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|Subject: Re: Building an effective hedge||Date: 3/25/2013 4:31 PM|
|Author: JustMee01||Number: 34846 of 35930|
I've been thinking about Sears Holdings long dated bonds, which are yielding 10% while trading around 70, accordign to FINRA. Shorting 5 $20 puts 1 year out is just under $400. If Sears utterly bombs out, the puts are worth about $10K, recovering capital. If Sears is fine, you lose the put and walk away with 6% yield on the bonds.
The negative is that you need to roll the puts in order to maintain the hedge, and they could be more expensive in a year's time... Then you're left with an unhedged brick and mortar bond position in a dinosaur. Then again, if they're more expensive, then its likely that material results at Sears have improved and you have less need for the hedge.
Have you looked at Sears at all? The situation looks bleak, but Lambert has a big bet on...
If equity has any value at all, the bonds should end up being okay and that yield is tough to match in this market. Any potential here from your point of view?
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