Re: The details of my Big Bet against Krispy Kreme
 

According to MSN Money, there are two active recommendations for KKD. One strong sell, and one hold. Both have been in effect for at least a month, and the hold for at least 3 months.

More proof KKD is in an inefficient corner of the efficient market. Despite these negative recommendations, KKD has roughly doubled the last three months, and is up over 30% in the last 30 days.

Re: The details of my Big Bet against Krispy Kreme
 

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I'm absolutely convinced your play against KK is correct and you really know what you're talking about. How would I go about buying options similar to yours?

-SmileyEH

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I don't recommend that unless you understand the risk you are taking, and portfolio management with put options. I am a few days away from having my first set of options expire worthless, at a cost of $1700 or so. I've got around $20,000 in options that are "underwater", i.e. will be worthless unless the market agrees with me before their expiration date. I'm documenting all of this just as a "put my money where my mouth is" example, not as a recommendation for others to do the same.

But you need an account at your broker enabled for options. I have ameritrade. Once I get a quote for KKD, it has a link to an "options chain" that shows me the current bid/ask spreads for all of the KKD options. You can select one of the puts and it will give you a quote and the option to trade, then you enter your bid price and how many shares you want, etc, just like buying a stock.

Remember, Options are only traded in contracts of 100 shares, and in increments of a nickel. Make sure you can handle a situation where you lose everything you put into these options. They have high upside but only at the significant risk of expiring worthless.

Re: The details of my Big Bet against Krispy Kreme
 

[ QUOTE ]
According to MSN Money, there are two active recommendations for KKD. One strong sell, and one hold. Both have been in effect for at least a month, and the hold for at least 3 months.

More proof KKD is in an inefficient corner of the efficient market. Despite these negative recommendations, KKD has roughly doubled the last three months, and is up over

30% in the last 30 days.

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Sorry, but if you are using analyst sell recommendations as a reason why the stock should be going down then you aren't thinking straight.

Also, EVERYONE knows the bear story. And it's not new either, the same thesis that was written up on VIC and that you are basing your short on has been making the rounds for at least the past year and a half. So don't be so quick to just say "I am right, and the market is inefficient."

Re: The details of my Big Bet against Krispy Kreme
 

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I believe KKD is covered by 6 analysts. All the fundamental information you mentioned is easily knowable and can be evaluated, KKD is highly liquid, therefore I'm telling you that it's probably not mis-priced.

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In the last month (that would be about 20 trading days), KKD has traded between about 8 - 12 and closed today at 10.43... Today's low was 10.06, today's high was 10.60 (a 5% range).

If KKD's price is so obviously priced correctly, in your opinion, then please explain why the people who are actually trading it, are having such a hard time agreeing on a price! [img]/images/graemlins/smile.gif[/img]

Oh, and I suggest you take a look at those analysts records, before you convince yourself that they know anything!!!

Re: The details of my Big Bet against Krispy Kreme
 

I understand the risk associated, but I'm only 20 and I'd like to get my poker winnings doing something finally. Losing a few thousand dollars is perfectly ok for me as long as the inital bet is +EV. Thank you so much for all your great posts about KKD and everything else in the forum as well for that matter. Even if I don't end up buying the contracts I've learned a lot just from your analysis of the company.

-SmileyEH

Re: The details of my Big Bet against Krispy Kreme
 

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Sorry, but if you are using analyst sell recommendations as a reason why the stock should be going down then you aren't thinking straight.

Also, EVERYONE knows the bear story. And it's not new either, the same thesis that was written up on VIC and that you are basing your short on has been making the rounds for at least the past year and a half. So don't be so quick to just say "I am right, and the market is inefficient."

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Hmm, adios told me the market is efficient because 6 analysts are covering the stock. I pointed out that there appears to be fewer analysts than that, and that the price action has been opposite their recommendations. So I'm confused, how does analyst coverage make for an efficient market if the market ignores the coverage?

