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April 15, 2008 – Comments (16) | RELATED TICKERS: DCR

OK, I've given myself enough of a head start on this one.  I owe this one to the Bespoke Investment Group.  I am about to share some free CAPS points with everyone.  I only ask for a blog "rec" in exchange.  Pretty good deal right?  There's an ETF out there called MACROShares inverse oil, ticker symbol DCR.  As if being short oil wasn't a good enough investment these days, this ETF has a special twist.  If oil closes at over $111 for three straight days, this ETF basically ceases to exist.  That's right, at that point it will pay out investors its net asset value.  Because everyone is so bearish on oil right now, thanks Barron's for that, and because there are so few short vehicles to play the down side of it DCR currently trades at well above its net asset value, which at the time I heard about this trade was $3.83.  It is probably less than that now that oil has gone up even further. 

Oil closed over $111 yesterday.  That one day down.  It is currently trading at just under $114.  If it holds anywhere near there, it will be day two.  All we need is one more day and poof we've got a double in the three days since I shorted DCR at $6.41 in CAPS.  I wonder how many people just hopped into this one in real life without doing any research and are going to get burned.  Man oh man, how I wish I could have shorted this stock in real life.  I almost never short stuff in the real world, but this one was too good to be true.  I tried and tried to short this baby yesterday morning to no avail.  That's why I am able to talk about it without waiting for 10 days.  I never got a position.  If you are already short this stock, I hate you ;).  I kid, I kid. 

Anyhow, add this one to your CAPS portfolio immediately.

Deej

No position in DCR in real life, short it in CAPS

16 Comments – Post Your Own

#1) On April 15, 2008 at 11:22 AM, Gemini846 (57.62) wrote:

It's already down to $4.38 :(

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#2) On April 15, 2008 at 11:52 AM, FourthAxis (< 20) wrote:

No such things as free points or money.

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#3) On April 15, 2008 at 11:58 AM, TMFDeej (99.41) wrote:

That's still a buck's worth of downside, Gemini, if one figures that the NAV has dropped with oil up several bucks since the article was written.  The trade's good for a couple more points plus a boost in accuracy.

Deej

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#4) On April 15, 2008 at 12:02 PM, AnomaLee (28.54) wrote:

TY...

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#5) On April 15, 2008 at 12:03 PM, TMFDeej (99.41) wrote:

Very true, FourthAxis, very true.  It is entirely possible that oil could drop by more than $2.50 in the next 28 hours, but this trade has a very good risk / reward ratio.  The "free points" remark was a little sensationalist, but exciting titles get read, boring titles get ignored.  In my opinion, this is about as close to a sure thing as there is on CAPS right now.

Deej

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#6) On April 15, 2008 at 12:37 PM, kdakota630 (29.58) wrote:

I went to follow your advice but noticed their market cap was only $28 million, so it wouldn't allow me to pick it.

Oh well.  Thanks anyway.

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#7) On April 15, 2008 at 12:51 PM, TMFDeej (99.41) wrote:

Huh, I guess that it has fallen too far already.  Sorry about that kdakota.  It worked yesterday.

Deej

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#8) On April 15, 2008 at 2:03 PM, madcowmonkey (< 20) wrote:

It is back in the 2mill go for it kdakota.

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#9) On April 15, 2008 at 3:38 PM, Capsperson wrote:

Okay, Deej, I just shorted it.  If this doesn't work out you are going to "give" me some of your Caps points, right ?

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#10) On April 15, 2008 at 4:18 PM, TMFDeej (99.41) wrote:

HA sure I'll send them over to your PayPal Account, Capsperson.  Just to make things fair though, I need you to pay me a 2% "management fee" plus 20% of any points that you earn.

Deej

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#11) On April 15, 2008 at 5:18 PM, anchak (99.84) wrote:

Thanks for the entertaining ( albeit completely bizzare) information.

Read thru the link....simply do not understand the compulson here.....why does the ETF need to liquidate?

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#12) On April 15, 2008 at 6:24 PM, mindmuse (93.36) wrote:

My understanding is the ETF will not liquidate immediately, but if triggered by the three day $111 WTI, would still trade until June 25 and liquidate at that NAV on June 26th. So if oil goes back down the NAV could climb back up above where it is red-thumbed.

The payout would be figured as the price of WTI oil subtracted from $120 then divided by 3 (from a 3-1 split last year). If oil at the time was $114, per share liquidation would be (120-114)/3 = $2/share. If oil had traded lower through the end of the quarter, say $100, payout would be (120-100)/3 which would be $6.67.

But with the premium going away it seem worth playing this weird animal. 

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#13) On April 15, 2008 at 7:16 PM, GraemesPSP (99.50) wrote:

Wow.  I only just read this now, but it was a great find!  As a real investment I'm sure this must have got arbitraged away really quickly.  But it would have been like betting on red at the roulette table - after the ball had landed - for anyone with the money and ability to exploit it! 

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#14) On April 18, 2008 at 4:11 PM, 7dogs (45.36) wrote:

Very interesting.  Contrary to your thesis, the premium between market value and net asset value of DCR has actually increased substantially since your recommend.  Market value was about 75% above net asset value when I read your blog and checked it out, now the premium has increased to about 115%.  Net asset value is $1.85 per share and closing price was around $3.75 even though the trigger was reached the day after your blog and hit the newstands the next day.  Amazing what price paid to short oil without opening a commodity account.  (I recommended your blog and your stock pitch.)

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#15) On May 02, 2008 at 10:44 AM, motleyanimal (90.01) wrote:

I tried to short this one in the real world a few weeks ago, but there are no shares available to borrow.

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#16) On May 05, 2008 at 11:21 AM, Gemini846 (57.62) wrote:

How will CAPS treat it when it liquidates? It would have to close near NAV for us to get our points probably, or would they treat it as a huge dividend (leaving most of us in the red) and then bankrupt it pushing us back green.

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