Thursday, November 5, 2009

Time to Unwind the Georgia Gulf (GGC) and Olin (OLN) Pair Trade

The Credit Bubble Stocks pair trade of GGC and OLN was posted at prices of $29 and $16.5, respectively. GGC has fallen to $15.65 and OLN to $15.79 as of right now, which were declines of 46% in the short and only 4% in the long. The pair worked brilliantly.

GGC's performance and adjusted EBITDA was better than I expected. Here are my thoughts on valuation.

I sold out all of my OLN and have covered about half of my GGC short. Normally, I would want to capture the additional downside that I foresee on GGC. However, I am being charged an enormous amount to borrow the stock.

I would not have covered if the huge spike rally at the open had continued all day, and I will probably reshort if it hits those levels again.


CP said...

You can now unwind at a more favorable price than when I started writing this (15.46/15.76).

I may get back into OLN. I am going to evaluate it as a stand alone candidate.

misha said...

Take a careful look at OLN earnings. Their major income last quarter was due to a reversal of environmental-related fees that they've already paid for.

CP said...

Yeah, you're right.

Their Q3 segment incomes:
chlor-alkali 3.9
winchester 23
environmental 38.8

Overall, GGC did surprisingly well and OLN surprisingly poorly. That is why I am unwinding the pair trade.

GGC was not worth $30-$40, which is when I did the bulk of the trade, but it is worth low double digits and I was getting charged an arm and a leg to borrow it.

PD said...

i still don't think the numbers are great, but i remember when i first read your post- I thought man this will be easy money that should manifest itself within a couple of weeks and it did. Once the new shares hit the mkt i thought if there is three days of high volume and up swing, it was time to exit. see how the next two days are...

CP said...


It has been nice - first the bonds and then the short.

I was saying that I'm not super excited about the financials, just that they were much better than I expected.

1- The cost to borrow is now exorbitant.
2- A million shares traded today with the price up.

PD said...

initially I wasn't even charged to short the shares...

the earning are kinda crappy though, i mean both OLN and GGC had "financial" gains that were one time deals that significantly increased their earnings.

I hope you got your OLN dividened...

CP said...

No, forgot about the OLN dividend. I don't really pay attention to that type of thing.