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Thread: How to Play the reverse split...

  1. #1
    imromo24 is offline
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    How to Play the reverse split...

    Lets face it...the reverse split is bound to happen...i think i've read enough from homer to make me realize its inevitable...how should it be played?

    Please...Lets put aside the argument that shorts will drive it down after the split and assume it goes upwards (albeit slowly) after the RS.

    If im averaged just under $1 should I be looking to risk more cash (which I don't really want to) or should I just accept the result of the RS (which would really tick me off but not be risky) ?

    ps. IMO I think the RS could even happen a year or more from now with a new shareholder vote, maybe even above $1. So, the reason I ask is because now seems the best time to average down if this scenario plays out....

    Thanks in advance...
    Last edited by imromo24; 03-21-2009 at 11:49 AM.

  2. #2
    frigginregan is offline
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    Ah the dreaded RS. Now that BK has been averted, we are back to that.

    Over the last few months when BOTH RS AND BK were being used to scare people out of this stock, I was using the .10 cents and below pps to gobble up shares in an attempt to average down as much as I can.

    Before the pop back up this week, I was able to lower my original pps from 4 years ago of $6.50 down to around a buck....which I was very happy about. I wanted to average down more, but I ran out of funds and then the Liberty bailout became official, BK was averted and the stock shot up to .40 cents.

    So now, like you I am in the same situation.

    I don't think we'll dip down to the .10 cent range again....but I am planning another aggressive averaging down phase. If we dip into the 20s consistently or the high teens...I will buy small chunks.

    If I can average down to a break even price between .50 and $1 that is my goal.

    I believe before a RS happens(if it ever does) we will reach this sweet spot. At that point, when I reach BREAKEVEN.....FINALLY after nearly 4 years of declines....I will decide if I will continue to hold or sell half or all. If I can average down to .50 cents and we go to $1...I will sell half for breakeven and let the other half ride. Who knows.

    A lot depends on the next few quarters and what Mel does now that he has "Breathing Room" as he's said. If he can deliver the goods, then I'll re-evaluate.

  3. #3
    frigginregan is offline
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    The frustrating part is just how close I came to averaging down to .50 cents before I ran out of money. All I needed was another $2,000 invested at .08 cents to bring my average down to .50 cents.

    Now I'll need closer to 8 grand.

    Not that I'm praying for huge dips. Because I'd be happy to see Sirius keep rising too - my breakeven price will just be higher thats all -BUT....

    IF it does dip lower, like I said above, I will average down as much as I can.

    Most likely I may be able to lower my average somewhere between .75 and 1.00.

    My timing with this stock has been extremely bad. Either I bought more right before a drop...OR like what happened this week....ran out of money as I was trying to aggressively average down. When my instincts are wrong, they are really wrong....and when they are right...I RUN OUT OF MONEY! Lol.

    Oh well.

    I would love for this upward trend to continue. It was a great feeling to see my Sirius holdings in my etrade account increase in value this past week. Something I haven't felt in a loooooong time.

    I guess thats why they call us longs.

    Still...I'd sure like to be either out of this stock at break even or be so far up that holding doesn't cause me stomach churning anxiety.

    Peace out.

  4. #4
    imromo24 is offline
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    Thx frig...right there with you...always ran out of dough at the wrong time...

    After reading alot of homers interpretations of the float on this stock it seems to me (not a pro) that even if we break $1 it would be tough to hold and go up (without some major increase in company cash/income)

    i'm going to add cash to the account...AGAIN....and try to hold out in case there is some weird drop that will help me average down...AGAIN...

    For the most part I'm crossing my fingers that iphone app...internet...link with liberty... somehow makes this monopoly a cash cow and its to the moon....

    I've been through so much with this stock over the last 5 years....I feel I deserve a break....but I also want to prepare and take advantage to protect myself with the current price...

    I have a feeling that Mel knew this was going to happen (dilution)...threw us some hints...and is giving us time to average down.

  5. #5
    Doctor_G is offline
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    Both Mel and Malone are in position to make a boatload more money, w/ shares they own, if the stock never R/S's (at least that's what I keep telling myself). Common sense tells me that Malone has the most to gain if he can help this company balloon (expand) in a very profitable way, considering his 40% take in the company.

    Is this "thinking" right or wrong?

    And lastly, if a R/S was ever to happen, do we shareholders get a friggin warning? Or do we wake up to see that one has taken place in the dead of night?

  6. #6
    homer985 is offline
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    Quote Originally Posted by Doctor_G View Post
    Both Mel and Malone are in position to make a boatload more money, w/ shares they own, if the stock never R/S's (at least that's what I keep telling myself). Common sense tells me that Malone has the most to gain if he can help this company balloon (expand) in a very profitable way, considering his 40% take in the company.
    Malone's equity ownership will not be effected by a R/S whatsoever. He'll still hold 40% of the equity in the company.



    FWIW, for those absolutely convinced that the stock will drop after a R/S - if this is what you think -- then sell Calls against your position after the split. You won't lose a penny... that is, if you are absolutely convinced the stock will drop.

