Tuesday, June 26, 2012

Special Situation in ABG Shipyard

ABG Shipyard will cease to trade from 29th June,2012. The open position in June series of derivatives segment will get closed on 28th June, 2012. The open position of ABG Shipyard in June futures is almost 28,40,000 shares. 

What is the big thing in it  ?

a) ABG is in Banned category since 6 months.
b) There is no speculative interest in it , because it was in banned category.
c) Since last three expiration, The cost of carry of rollover was almost 1.75 % compared to 1% for market.

Based on this rationale, we can infer that most of the open position in ABG is of long and the shorts are only the arbitragers. Also it seems the long may not have alternate source of funds to rollover the position in cash market.

We can assume that the arbitragers will come in cash market to liquidate the position which they are holding against their short in derivatives segment. If during VWAP period tomorrow, if there the buyers for ABG don't enter the market, there can be heavy liquidation leading to big fall in price.

What is the Strategy ? 

Short this counter and wait for price movements (CMP 373/- ) with a stop loss of Rs 385/-

Can Something go wrong ?
a) Yes as this is a directional view, the price of ABG can go up, but looking at the price movement in stocks it looks unlikely, moreover u can trigger stop losses also.
b) As for fundamentals go, It is not available cheap. It has huge debt and the business in also in downward cycle.

This perception of fall is based on view that there are long in this counters, would would be forced to liquidate.

This is not a recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions

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