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Shares of Affymax, Inc. (AFFY) plummeted 64% on Tuesday after the company announced late Monday that it was letting go 75% of its workforce. AFFY is now down 70% since March 7th, but an AFFY long who opened this optimal collar hedge then would only be down 12% over the same time frame. For an investor who owned 1,000 shares of AFFY, opening that collar would have cost $50, and it would have saved him $2,470 in downside on his shares. In this post, I’ll show how that hedge worked.
A good friend of mine who, among other things, sells real estate in my little town, mentioned to me in an email this morning that prices had gone “stratospheric.” I’d like to offer you a sample of what he means in a full-color, full-page ad I tore out from this morning’s Palo Alto Daily Post.
I present to you what you can get for $2 million in Palo Alto (truth to tell, it’ll probably go for a meaningful amount over the asking price):
One of my favorite short positions (whose name, I confess, I had to cut and paste) continues to do well. I think much, much lower prices are in store for this one. And allow me to congratulate myself for the coolest representation of a ticker symbol in blogging history.
On 25th October 1854 one of the most famous mistakes in modern (ish) warfare was made in the Crimean war at the Battle of Balaclava. Due to a mix up in communications the Light Brigade of the British cavalry was sent to frontally assault a very well defended artillery battery. This they did with panache and appalling losses, prompting the watching French Marshal Pierre Bosquet to remark ‘C’est magnifique, mais ce n’est pas the guerre, c’est de la folie’ which translates as ‘It’s magnificent, but it’s not war, it’s madness’.
Fast forward almost 160 years and similar orders were given by EU leaders to Cyprus. This time there was no miscommunication, simply arrogance and miscalculation. The attempted appropriation of a portion of the savings of bank depositors in Cyprus has set an unambiguous precedent that bank depositors in marginally solvent EU countries are now seen as a legitimate source of funds to shore up failing EU banking systems, and despite the overwhelming rejection of the plan by the Cyprus Parliament that precedent remains, though short term the EU has overnight been pulling back from their threat to pull ECB support from cypriot banks and force them into immediate bankruptcy unless Cyprus proceeded with this plan.A nod here to german comedian Wolfgang Schauble for his hilarious comment this week that the situation in Cyprus is ‘unique’ and sets no precedent for deposits elsewhere. Who says Germans have no sense of humor? (more…)