Poor timing for me, as I entered a bull put spread this morning, but such is life...
Today CQP announced an offering of common stock. I'd like to get some feedback on the expectations regarding price action over the next 2 weeks. YBF, it seems like you're pretty knowledgeable about the mechanics of SPOs and how to think about stock movement in light of one, so I'd especially like to hear what you have to say. But really I'd like to hear from anyone.
Today CQP announced an 8million offering with a 1.2million over-allotment.
Pricing to come tomorrow morning, I expect.
The average volume (3 months) from Yahoo's data is 115,600 shares/day.
That's a lot of days to sell out the offering. However, no doubt the volume goes up, so I looked at the only previous offering, which was on Sep 14, 2011.
Sep 13, 2011 PPS closes at 15.98
Sep 14, 2011 3million offering + 450,000 over-allotment at $15.25
The PPS opened on the 14th at 15.02, then closed at 14.92. It wasn't until Sep22 that the sum of the volume from Sep14 reached 3 million. The Q3 results said they sold 3 mil in the offering, so it looks like they didn't sell the over-allotment to the underwriters.
Here's the thing. If I were the clients of the underwriters, I wouldn't sell my shares to the public unless it would make a profit (duh), but could they have gotten the shares for as low as 14.00? And why wouldn't the underwriters use the over-allotment to backstop the share price so it didn't fall below $15.25?
It continued to fall all the way down to $12.40 on October 4.
Unless I hear something that gives me pause, I'm going to invest significantly in calls/put spreads to catch the dividend run. The pattern over the past year is too attractive to pass up. The main thing I'm trying to figure out is, do I enter tomorrow, or wait until the trade volume crosses 8million, or wait even longer? I might try all 3, but save most of it for when the volume crosses 8mil.
An AGNC penny for your thoughts.
CQP (from yahoo)
Date Open High Low Close Volume Adj Close*
Sep 30, 2011 13.55 13.90 13.45 13.55 155,000 12.54
Sep 29, 2011 13.85 14.03 13.55 13.61 97,800 12.60
Sep 28, 2011 14.00 14.00 13.66 13.68 87,200 12.66
Sep 27, 2011 14.21 14.37 13.89 14.00 157,800 12.96
Sep 26, 2011 14.00 14.15 13.61 13.81 114,700 12.78
Sep 23, 2011 13.06 13.98 13.06 13.96 173,300 12.92
Sep 22, 2011 13.80 13.96 13.13 13.33 357,600 12.34
Sep 21, 2011 14.27 14.44 14.05 14.10 117,000 13.05
Sep 20, 2011 14.56 14.74 14.29 14.30 239,700 13.23
Sep 19, 2011 14.50 14.65 14.45 14.58 290,900 13.49
Sep 16, 2011 14.92 14.93 14.60 14.61 407,700 13.52
Sep 15, 2011 15.04 15.05 14.81 14.81 382,400 13.71
Sep 14, 2011 15.02 15.10 14.85 14.92 1,380,100 13.81
Sep 13, 2011 15.93 16.17 15.43 15.98 96,800 14.79
Sep 12, 2011 15.62 15.82 15.36 15.65 42,000 14.48
Sep 09, 2011 15.68 15.80 15.55 15.75 61,800 14.58
Sep 08, 2011 15.70 15.87 15.60 15.60 40,900 14.44
Sep 07, 2011 15.60 15.85 15.49 15.73 89,100 14.56
Sep 06, 2011 14.31 15.50 14.31 15.40 133,000 14.25
Sep 02, 2011 15.00 15.25 15.00 15.10 42,000 13.97
Sep 01, 2011 15.64 15.64 15.00 15.20 130,900 14.07
I need to correct a mistake I made. I was confused about the use of over-allotments, but I believe I understand it now. *crosses fingers*
/// The PPS opened on the 14th at 15.02, then closed at 14.92. It wasn't until Sep22 that the sum of the volume from Sep14 reached 3 million. The Q3 results said they sold 3 mil in the offering, so it looks like they didn't sell the over-allotment to the underwriters.
