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Portfolio Options Update

Yesterday, I let you know I sold the December 15th $LVS options. Let’s go through the details.

The reason for putting on the position was I expected $LVS to report excellent 3Q results, Macau to report excellent October and November gross gaming revenue (GGR), and for Sands to return more capital to shareholders. All of that happened. As the expected positive news was reported, the options went up substantially, and at one point, almost doubled in value from our initial purchase price.

Then, we got unlucky on some timing. Miriam Adelson, Sheldon Adelson’s widow sold $2B of stock to buy a stake in the Dallas Mavericks. Advisors have been asking the Adelsons to reduce their majority stake for years, but no one likes to see $2B of stock hitting the market at a discount. Robb Goldstein, the CEO of $LVS, bought $250MM of that stake for $44/share. I approve of his decision.

Then, Moody’s warned it was considering downgrading China’s credit rating. This caused a divergence in stock performance. US investors, worried about a weakening Chinese economy, sold $LVS. In Hong Kong, where investors saw the masses were returning to Macau to gamble, traded up the shares of Sands China (1928.HK), the subsidiary that owns about 30% of Las Vegas Sands’ Macau operations.

Then, Las Vegas Sands agreed to buy $250MM of Sands China stock, increasing shareholder ownership of the rapidly recovering Macau operations

Each of these three events caused a decline in the price of $LVS stock, and the value of the options dropped by approximately 90%. While it’s tempting to scream “not fair” like a child would, that’s the risk of using options to increase exposure. You can get the fundamentals right, but if you get the timing wrong, it’s going to result in a big loss. This is also why on the few occasions where I use options to increase exposure to an idea, I keep the position very small.

With a couple of weeks to go before option expiration, we made the decision to stay calm, stick with the fundamental analysis and…do nothing. It can be tempting when you’re losing money in a position to “do something” to demonstrate to yourself that you’re capable of action. In this case, waiting was the right move. The stock staged a strong comeback aided somewhat by Chairman Powell’s dovish comments yesterday.

I exited the position with an 8% gain (about 40% annualized in a little under 3 months) and was able to notify subscribers holding the options immediately.

To sum up, we got the fundamental analysis right, then got unlucky, then got lucky. We’ve done well this year with some of the short-term positions making profits in the $LVS options, making about 40% earlier this year in three months in $ENVA options (well over 100% annualized), and seeing the then short-term $GBTC call in June turn into a massive longer-term profit maker. I’m happy with those results. I also want to remind you that while DKI will always be opportunistic when I see something that’s mispriced, the focus here is long-term investing.

In addition, there is an understandable tendency for people to see a few money-making options trades in a row and get big in the next idea. Please don’t do that. The trading in $LVS options over the past few weeks shows the importance of using position sizing to control risk. DKI got the analysis right and stayed calm under adversity. But if you shift the expiration date a week in the wrong direction, we would have been taking a loss. I’ll always tell you when I have high conviction and a large position. I’ll also always tell you to keep these kinds of short-term options positions small. Better to get rich more slowly than get crushed quickly.

Two other things I’m very pleased about and want to relay:

1) While we transition to real-time notice for blog posts, I was able to communicate in real-time with subscribers who held the Sands’ options. DKI will always do all we can to provide the highest level of personal service – especially when you have you capital at risk. I think we accomplished that here.

2) I’ve already heard from some of you who traded the options better than I did and realized profits of about double what I did in the same 2 1/2 month time-frame. Round of applause for Bobby and some others who traded the position like champions and stayed calm when things went against us. I love knowing you’re making money here and am thrilled to celebrate your success.

I’m still very bullish on $LVS common, own a large position, and haven’t sold a single share of that.

There will be a new position on the blog in the next couple/few days. More details soon.

As always: with any questions.


Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use.  The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so. 


The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write. 


Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose. 


In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report. 

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