Sure, people have been shorting KKD since it was a $50 stock. It's a well known story because it's been shown to be right. But there are still many buyers who are in denial that it true. A small sample is the longs on the Yahoo board, not one of them has provided any fundamental justification for current valuations. To them, it's going up because it's going up, or because Krispy Kreme is a "great brand", which is clearly not true.

If I'm right, it's because my facts are right. I've given plenty of evidence supporting the fact that KKD is either going bankrupt or extremely overvalued. So far no one has shown me where I'm wrong. KKD has over a $750M enterprise value. Under what likely scenario can it generate enough EBITDA to justify that valuation? I can't think of any.

Saying the "market" knows of some secret that justifies that valuation isn't an example of an efficient market at work. The efficient market is supposed to take all known information and come to a reasonable valuation (one that compensates buyers for all risks associated with this equity). Where is the "positive" information that supports this? Don't tell me the market knows, tell me what the market knows. From where I'm standing, it appears KKD's market it made up of momentum junkies, wishful thinkers, strategic investors trying to curry favor, and chartists who like the look of KKD's "upside down top hat" or whatever, i.e everyone who ignores fundamental valuation techniques.

Re: The details of my Big Bet against Krispy Kreme
 

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I understand the risk associated, but I'm only 20 and I'd like to get my poker winnings doing something finally. Losing a few thousand dollars is perfectly ok for me as long as the inital bet is +EV. Thank you so much for all your great posts about KKD and everything else in the forum as well for that matter. Even if I don't end up buying the contracts I've learned a lot just from your analysis of the company.

-SmileyEH

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If you do it, my advice is to avoid the lower strike price, "cheap" options I originally loaded up on. They are likely only to be profitable in a serious liquidity event. Buying at $10 or $12.50 strike prices gives you a much better opportunity to finish "in the money", and still should be very profitable if KKD files chapter 11. And the longer life options you buy, the better chance you'll have that the market returns KKD's value to "rational" levels.

Re: The details of my Big Bet against Krispy Kreme
 

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According to MSN Money, there are two active recommendations for KKD. One strong sell, and one hold. Both have been in effect for at least a month, and the hold for at least 3 months.

More proof KKD is in an inefficient corner of the efficient market. Despite these negative recommendations, KKD has roughly doubled the last three months, and is up over 30% in the last 30 days.

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I will requote your orignial post. You state that because the stock is moving against the sell recommendations of analysts then that is "More proof that KKD is in an inefficient corner of the efficient market". That's a silly thing to say.

Re: The details of my Big Bet against Krispy Kreme
 

Desertcat,

Adding to a losing position is the cardinal sin of trading. What the heck are you doing ??

For the record, I jumped in with you in the beginning of the saga, and bailed out at a very small loss. The short interest provides way too much fuel for short-cover rallies.

What this means in practical terms is that a scant amount of (manipulative) buying can make this thing zoom in pretty short order.

You bought mostly out of the money with little time to expiration, this is also the way most of the money is lost in options.

I'd like to see Paluka of Aaron jump into this thread. They both know far more than me about options.

Re: The details of my Big Bet against Krispy Kreme
 

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[ QUOTE ]
According to MSN Money, there are two active recommendations for KKD. One strong sell, and one hold. Both have been in effect for at least a month, and the hold for at least 3 months.

More proof KKD is in an inefficient corner of the efficient market. Despite these negative recommendations, KKD has roughly doubled the last three months, and is up over 30% in the last 30 days.

[/ QUOTE ]

I will requote your orignial post. You state that because the stock is moving against the sell recommendations of analysts then that is "More proof that KKD is in an inefficient corner of the efficient market". That's a silly thing to say.

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I think you missed that I was responding to another post...

To clarify:
- I don't believe number of analysts is a measure of market efficiency. I don't believe most intelligent market participants give any weight to analyst recommendations.
- I don't believe KKD's pricing is rational or "efficient".
- The other poster said (I'm summarizing) that 6 analysts covering KKD was proof that the current price is "efficient".
- I'm just pointing out that price action was opposite what analysts recommended, thus by his own logic it's proof that KKD's market isn't efficient.