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NorthStar Realty Finance Corp. Message Board

  • octopusink octopusink May 8, 2014 12:24 PM Flag

    earnings trade

    putting on the following trade on for earnings tomorrow:
    calendar type spread

    buy (2) may 16 calls
    sell (1) sept 14 put

    2:1 ratio = net even price (minus commissions of course)

    theory-

    1)if nrf is good on earnings/cc talk of spinoff then 16.50 is a reasonable quick target by next friday. calls would be good for about a double. puts slightly more valuable. winner all around.

    2)if nrf sucks on earnings/cc. calls are worthless. puts decline in value as well. however, have all of next quarter (including august earnings) to boost, as well as spinoff (hopefully in q2) to rebuild price over the summer and make this a break even at minimum.

    3)worst case scenario- nrf massively tanks and i have to buy back the puts at a loss, or buy nrf common at $14.

    IMO the valuations of nrf/nsam spinning at a price below 14 would be very surprising. and thats what it would take to have this trade lose money. certainly not an impossible scenario, but i think overall this is a good value bet.

    Sentiment: Buy

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    • A variation on your worst case scenario is to finance the buy back with sales of longer-dated puts. I would do that unless I thought there was a fundamental change for the worse.

      • 1 Reply to lner2512
      • actually...

        as nrf has dropped midafternoon, changed it up a little and bought half my original plan above and half of buy 1:1 may 16 calls, sell jan 12 puts (for a net credit of .10). the dime will roughly cover cost of commissions so slight positive, but pretty much a net-net zero all around.

        but yes, continuing to roll out the puts if a good possible play down the road as well.

 
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