Shorting the Online Gaming Stocks

[gonebroke2]

I had similar thoughts as you did. The only problem was that I was not familiar enough with the London Stock Exchange to make the necessary transactions. I don't even know what type of options they trade over there. Assuming the setup is the same as the USA in terms of options, a perfect hedge would have been to allot one or two months poker profits on PUTS on the major online gambling stocks trading in London. If the law didnt make it through, you are going to lose it all because the stocks would skyrocket. If the law gets passed, then you clean up bigtime because the stocks will get clobbered. You might even make enough to equal several years of future poker profits. Contrary to what the previous poster stated, these stocks are not thinly traded in London.

I would not short the stocks outright because you are not going to make enough on the downside because the leverage is small when compared to buying PUTS. Furthermore, you would get murdered if the law didn't pass because the stocks would go bonkers to the upside.

[APXG]

tc,
Buying puts/shorting gaming stocks during the summer was a fairly popular idea(at least in my head) but I didn't execute it mainly b.c. the chances of a bill of the current severity passing were extremely slim. The Goodlatte discussions were very very far from anything actually materializing(he had a standalone bill), and gaming stocks business model is as close to printing money as any. The real trade would've been betting on the "spread" between Frist's impact and Goodlatte's, but this was merely a few days, and not in the category of a long-term hedge. Even still, nobody envisioned the 9/30 bill to be as bad as it was at the time. I still remember 2+2 people with legislative expertise going absolutely nuts when they saw the wordings.

Currently, I don't think there is enough downside to make a hedge profitable. If Party would go to zero if US completely cut off all prospects for any online gaming, it would make sense, but this isn't really the case with any gaming stock right now. US market troubles have been #1 on their agenda since even before the ban, and I'm sure they have been actively hedging themselves - if only b.c. they have so much more at stake than us.

Najdorf,
While I agree with you, saying "shorting is too sophisticated" 5 times and then listing your credentials teaches us little. All of us here are poker pros and have made all of our money from poker and not from shorting anything, so I don't think anyone is competing with you. We're all here to learn. Can you explain in more detail the risks an unsophisticated investor with lots of free cash and steady poker profits would face with regards to a long puts hedge? (beyond your opinion on gaming stocks' current valuations)

[Sniper]

Taylor, I would not recommend taking long term short positions on Gaming Stocks now...

[Valium]

Easy solution: CardRunners IPO

[kagame]

better life hedge, short the dollar

[ahnuld]

Naj, I disagree with you in a sense. While shoritng wouldnt have made perfect sense, it he could buy a put option on the sector, that would have been perfect. This reminds me of an IF class im taking. It involved forex risk but your business has economic exposure to poker legislation, which means the general cash flows of your business will be impacted by poker legislation, which is true.

[RedJoker]

Why not diversify into non gaming shares/funds. Something completely seperate and uncorrelated should reduce some of your risk. Not a perfect solution, just a thought.

[NajdorfDefense]

Shorting <> buying options. I told him as much and more in my PM to him.

Others: Stop putting words in my mouth. I understand the difference btw shorting and buying options [even if some on here do not.] That was the point of my criticism of shorting, the risk profile is entirely different. People who do not understand this really should not be giving advice on this forum vis-a-vis hedging.

[Tupacia]

Right, I also agreed with you najdorf that put options were a much better choice for Taylor than an outright short. His question was a more general "should I attempt to hedge" than "how should I attempt to hedge." I still think he should look into buying an insurance policy on the matter. One of my friends is a huge event promoter and whenever he puts on a big outdoor event he takes out a HUGE insurance policy with Lloyd's of London in the case of inclement weather. It came in handy when his biggest event of the year was rained out.

[WHoSBeTTaTHaNuS]

[ QUOTE ]
Shorting <> buying options. I told him as much and more in my PM to him.

Others: Stop putting words in my mouth. I understand the difference btw shorting and buying options [even if some on here do not.] That was the point of my criticism of shorting, the risk profile is entirely different. People who do not understand this really should not be giving advice on this forum vis-a-vis hedging.

[/ QUOTE ]

What's the difference between shorting, and the put options? thx