Message Font: Serif | Sans-Serif
 
No. of Recommendations: 23
For those of you who know Leucadia National, the price is under $25 right now, somewhere around 90% of book value.

For those of you who don't, well, you have a lot of strange reading to do.
Weird and wonderful company that just reinvented itself as a wrapper on Jefferies.
Book per share of Leucadia has risen at 13.5%/year in the last decade, Jefferies around 12%.
Over the last 10-15 years JEF traditionally traded around 1.5x book prior
to the merger, but smaller investment banks are not exactly fashionable lately.

I've been increasing my position.

Jim
Print the post Back To Top
No. of Recommendations: 2
Like Loews, it's also a little like buying a commodity position.

Leucadia's many disparate interests bear mentioning: Oregon Liquified Natural gas, Leucadia Energy-Gasification, Garcadia (car dealerships), Conwed Plastics, Sangart (biotech), Idaho Timber, Keen Energy Services, Premier Entertainment (which owns the Hard Rock Hotel & Casino in Biloxi, MS), Fortescue Metals Group, Inmet Mining, and National Beef.

I thought this was from a decent story but her information is old:
http://beta.fool.com/leglamp/2013/06/25/is-this-a-baby-berks...

Inmet was just sold and they may get the cash or shares in the combination. Fortescue and LUK parted ways in 2012. Beef is suffering from the drought and perhaps the failure of the recent farm bill passing to provide guaranteed insurance (they will decrease the herds). As I've said before I'm having trouble figuring out what they own.

But, I think it is a good value choice. May need to wait my obligitory three business days and then buy some. Thanks!

Bob
RYR Home Fool
Print the post Back To Top
No. of Recommendations: 3
Jim, Their annual letter has just been released :

http://www.leucadia.com/c-p_letters/luk_c-p2012.pdf
Print the post Back To Top
No. of Recommendations: 0
That's really nice. And, as usual, it starts with their CAGR, BV, price, and a comparison to the S&P. Simple yet elegant at the same time. Thank you! I wonder what Buffett's will look like. Perhaps a final page to his shareholder letters.

Bob
RYR Home Fool
Print the post Back To Top
No. of Recommendations: 1
LUK options for Jan 2014 and Jan 2015 are listed as Non-Standard.

I suspect these were JEF lEAPS converted to LUK on the merger. LEAPS were never available for LUK.

Does anyone know what the terms of these options are? The only info I found on the TD Ameritrade quote page was the Jan non-standard option was for 81 shares.

The LUK 25 call for Dec 2013 ( a standard option) is 1.85 bid 1.95 ask

The LUK 25 call for Jan 2014 ( a nonstandard option) is 0.35 bid 0.45 ask.

The Dec contracts are for 100 shares and the Jan contract is for 81 shares. That by itself doesn't seem to justify such a big different in contact premiums.

Which is the better deal to go long call?
Print the post Back To Top
No. of Recommendations: 1
Jim, Their annual letter has just been released :
http://www.leucadia.com/c-p_letters/luk_c-p2012.pdf


Thanks!
It has been a long wait and I hadn't spotted it yet.

Very much a valedictory address, which leaves a bittersweet bearish note due to their ongoing departure.

Other than the historical interest, the most important bits for today's
decisions are probably the sections about how well Jefferies has done.
It's interesting how Ian and Joe have believed in them for a long time,
with Leucadia having been their first institutional bond client in '92,
and in 1993 their first investment grade bond client.

The only downside to the letter is that it talks almost not at all about
all the usual things: the parts of the company that are still there
and haven't done their thing yet. e.g., the development in D.C.
Millions of square feet at thousands of dollars of profit per square foot, it adds up.
Especially since even after the merger the market cap is only $9bn now.

Jim
Print the post Back To Top
No. of Recommendations: 1
I suspect these were JEF lEAPS converted to LUK on the merger. LEAPS were never available for LUK.

The Dec contracts are for 100 shares and the Jan contract is for 81 shares. That by itself doesn't seem to justify such a big different in contact premiums.



These are indeed converted from JEF LEAPS - the non-standards are available for July, Sept, Oct, Jan 2014, and Jan 2015. Deliverables on these non-standard options are 81 shares and no cash. Otherwise, the terms are for standard American-style options.

The "effective strike" on the reduced share count for a $25 contract would be $30.86 ($25/.81). Given that these have extremely low volume/interest, and are trading about in-line with the Dec. $30 calls, the difference in share counts probably does account for the premium difference.

I'm holding $10 Jan 2014 calls bought prior to the merger when JEF was looking really dicey that I plan to convert into shares to bring my currently undersized position up to where I want it. If I didn't already have these, I'd be looking at the Jan 2015 with "effective strikes" below the current stock price.

Now, off to read the annual report - have been looking forward to this one...

Good hunting!
Print the post Back To Top
No. of Recommendations: 0
"The "effective strike" on the reduced share count for a $25 contract would be $30.86 ($25/.81). Given that these have extremely low volume/interest, and are trading about in-line with the Dec. $30 calls, the difference in share counts probably does account for the premium difference."

So what you are saying is the Jan '15 $25 strike is really a strike of $30.86?

I just spoke with my broker and they said the only difference is the deliverable is 81 shares instead of 100.
Print the post Back To Top
No. of Recommendations: 1
Which is the better deal to go long call?

