After pounding on AIG for a few weeks, I finally realized that I should be making money on this call. I hammered AIG from the reverse split point on. (remember, I owned it from $2.02 to $1.45). When they did the reverse, I felt there would be very little but down. The parts of this company do not equal the whole. The 1 for 20 offering didn’t do much other than mask the dismal condition. Wait… do you know what else it did? It allowed for certain entities to participate in the just announced shelf offering. Innnnneresting!
When would you announce news that isn’t likely to help your shares or your company? Friday after the market close!! Wait, that is when they did announce their shelf offering.
AIG is in trouble. I finally placed a small short on AIG today by buying put contracts. I have avoided doing so for quite some time due to the fact that AIG options are priced with a SICK premium. The movement needed to get into the money is big.
The 40%-50% recovery in the shares, over the past week or so, initially felt like a dead cat bounce. After a few days it felt like something more than that. I tweeted about it a bit. Didn’t make sense to me. I was perplexed. Well, the shelf offering that came out after the close today (Friday Jul 17th) might explain a bit of it. There is support for this dog from some high places. People “in the know” can make money from these movements and events. They can make money on all sides, from the buy side, sell side, and underwriting side. I haven’t looked yet, but I am going to guess that Goldman is the lead. Hang on… I’ll go look… no one listed yet.
The recent support could have been generated to garner a good price for the offering. I know, I know, I sound like Mel Gibson in the Conspiracy Theory movie. Or, I sound like Phil at PhilStockWorld.com. Either way, I might be right. Phil, what do you think?
Back on topic, I am pleased that I took the action today to buy some puts. As always, when I am right, I wish that I committed more funds to the trade. I bought August 14 puts based on the fact that I felt AIG moved back way too fast. The move didn’t seem natural and there was no news that called for a 40% bounce. A typical dead cat bounce would have died off much sooner and wouldn’t have bounced as high. The action prior to today’s offering reeks of the action prior to an offering. The higher the price, the more money raised. Less of an impact on the shares (perhaps). But in the end this is a dog that is in rough shape.
This offering will cause dilution and if it weren’t for the recent run, it would have been nearly impossible to place. The terms on this one will be interesting. Those who commit to the offering will likely be assured a profit thanks to recent action.
The shares are going to come back down. They should reach 9 before they reach 14. I am happy that I stand to benefit from this since I have been pounding the table calling it a dog. I am not alone. Jared Levy, who is on Fast Money on CNBC, said it well when he said “They’ve got a lot of debt and I have no idea how they are going to service it”. Well said, Jared.
Here is what it comes down to.
- They are selling assets of any value to pay down the debt.
- Continuing operations cannot support the debt.