Opportunities to short companies by buying (short term) Puts
I have successfully used purchasing short term puts to make profit on SDRL due to it’s huge loan due on April 30. I think it is a good idea to do the similar approach to other companies loaded with unbearable debt, such as retail companies (e.g. Payless) or commercial real estate companies, and oil companies (such as SDRL, SDLP, RIG).
questions for myself: how to find these near BK companies?
- 30 companies that might disappear in 2017 http://wgntv.com/2016/06/07/30-companies-that-might-disappear-in-2017/
- 5 Signs a Company Is About to Go Bankrupt https://www.fool.com/investing/general/2016/04/06/5-signs-a-company-is-about-to-go-bankrupt.aspx
Here is one news on the BK of Payless from Barrons,
http://blogs.barrons.com/incomeinvesting/2017/04/06/payless-is-just-the-first-shoe-to-drop-for-retail-this-year/?mod=BOL_hp_blog_ii
Payless Bankruptcy: First Shoe to Drop for Retail this Year
Unfortunately for investors who like to shop for stocks and bonds in the retail sector, the bankruptcy of Payless this week may be the first of many.
With Payless defaulting on its debt, Fitch Ratings calculates a 1% default rate for the retail sector in the past 12 months, up from zero. But it expects the default rate to climb to 9% by the end of the year.
That’s a big jump. It would mean no less than $6 billion in defaults in the coming year.
Gautam Khanna, senior portfolio manager at Insight Investment, agrees that the retail sector is likely to face a lot of stress, but that it shouldn’t have a lot of ripple effects to other sectors. Consumers are still buying stuff — they are just doing it online.
He focuses on the junk bond market and says retail has effectively been “quarantined” and other high yield bond sectors are doing well.
Real estate is one area, however where there will be ripple effects, as retail space opens up when stores are shuttered. Real estate investment trusts and commercial mortgage-backed securities have already been hit.
Alex Veroude, head of credit markets at Insight, says he thinks the downdraft may be overdone. Now his team is looking to see if there is an opportunity to be on the other side of those trades, he says.
Here’s the factors Fitch sees driving retail’s downturn:
Fitch’s expectation of increasing retail defaults stems from increased discounter (including off-price and fast-fashion apparel) and online penetration, and shifts in consumer spending toward services and experiences. All of these factors have created a highly competitive retail environment and accelerated mall traffic declines. Retailers have also suffered from the ebb and flow of brand popularity. Negative comparable store sales and fixed-cost deleverage have led to negative cash flow, tight liquidity and unsustainable capital structures.
