Where Did The $40 Billion Go?
There have been some spectacular failures in the wild and wacky world of tech startups (check Uber and Lyft) but nothing can top the implosion of WeWork and its arrogant CEO Adam Neuman. Mr. Neuman had been at the helm of two other startups that went broke but for some reason people loved to lend him money. One of his biggest supporters was SoftBank Group Corp. and its CEO Masayoshi Son who lent the startup billions.
The company got its start around 2010 and had a very simple business model. Get someone to lend you money, take that money and buy all the real estate that you can afford and then lease the space out. If the plan is successful you make the spread between the capital you have borrowed and the amount that the leases bring in. There is really no limit as to the size of your spread as long as you have the cash to pull the deal off. In fact, Mr. Neuman often bragged that he would become the world’s first Trillionaire!
Last Spring as he was preparing their IPO, Mr. Neuman invited the leadership of various exchanges to one of his homes in the Hamptons to negotiate the terms and conditions of the listing. He is very much into a “sustainable earth” movement and one of his demands was that the exchange bar the use of plastic and that they remove meat from the menu of their cafeteria. The NYSE told him that no individual was going to tell them what people should eat, the NASDAQ caved, and they got the deal.
Softbank had not only loaned WeWork billions but had also loaned Mr. Neuman hundreds of millions. They had the company valued at around $47 billion in market capitalization. They were prepared to bring that number to the market. That is when the farce started. Mr. Neuman tried to “squeeze” the market and wanted a higher valuation number. As the accountants tried to make that number work, they found out that there were billions missing. Mr. Neuman had totally overstated the value of the land that was being used as collateral for the loans, the IPO was “delayed” while details were being worked out.
The IPO never got done. As the accountants sorted thru the mess the valuation kept going lower until it is now valued around $8 billion. At these valuations it wasn’t a guarantee that the company would have sufficient cash flow to stay in business. Mr. Neuman had a loan due to Softbank of $500 million which he could not pay. The issue was finally resolved when Mr. Neuman was fired as CEO, SoftBank made him a new loan and the company agreed to pay him close to a billion over 5 years as his termination package. Where the drama will end no one knows for sure but one thing is clear Mr. Neuman is very good at spending other people’s money and he is coming out of this deal smelling like a rose!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week we will answer those questions with a short paragraph covering a variety of trading subjects.
Is it possible to sell a credit spread that has less risk than reward?
Answer :Yes, it is possible to sell a credit spread that has less risk than reward. The trade is called a 60/40 and it is an aggressive directional spread. Here is how it works. Normally when we sell a credit spread, we sell the ATM strike and buy a strike that is further out of the money. If you use a 60/40 we sell a spread that is slightly in the money. We are not taking a neutral position. We are trying to predict the direction that price will move. So instead of selling a $500 widespread for $220 and assuming a $280 risk we sell the spread for $280 and assume a $220 risk. We never risk more than the difference between the strikes minus the premium we receive for the spread. The difference is in the 60/40 spread, if the price doesn’t move in our favor, we will not collect the entire $280. We will collect a portion of the spread as a profit. The 60/40 is a spread that many professional traders use when they are confident that the price will move in their favor.
The Market Edge Market Posture
| Market Timing Models | Current Reading | Prior Week | Connotation | ||||
| Cyclical Trend Index (CTI): | 1 | 6 | Positive | ||||
| Momentum Index: | 7 | 7 | Positive | ||||
| Sentiment Index: | -5 | -8 | Negative | ||||
| Strength Index – DJIA (DIA): | 80.6 | 83.0 | Positive | ||||
| Strength Index – NASDAQ 100 (QQQ): | 79.7 | 85.3 | Positive | ||||
| Strength Index – S&P 100 (OEX): | 81.0 | 85.5 | Positive | ||||
The Market Edge ‘Market Posture’, which has been Bullish since the week ending 0913/2019 (DJIA 27219.52) remains Bullish at this time. For a detailed look at the technical indicators and studies that make up the market timing models, go to www.marketedge.com.