Here's the thing. If I were the clients of the underwriters, I wouldn't sell my shares to the public unless it would make a profit (duh), but could they have gotten the shares for as low as 14.00? And why wouldn't the underwriters use the over-allotment to backstop the share price so it didn't fall below $15.25? ///
The fact that the company sold 3 million in the offering and did not sell the 450,000 over-allotment indicates that the underwriters DID use the over-allotment to backstop the share price. The underwriters purchased the shares (that they needed to cover their 450,000 short). They just didn't purchase the shares from the company. They purchased the shares from the open market in order to increase demand and keep the stock price up. If they had purchased the shares from the company, it would have been because the stock price stayed higher than the offering price.
Thanks,YBF, for your explanations of how that works on some previous threads that I happened to remember tonight.
Well done. You are so heavy we should be seeing 6 figure gains for you this next month! I bought those same CQP Nov22's @ 2.00, 1.90, 1.80 and 1.70 today(not as many as you). My orders @ 1.60 didn't get filled. It is a crap shoot on finding the bottom. I hope we did, but then again, this is CQP....;-)
I'm waiting for CQP to bottom,thanks for the info on last SPO.It looks like it's repeating the pattern of falling for 2 weeks after,even though all of the new shares should be absorbed by now,it's still dropping.I made the mistake of jumping into EPD before SPO,I'm hoping to recover with CQP.
Sentiment: Strong Buy
I'm sure this question just reveals my ignorance about CQP and SPO's, but does the spo mean cqp has to pay out the $.43 dividend to 8 million more shares? Does it increase the chances of a divi cut?
Yes, they are now obligated to pay the distribution on the additional shares. As regards a distribution cut, ETP has distributed .8938, 17 Qs in a row, since August, 2008. I am not expecting a cut.
- It looks like 7.3 million of the 8 million SPO shares were sold on Thursday (6.5 mil) and Friday (800K). Will be watching volume again today.
- Reminder - the November options are now available. Will be looking at 24 and 25 calls.
Have an excellent week everybody.
Folks, is this the best message board, or what? Engie with the nice heads-up and initial research, Doc with some typically well-reasoned thoughts in reply....and then a wondrous $2.15 price drop today as nearly 6.5 million of the 8 million SPO shares were sold. Just fantastic! I'll definitely be getting long with some calls - probably some 24s and 25s depending on tomorrow's action. It was interesting to watch the price drop fairly hard into the close today. Thanks as always for the sharing, guys.
Thanks for a great post Engie, and all of your work and insights. I've been at work all day and just got home and thought whoopee, I wanted in on CQP in a couple of weeks so lets do this....until I saw the size of the salmon they're feeding the CQP minnow.
Some further perspective. CQP has avg vol of 113,000, AGNC 7.5 million. An 8 million SPO for CQP's 113,000 avg/day, is 70.8x it's daily average. Let's "Super Size" that and multiply AGNC's daily avg, times 70.8x. That would be a 530,000,000 SPO! Wow, how long do you think it would take AGNC to swallow that?
Now, I might be wrong and institutions will buy it all up in three days. I don't think so, especially with the bogus WSJ article concerning CQP. My plan is just as it was B4 announcement....to buy on about the 1st or 2nd of October.
The final point is that the Nov contract won't be out until after this Friday. That contract should be cheaper than Dec(we don't want Oct since it leaves 8 trading days out until EX, normally) even if we see a moderate higher PPS in Oct than tomorrow. I think I will get a double bonus by waiting , cheaper contract and a cheaper price. Maybe not, but, as your research shows, last years SPO, took a Long time just to consume 3 million, now we have to swallow 8 million. That, IMO, is huge....
Thanks Doc. Feels good to be able to contribute something back to the board. Good point about the November's starting next week. Given how fast this offering is selling, I might buy some Dec calls this week, if the offering sells out today (by a mini-miracle) then some Nov calls next week/week after. Yee haw.
Minnow had more of an appetite than I expected...about half of the 8 million already gobbled up. Amazing, as they could have had it for about three dollars less, a short time ago......say SPO, and they shall come....