    How else do you think I was able to hold on to the last batch of XM shares I held for so many years? I sold calls against them for years -- slowly reducing the cost basis to pennies.

    Long long time holders will recall me talking about selling calls for years.

    But be careful... if you are wrong and the stock goes up. You could have your shares called, or in the very least - it will cost you more to buyback the calls than what you sold them for.

    I likely will not be selling calls after a R/S. If I do, they will be very near-term and well out of the money... even if I only get pennies for them.

    That's how you play this, IMHO.


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  7. #7
    relmor2003 is offline
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    Quote Originally Posted by homer985 View Post
    Malone's equity ownership will not be effected by a R/S whatsoever. He'll still hold 40% of the equity in the company.



    FWIW, for those absolutely convinced that the stock will drop after a R/S - if this is what you think -- then sell Calls against your position after the split. You won't lose a penny... that is, if you are absolutely convinced the stock will drop.

    How else do you think I was able to hold on to the last batch of XM shares I held for so many years? I sold calls against them for years -- slowly reducing the cost basis to pennies.

    Long long time holders will recall me talking about selling calls for years.

    But be careful... if you are wrong and the stock goes up. You could have your shares called, or in the very least - it will cost you more to buyback the calls than what you sold them for.

    I likely will not be selling calls after a R/S. If I do, they will be very near-term and well out of the money... even if I only get pennies for them.

    That's how you play this, IMHO.


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    Great advice. I was simply going to short if after the R/S if shares became available, or buy puts(to avoid losing shares), but then I decided to not own it over the R/S, if I time when they will do it correctly.(After it clears .80 cents) If im wrong, Im wrong. They would not do a 50 to 1 if that were the case. Maybe a 10 to 1. That should be plenty. Takes them to well under 1 billion shares, and still holds a low stock price, easy for big gains after as well.
    If it clears $1, they still probably do it at some point. Makes too much sense. I say its inevitable. Just plan on it, really.

  8. #8
    homer985 is offline
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    Food for thought... one of the common examples I keep hearing about bad R/S's is Sun Microsystems (JAVA).

    What people don't realize is that is a bad example. JAVA is the perfect example of tech company that was overvalued prior to the R/S -- and then took a dive afterwards. JAVA's annual (fiscal) revenue in 2007 was $13.8BB. But they had 3.1BB shares outstanding giving them a Market Cap of $17BB. They did a R/S that brought their outstanding down to under 800MM... today, their Market Cap is about $5.9BB with similiar amounts of annual revenue.

    Yep, that is a fraction of what it once was (65% drop) -- but is it because of the R/S, or a combination of the stock being WAY overvalued previously and the effects of a poor economy WITH the R/S? Let me add that HPQ (which did not do a R/S) dropped 40% in the same time frame.

    With Sirius, their Market Cap is currently just $1.2BB, with annual revenue of approximately $3BB (about half of JAVA, but a MC that is just 20% the size)... that is hardly overvalued, IMHO. Hell, it's just a stones throw away from the previous bankruptcy price it was just a couple months ago. The fact is, there's not much value in the Market Cap for it to take a nose dive after a R/S.

    So anyhow, I reject the JAVA example -- as that was a company that was clearly overvalued at the time, IMHO. Coupled with bad timing to do a R/S and a crumbling economy... that made it all the easier to cut into the overvalue in that stock. With Sirius, there is no "overvalue" to cut, IMHO.


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    Last edited by homer985; 03-23-2009 at 11:46 PM.

  9. #9
    sxminvestor is offline
    Quote Originally Posted by homer985 View Post
    Food for thought... one of the common examples I keep hearing about bad R/S's is Sun Microsystems (JAVA).

    What people don't realize is that is a bad example. JAVA is the perfect example of tech company that was overvalued prior to the R/S -- and then took a dive afterwards. JAVA's annual (fiscal) revenue in 2007 was $13.8BB. But they had 3.1BB shares outstanding giving them a Market Cap of $17BB. They did a R/S that brought their outstanding down to under 800MM... today, their Market Cap is about $5.9BB with similiar amounts of annual revenue.

    Yep, that is a fraction of what it once was (65% drop) -- but is it because of the R/S, or a combination of the stock being WAY overvalued previously and the effects of a poor economy WITH the R/S? Let me add that HPQ (which did not do a R/S) dropped 40% in the same time frame.



    With Sirius, their Market Cap is currently just $1.2BB, with annual revenue of approximately $3BB (about half of JAVA, but a MC that is just 20% the size)... that is hardly overvalued, IMHO. Hell, it's just a stones throw away from the previous bankruptcy price it was just a couple months ago. The fact is, there's not much value in the Market Cap for it to take a nose dive after a R/S.

    So anyhow, I reject the JAVA example -- as that was a company that was clearly overvalued at the time, IMHO. Coupled with bad timing to do a R/S and a crumbling economy... that made it all the easier to cut into the overvalue in that stock. With Sirius, there is no "overvalue" to cut, IMHO.


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    The opposite happenned with Priceline.

  10. Ad Fairy Senior Member

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