Saturday, November 1, 2014

Opened YOD short

YOD got a fantastic pop on rumors that BABA was interested in purchasing it via "unconfirmed market chatter." As with most stocks that pop due to buyout rumors  I have little doubt that YOD will fade completely.

I've have a very good handle on YOD.  I have traded this stock a number of times during the past year and recognize the absurdity of such a rumor.  In addition to YOD's wide spread insider dilution via warrant exercise the economics of a YOD / Baba deal simply do not make sense. BABA already owns 16% of yoku and just launched as a new platform to market YOKU's videos.  So what would buy an American company with non-exclusive licenses to compete with its partner?  That won't happen.  Despite what the pumpers on twitter were saying.

Eventually the momo traders came to their senses and started to fade this stock. Enter my short opportunity:

Entry 1: 2.39
Entry 2:  209
Avg. 2.19
Risk: 1.5R

A very long wick on that daily candle which suggests that this will not be a multi-day pop. This was  a 1 and done type move, imo.  Given the speed and volume on the  sell off I increased my position by 2/3 going into the close. 

Under normal circumstances,  I would target 1.85-1.95 range and I'll probably partially cover in that range.  I suspect, however, that due to the volume there will be some new bag holders that are now trapped.  I very much doubt anyone bought this as a long term hold as the fundamentals are unproven and have underperformed for years.

2 years ago Analyst forecasted revs of over 20 mill-- not even close, Last year $15  mill. nope.  Early this year $9 mill.  The company now says $3 mill.  As pathetic is that is for a company that claims as an 11 million viewer market, the company has earned less than 200k in both Q1 and Q2.   I'll  target 1.65- 1.55 within a few days as rally attempts fail When the reason for the buying spree has evaporated, stocks tend to over-adjust the other way so this has the potential to go even lower near term.

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