Yesterday at 10:17 AM, the Value Investment Fund sold its position in Wells Fargo in preparation for two sets of PUTs that the Fund will have to comply with the terms of the PUT contracts.
Earlier this year, the Value Investment Fund sold two separate batches of PUTs in Essex Property Trust. One position was for $260 per share and the other’s strike price was $240 per share; both expire on October 21, 2022. The current market price at day’s end on the 18th of October is $232 net of the $1 per share transaction fee. Thus, there is no doubt in the facilitator’s mind that the $260 strike price batch will be PUT to the Fund and a very strong likelihood the $240 contract will also be enforced.Â
To cover the cash necessary to comply with the contract, the FUND will need $44,980 to purchase the 180 shares at the respective strike price as set forth in each batch; this cash requirement includes the $1 per share transaction fee. The Fund’s current cash balance is $3,239. The sale of 985.3567 shares (leaving a 100 share position) Wells Fargo will generate $43,355.69 after a $1 per share transaction fee. In effect, the Fund nets $44.00 per share and is selling all but 100 shares to raise the cash necessary to comply with the terms of the two PUT contracts.Â
Overall, the facilitator isn’t please with the results. The 2022 market downturn forces the Fund to be creative with PUTs in order to maintain returns. This in turn, increases opportunity risks as holding Wells Fargo is superior to owning Essex Property Trust. Both are excellent candidates for the Fund, and at the end of the day the real cost will end up being the costs to transact these two positions (sale of Wells Fargo and purchase of Essex). Act on Knowledge.
Posted at 9:20 AM
© 2022, David J Hoare MSA. All rights reserved.
