Thursday, May 05, 2016

April 2016 Performance

April was another challenging month with many of my long term positions heading south such as Apple (Ticker: AAPL) and Vertex Pharmaceuticals (Ticker: VRTX). The only bright spot was the closing of ADT in which I short a bunch of Puts and the continued strength of Constellation Brands, which has now grown to ~ 30% of my portfolio. I still managed to pull off a gain of +0.84% for the month of April.

I started to de-risk my portfolio by closing out my short Put position in Qihoo 360 (Ticker: QIHU) generating a loss of 33.13%. Something just doesn’t feel right so I decided to get out. I had an oversized position and didn’t want to risk a blow up. Short Puts is generally a very profitable strategy, but a blowup will vaporize you. This was observed in Alere (Ticker: ALR) in which I was able to get out early and prevented substantial losses from building up. So with short Puts, I will try to close out my position quickly if the position turns negative.

I also closed out my position in Sparton Corporation (Ticker: SPA) generating a loss of 7.56% as this hit my loss limit. I will re-evaluate…

The most important rule I keep in the back of my mind is to manage losses. Taking profits is the easy part…

I continued to add to my Medivation (Ticker: MDVN) position, which currently makes up ~ a 9% position and looking to add on any pull back. It looks like Sanofi (Ticker: SNY) is using the Genzyme play book, but the difference with this one is that you have a bunch of other companies: AstraZeneca (Ticker: AZN), Pfizer (Ticker: PFE), Novartis (Ticker: NVS), Amgen (Ticker: AMGN) and ???) interested in Medivation. With the Genzyme acquisition, there were no other interested parties so Sanofi had all the leverage to negotiate an attractive price. I can see Medivation getting top dollar in a sale…  

2016 Performance Year to Date = -1.10% with the running monthly returns as follows:

January -5.47%
February -3.50%
March +7.51%
April +0.84%

Thursday, April 28, 2016

DreamWorks, Medivation and Sparton

Wow, just when I thought M&A activity would diminish this year, we have a nice uptick just this week.

First we have Comcast Corp. (Ticker: CMCSA) acquiring DreamWorks Animation (Ticker: DWA) for $41.00 in cash. I initiated ~ 3% position at $31.57 yesterday based on the chatter over the weekend. I definitely didn’t expect a deal to materialize this quickly, but I’ll take it…

Next we have Medivation (Ticker: MDVN), which is being stalked by Sanofi. It definitely looks like Sanofi (Ticker: SNY) is prepping to go hostile on Medivation. I currently have a ~ 5% position at $49.82. I do believe that Sanofi will ultimately get Medivation, which will fit nicely with Sanofi’s Genzyme division.

Finally, I initiated a small position (~2%) in Sparton (Ticker: SPA) at $21.70. This small cap defense company is evaluating strategic alternatives of its biz and has decided to put itself up for sale. If a bid materializes, I can see this company gets taken out in the 30’s. If no bid, the company valuation is cheap with limited downside and should do fine over time.

EDIT: I took my profits in Medivation today at $56.36 generating a net gain of 13.10% over a 15 day period.

Wait, I changed my mind... I'm back in at $56.28...

Friday, April 08, 2016

Some Cleco

Here we go again with more Cleco (Ticker: CNL) drama. The stock took a little dive today when The Alliance for Affordable Energy requested a rehearing for April 28th regarding the Cleco merger. I highly doubt this will reverse the Commission’s decision on the merger. It’s just a last ditch attempt to for this group to drum up some noise. I believe there is a very very high probability that this deal closes in April. I initiated a ~ 5.5% position in Cleco today at $54.88 (buy out price = $55.37).

Thursday, March 31, 2016

March 2016 Performance

Not really much to report…

March was one of those months where it didn’t feel like the market really rallied at all. The biotechs continued to get hammered and was not able to participate in this rally. I was surprised that my portfolio was able to generate a ~ +7.5% return for March, which can be partly attributed to the closing of Keurig Green Mountain. Many of my long term positions such as Visa (Ticker: V) and Constellation Brands (Ticker: STZ) rebounded from the January / February lows. I did take a small hit on my Alere (Ticker: ALR) short Puts and my position in Vertex Pharmaceuticals (Ticker: VRTX).

In terms of my merger arb plays, I currently have short Puts on ADT (Ticker: ADT), Youku Tudou (Ticker: YOKU) and Qihoo 360 (Ticker: QIHU). I anticipate Youku Tudou and Qihoo 360 closing in April. Hopefully, these short Puts will expire worthless.

So I’m still playing things very conservatively…   

2016 Performance Year to Date = -1.93% with the running monthly returns as follows:

January -5.47%
February -3.50%
March +7.51%

Monday, March 28, 2016

Some Virgin America

I initiated a position in Virgin America (Ticker: VA) at an average price of $37.68 (~ 12% position). It looks like JetBlue Airways (Ticker: JBLU) and Alaska Air (Ticker: ALK) are bidding for the company. I like these types of scenarios in which you have strategic bidders (versus financial bidders). According to Bloomberg, a deal may materialize next week with price talk in the 40s. So we’ll see…

Edit: I took my profits in Virgin America this morning (03/29) at $38.05 generating a net gain of ~ 1% over a 2 day period.

Tuesday, March 15, 2016

Closed Out Alere

You can’t be 100% perfect in this risk arb game. There was news this morning on Alere (Ticker: ALR) in which the company received a grand jury subpoena from the DOJ for their sales practices in Africa, Asia and Latin America. Abbott (Ticker: ABT) is acquiring Alere for $56 per share in cash. I initiated a short Put position (sold the August 2016 Puts for $1.00) on 2/1/16 and I closed out my position today by buying back the Puts at $2.85. That was a nice 65% loss, fortunately this position made up only 0.7% of my portfolio. I really cannot quantify the risk of this investigation by the DOJ. Sometimes, you just need to step away and re-evaluate…

Thursday, March 03, 2016

Keurig Green Mountain = Done Deal

JAB announced the closing of Keurig Green Mountain this morning. This position made up ~ 30% of my portfolio with a good chunk of common and Short Puts. I was able to generate a net gain of 2.32% (annualized gain of ~ 30% assuming the cash hits my account by 03/11). I was pleased on how smoothly this arb position played out. I took advantage of yesterday’s volatility as the weak hands got shaken out on one of those pre-closing rumors.