THE CHICK FLICK

Apparently, it’s engrossing and educational, even for people who were not already Dixie Chick-adees. But when NBC refuses to run their ad, you know it’s worth a look.

LOW-ENERGY, BRIGHT LIGHT

I like to be able to see. So how come all the energy-efficient Compact Fluorescents are the equivalent of 75-watt light bulbs, 100 if you’re really lucky? Well, kids, get a loada this sunshine. (Thanks, Bob Fyfe.) Draws the same power as a 65-watt incandescent, but puts out 250 watts of eye-popping excitement. It saves maybe $20 or $30 or $40 or $50 a year on electricity, compared the same incandescent wattage (depending, of course, on the number of hours a day it’s switched on and the price of electricity where you live) and keeps hundreds of pounds of CO2 from rising into the atmosphere. All you need is a tall lampshade to hide it.

SHORT ALBA?

The warrants have now roughly doubled or more than tripled, depending on when you bought them.

Dan from a top Wall Street firm: ‘What might be more likely to be profitable with ALBAW is to buy the warrants, as you’ve been suggesting, but to short the stock in some attractive ratio, especially if your broker will pay you rebate (interest) on the proceeds of the sort sale (which they keep and give you back some of if you demand it). In fact, that trade’s pretty close to break-even wherever the stock goes.’

☞ Hmmm. I wouldn’t do this, because I think ALBA stock is going up, and can afford the risk if it goes down.

(Also, very few retail investors do get interest on their short sales, even if they demand it. At least last time I checked, they had to be fairly significant customers for their broker to go for that.)

But I see what Dan’s saying. If you short 1,000 shares at $5.83 (where ALBA closed when Dan sent this, before it jumped to $6 yesterday) . . . and if you own 4,000 warrants at $1.25 (where they were trading when Dan sent this, before they jumped to $1.38), then:

  • If the stock goes to zero in a couple of years, your $5,830 gain on the short sale more than covers your $5,000 loss on the warrants. You win!
  • If the stock goes to $8.50, you lose $2,670 on the short (for which you got $5,830 but covered at $8,500) but you make $9,000 on the warrants (exercisable at $5, and thus worth $3.50 when the stock is $8.50, which is $2.25 each more than the $1.25 you paid for them, and you bought 4,000). You win! (But $2,670 less than you would have won without this strategy. That’s what you give up for reducing your risk if it goes down instead of up.)
  • If the stock goes to $6.25, you lose $420 on the short ($6,250 less $5,830) and break even on the warrants (because you paid $1.25 and they give you the right to buy a $6.25 stock for $5). You lose – but just $420.
  • If the stock goes to $5 – the worst possible case with this strategy – the warrants expire worthless and you’ve mitigated your loss by only $830. But, hey, $830 is better than a frog with no legs.

Dan’s strategy might grab me for a riskier stock. But – although anything is possible – I don’t see ALBA collapsing the way (say) a one-product drug company might if its drug didn’t make it. Dredging is just not all that dramatic.

 

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