The Optionomics Scoreboard
| ‘Traders’ Results | 21st Century Covered Call Results | ||||||
| Performance Since Week Ending 1/04/19 | Performance Since Week Ending 11/06/17 | ||||||
| S&P 500: | 01/04/19 | 2485.74 | S&P 500: | 11/06/17 | 2591.10 | ||
| S&P 500: | 11/15/19 | 3093.08 | S&P 500: | 11/15/19 | 3093.08 | ||
| S&P 500 Points Gain/Loss: | 607.34 | S&P 500 Points Gain/Loss: | 501.98 | ||||
| S&P 500 % Gain/Loss: | 25.5% | S&P 500 % Gain/Loss: | 19.4% | ||||
| Risk Capital: | $20,000 | Risk Capital: | $100,000 | ||||
| Optionomics Traders $ P/L: | $10,403 | Optionomics Covered Call $ P/L: | $25,932 | ||||
| Optionomics Traders % P/L: | 52.0% | Optionomics Covered Call % P/L: | 25.9% | ||||
| Last Week’s Traders % Gain/Loss: | 1.9% | Last Week’s Covered Calls % Gain/Loss: | 1.9% | ||||
|
Low Cost Put-Call Hedge Results |
The Billionaire Risk Reversal Strategy Results | ||||||
| Performance Since Week Ending 1/26/18 | Performance Since Week Ending 04/12/19 | ||||||
| S&P 500: | 01/26/18 | 2872.87 | S&P 500: | 04/12/19 | 2907.41 | ||
| S&P 500: | 11/15/19 | 3093.08 | S&P 500: | 11/15/19 | 3093.08 | ||
| S&P 500 Points Gain/Loss: | 220.21 | S&P 500 Points Gain/Loss: | 185.67 | ||||
| S&P 500 % Gain/Loss: | 7.7% | S&P 500 % Gain/Loss: | 6.4% | ||||
| Risk Capital: | $100,000 | Risk Capital: | $50,000 | ||||
| Optionomics Put-Call Hedge $ P/L: | $8,460 | Optionomics Billionaire Trade $ P/L: | $40,873 | ||||
| Optionomics Put-Call Hedge % P/L: | 8.5% | Optionomics Billionaire Trade % P/L: | 81.7% | ||||
| Last Week’s Put-Call Hedge % Gain/Loss: | 0.9% | Last Week’s Billionaire Trade % Gain/Loss: | 8.8% | ||||
For a detailed track record of both the ‘Traders’ and ‘Investors’ strategies, click on the Scoreboard tab on the Optionomics web site (www.optionomicsgroup.com)
The Market Edge ‘Market Posture’, which has been Bullish since the week ending 0913/2019 (DJIA 27219.52) remains Bullish at this time. For a detailed look at the technical indicators and studies that make up the market timing models, go to www.marketedge.com.
FREE Two-Week Trial Subscription
The option Trades and Strategies offered by the Optionomics Group are unique in that they all have limited risk while creating great leverage. Our basic Bullish – Bearish Credit Spread Trade lets you control 100 shares of a $200 stock, a $20,000 position for less than $500 or 40:1 leverage. Your maximum risk is always limited and our strategies produce winning trades in three out of four possible outcomes. Check out The Scoreboard on the home page to see our results.
Optionomics let you become the casino whereby you have a mathematical edge that enables you to grind out consistent returns. These strategies are designed to produce good returns over short to intermediate-term time frames in any type of market environment.
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The ‘Traders’ Subscription Includes The Following:
- The Bullish – Bearish Credit Spread Trade: A basic strategy to trading weekly credit spreads.
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- The Earnings Season Trade: Potential big movers with little or no downside risk.
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- The 21st Century Covered Call Strategy: A modern day alternative to the old fashioned covered call strategy.
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Each Monday morning by 11:00 EST, the recommendations for each strategy are posted on the Optionomics’ web site. In addition, the updated results from the previous week are posted on the Optionomics’ Scoreboard. I also have a webinar on Thursday afternoon where I discuss various option strategies, what is happening on the trading floors and answer any questions that you may have. Don’t worry if you miss the show. They are archived on the site. Sound Good? Good! You can subscribe to either the Traders or the Investor plans at an introductory special of only $39.95 each per month on a month to month basis with no contract or strings attached. That’s $10.00 off the regular subscription rate ($49.95). If you subscribe to both it is only $64.95 per month. I think you will agree that this is a super offer so give it a try. Go to www.optionomicsgroup.com and get started today doing what the pros do –
“Don’t Buy Them – Sell Them”.
Mr. Seifert