HIMX follow-up and more ?3

13:27 05-Jul-22

It's trench warfare in the virtual trading pits right now, with HIMX down as low as $6.60 and the rebate rate on it back up to 230%.  I am still cautiously optimistic that the long side can win out here over the short to medium term, with the market already coming to grips with recession, the semiconductor downturn looking oversold, and time left before the July 15th expiration.  MX trading around $13.40 is another investment-worthy data point on that, in my opinion.

This could well be the market capitulation we were looking for, where long-term values abound.  The only question is how bad things get first, but stocks bought in such situations typically offer stellar returns for years to come.  For the record, PSNY sports a similar rebate rate of 227%, and XEBEF is still just into triple digits, though Xebec will have the toughest road to walk with tight financing conditions.

ABB has scheduled its second quarter report for the morning of July 21st.  The 1 analyst covering the company has an estimate of 34 cents of EPS from $7.6b of revenue, declining to $7.3b this quarter.  I only intend to write about the report if there is some surprise.

I'll also note that rumors of Biden rolling back some tariffs on China are starting to seem more like leaks ahead of a statement this week.  That's more important to me than Vuzix announcing a $350K follow on order to support a Fortune 100 multinational retailer.

On 7/5/22 03:56, Esekla wrote:

The only company-specifc news so far for this short week is BGC announcing the completion of its first intermediated block trade of CME Group Bitcoin options contracts.  Although some out there will probably be excited about this, I note that Bitcoin fell below the $20K mark over the holiday weekend, before recovering recently.  The only part that might be exciting here is Goldman being named as a counter-party.  If it would also cooperate on FMX, that would be a real step forward.

I've received multiple questions on HIMX over the long weekend.  So the rest of this note will be a conglomeration of my responses by way of general follow up:

The rebate rate on HIMX opened at 49% on Friday morning and closed at 36%.  I am planning an update on it by tomorrow morning.  Obviously the high I mentioned was unsustainable, even for the the short term, and current levels are still unsustainable for the long term.

As already mentioned, Himax should be scheduling its quarterly report for early August soon, and it's possible that we will see some nervousness from the short side ahead of that, but for now it seems they are emboldened by the general downturn in semiconductors.  Good guidance in the report itself would of course be likely to help, but that possibility is why you are seeing pretty significant out of the money options premiums as shorts take out insurance.  So contrary to what you say, that is another sign of the stressed short positions.  Furthermore, I see 31.4K open put contracts at the $6.50 strike for the July 15th expiration, and another 8.4K at $7 on that day.  Beyond that there are also 13.7K open puts for the September 16th $8 strike with more surrounding that level, plus 2-3K calls open at each of the strikes between $8 and $12 for that expiration.

The rebate rate doesn't typically predict immediate positive price action, often the opposite, since stock is being sold.  Rather it is a signal of a stressed short condition.  Often the capitulation that results in dramatic price increases comes months later.  For now the media reporting on trailing economic indicators has given the shorts some relief, but still seems far from completely alleviating the stress.  My next update on this will probably be on the evening of July 12th, when short data for the second half of June will be disseminated, since that will show us what the shorted position was around the point of the dividend ex-date, which is important because short positions have to pay the dividend.  For the record, 21.4M shares were short as of June 15th.

In the meantime, levels between $8 and $12 in August and September still seem quite possible as shorts and longs use options to essentially negotiate price points.  HIMX pricing rising through the bottom of that range might initiate the hyperbolic price action that people associate with dramatic short squeezes.  On the other hand, if HIMX can be pushed under $6.50 by July 15th, shorts will likely win out, at least for the short term, and sub-$7 pricing by then would offer them a little relief but probably continue the current dynamic.  I've been asked to speculate; so there it is, but more important than any of this guesswork is the note that short resolution timing is notoriously hard to predict, which is why I originally kept saying that I can't offer projections on the shape of trading in the stock.

Esekla