I am assuming the value is there and that LUK share price will increase - but I have no idea when. One should plan on the possibility of a long-term position. If leaps were available it would have been nice, but six month is too short a period. The December time premium for at-the-money calls is at an annualized rate above 15%, too expensive.
I own the stock, and also wrote now some puts which I plan to roll up if/when the price increases at moderate enough a pace.
For example: The stock is at 24.98 now. August 25 puts are bid at 1.00, which is 4.16% for a securing cash commitment of $24, or about 28% annualized rate.
Print the post Back To Top
No. of Recommendations: 0
LR,

That is my understanding as well. It is the deliverable of 81 shares vs. 100 that is the difference.

Are you thinking of buying the LEAPs?

BLSH
Print the post Back To Top
No. of Recommendations: 0
LUK options adjustment:

http://www.cboe.com/publish/ttstocksm/13-103.pdf

It's my understanding that, for example, JAN '15 $25 calls for $1.30:

Pay $1.30 x 100 = $1,300

Deliverable is 85 shares of LUK at $25 strike

Effective option cost per share is really $1.60 (1.3 / .81).
Print the post Back To Top
No. of Recommendations: 0
"Deliverable is 85 shares"*

*81 shares
Print the post Back To Top
No. of Recommendations: 0
"Are you thinking of buying the LEAPs?"

Yes.
Print the post Back To Top
No. of Recommendations: 0
Jan 15 $15 leaps bid $5.80 ask $6.10 Luk selling now @ $25
$6.00/.81=7.41, $7.41 + 15 = $22.41
What am I missing?
Print the post Back To Top
No. of Recommendations: 1
Jan 15 $15 leaps bid $5.80 ask $6.10 Luk selling now @ $25
$6.00/.81=7.41, $7.41 + 15 = $22.41
What am I missing?


It should be ($6 + $15)/.81 = $25.93. The options multiplier is still 100, which applies to both the strike and the premium, even though you only actually receive 81 shares from a purchased call.

From my broker's site: "The total aggregate exercise price for a single option is the stated exercise price multiplied by the multiplier."

So if you choose to exercise, you'll be charged $1500 per contract, paying an "effective strike" of $18.52.

At least that's my interpretation. Hope that helps...
Print the post Back To Top
No. of Recommendations: 13
This is a very unusual option contract.

The usual rule is this:
Options are price on a per share basis, not per contract basis.
Regardless of the multiplier, your net entry price for a call is strike
plus quoted premium so the quoted price is the premium per share you're paying.

However, in this odd case (underlying LUK2, not LUK), the multiplier is
100 for the contract value but 81 shares for the deliverable.
http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&am...
I've done tens of thousands of options contracts over the years but I've
never seen these numbers as a mismatch except in the case of complex deliverables.
e.g., two different sets of shares or a cash component. Not applicable here.

Why the breaking of the rule?
It's really is a complex deliverable, just an unusual case in the unusual case category.
This is why the ticker doesn't match. It pays to read the fine print.

For a quoted premium of around $5.50 you pay $550 per contract to get 100 LUK2 rights.
i.e.., the right but not the obligation to buy 100 share of LUK2 (not LUK)
at $15 apiece any time you want up to expiry date.
Separately, each LUK2 right gives you 0.81 Leucadia LUK shares.
So technically the multiplier is still 100, it's just that the
underlying deliverable isn't 100 LUK per contract, it's 100 LUK2.
It just so happens that 100 LUK2 is equal to 81 LUK.
Thus, the rule at the top is preserved: the price you pay is the
price premium per share of the underlying regardless of the multiplier.
It's just that the underlying in this case is LUK2 not LUK.
Arrrggghh.

So, what's the net entry price?
Buy 1 LUK2 $15 call contract at quoted $5.50 per share for $550.
Exercise the day before expiry at a total cost of 100*$15=$1500.
Get 100 LUK2 for a net entry cost of 100 * (15+5.50) = $20.50 per share.
But that's $20.50 per share of LUK2 which is now really per 0.81 share LUK.
So, your net entry per LUK share is 20.50/.81 = $25.31.
With today's LUK price at $25.01, that's a premium of 31 cents.
Think of that as interest for the loan of 100*$15=$1500 for ~7 months.
In effect you're paying an interest rate of around 3.5%/year rate, plus the very small dividends you forego.

Jim
Print the post Back To Top
No. of Recommendations: 0
So, your net entry per LUK share is 20.50/.81 = $25.31.
With today's LUK price at $25.01, that's a premium of 31 cents.


Thanks for the detailed calculations Jim.

To compare the Jan 2013 $15 call which has a premium of 31 cents for 205 days to expiry,
the Dec 2012 $15 call has a premium of only 11 cents for 177 days to expiry.
(I took the mid price between bid and ask for both).

Seems like the Dec deal is the better of the two.
Print the post Back To Top
No. of Recommendations: 3
To compare the Jan 2013 $15 call which has a premium of 31 cents for 205 days to expiry,
the Dec 2012 $15 call has a premium of only 11 cents for 177 days to expiry.
(I took the mid price between bid and ask for both).


Those two different options are on two different stocks.
The December one is a LUK option (strike price applies to cost of one Leucadia National share)
The January one is a LUK2 option (strike price applies to cost of one LUK2 right which is .81 Leucadia National share)

So you can't compare them directly.
If you do the proper adjustments you'll find they still have substantially
different time premiums, but that's because they have very different
strike prices relative to the end result of a LUK share.
But it's the normal variation--a call option on IBM with strike $200
won't have the same time premium as one with a strike at $160.

Jim
Print the post Back To Top
No. of Recommendations: 3
LUK getting close to $25 again.

Close to 20% off of the June highs, down 10% YTD.
Print the post Back To Top
Advertisement