9/16/08

Bought ESLR Puts and GE Update

While everything is falling anyway, the Lehman bankruptcy is driving shares of Evergreen Solar (ESLR) sharply lower. This is because Lehman underwrote the recent convertible share offering and ESLR agreed to lend Lehman about 31 million shares.

I've been slow on this and should have bought puts yesterday. As it is, I bought two Oct '08 2.5 puts for every hundred shares of ESLR. Should the stock go to $0 between now and mid October, I'll make money. My cost basis for ESLR is now $5.89 a share. I sold Jan '10 7.5 covered calls for $1.6 on 9/11/08. (I list all my transactions on the sidebar at the bottom, if you're interested.) Should ESLR go to $0, those calls will be worthless and my cost basis will become $4.29. The puts will be worth around $2.50. I'll make $0.51 a share if that happens.

General Electric (GE), another of my holdings that's been in free fall (although it's in positive territory as I'm writing), is going down for a few reasons. GE has no exposure to US mortgages. However, GE has exposure mortgage assets outside the US. These are insured by AIG, which is in danger of going belly up. Next, GE is involved in the credit card business. Investors think more consumer defaults are coming. Investors are concerned that GE will lose its AAA credit rating. Additionally, the bankrupt Lehman Brothers owned some $500 million worth of GE shares. That's not that much compared to GE's market cap, but it's pretty big in absolute terms.

I think GE will do fine over the long term. In the meantime, I hope that the price will stay depressed for a while so my dividends are reinvested at current or lower prices.