.41%
RICK	1.28%
CMI	1.08%
BRS	0.99%
Stocks	49.56%

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On Monday, the market’s violent march higher forced me to cover my short positions, by end of day 80% of my paper profits vanished. Now I am positioned long. Below is the current state of my portfolio. YTD return is 16%

Stocks	61%
Cash	39%
QQQ	13.3%
GIS	9.7%
CHD	7.0%
HD	6.8%
INTC	6.3%
ALXN	6.2%
AAPL	5.2%
KMB	4.1%
EBAY	1.5%
DOW	0.6%
KORS	0.3%

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