dryships

[Vanraw]

Ok Jakensama, Ive been watching this ever since you mentioned it. Its had quite a ride. Ive watched it swing 100% stock prices back and forth again. Today was another day. It closes yesterday at 6.16 and opens this morning at 7.01. Only to drop again to 6.40. It seems to do this all the time.

<!-- m --><a class="postlink" href="http://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=1234213200000&chddm=1854&q=NASDAQ:DRYS&ntsp=0">http://finance.google.com/finance?chdnp ... RYS&ntsp=0</a><!-- m -->

Whats the deal? Ive never seen a 350mil market cap stock trade like this. Do the day traders have this thing on their sights?

The reason Ive been looking at it, is I'm in search for a solid shipping stock / transportation stock. I think these will be the first to feel the recovery. Goods will start shipping well before the retail stores show increases in sales.

I'm thinking seriously on buying some dryships or Eagle Bulk Shipping Inc.

[Jakensama]

The dry market is funky right now. It's had a mini bounce back after the chinese new years but all is not well. Several big dry shippers are collapsing and when that happens they give their ships back to owners who in term loose that revenue stream to support ships they have on charter so it is something like a domino effect. I would stay away from shipping stocks till at least Q3 this year.

Dryships is a crap shoot, it might shoot up really high again and if a bad string of market luck hits their ships they could go belly up. I'll be sure to post anything I see that may indicate an upswing if I see market news that will affect it early.

Below article from one of my ultra secret shipping newspapers explains some of the activity in dryships this week:

Spin-off unspun?
DryShips' deal with Nordea Bank Finland for waivers of breached loan covenants is likely to stand in the way of plans to spin-off offshore assets, at least for now, a New York analyst says.

The Nasdaq-listed bulker and drilling unit owner revealed earlier Monday that it received the waiver on $800m in loans to fund the company's takeover of driller Ocean Rig. (Click here to read TradeWinds' report on the waiver.)


DryShips chief executive George Economou Cantor Fitzgerald analyst Natasha Boyden says the most important development of the waiver is the requirement that Nordea consent to capital expenses, particularly two of four drillships ordered at Samsung Heavy Industries.
"This restriction will apply until the facility has been repaid to below $375 million and, in our opinion, will essentially prevent the spin-off of the drillships segment over the near-term," Boyden said in a note to clients.

DryShip's chief executive George Economou has said that the company plans to spin-off its drillships and ultra-deepwater drilling rigs through a dividend in stock in a new company, Primelead.

The drillships impacted by the waiver deal are the 57,800-gt pair Economou's private Cardiff Marine ordered and then sold to DryShips in October.

DryShips has already warned that it may not close the deal for the duo if the Primelead spin-off does not take place.

Following the waiver announcement, Boyden also cut her 2009 earnings estimate for the company from $1.23 per share to $1.13.

She blamed the cut on the increased interest expenses as a result of the waivers, as well as the sale of the 73,000-dwt Toro (built 1995), which suffered a price reduction from $63.4m to $36m.

In addition to the drillship order, DryShips owns 43 bulkers and two drilling rigs, and it has orders for five bulkers. After the waiver announcement, the Athens-based company's shares gained 4.4% Monday to hit $6.45 in mid-afternoon trading.

[Vanraw]

wow. Thanks for the info.

You would think there is some strong shipping company that will bounce though.

[Dustie]

Maul, I'm curious how you came across this stock (DRYS). Did you find it searching or did you pull it out of a stock screener?

I thought it looked familiar when I noticed that it's one of several hundred stocks that always makes it through my pre-debt check screener:

Return on Equity >=15
Price Book Ratio >0 and <10>0 and <15

[Vanraw]

Maul, I'm curious how you came across this stock (DRYS). Did you find it searching or did you pull it out of a stock screener?

I thought it looked familiar when I noticed that it's one of several hundred stocks that always makes it through my pre-debt check screener:

Return on Equity >=15
Price Book Ratio >0 and <10>0 and <15

Actually Jaken mentioned it in the stock original thread. Thats the only reason I went looking for it. Initially he was a genius cause it way up after his call. Then it began this massive roller coaster ride.

I really want to grab a solid shipping company who has gotten the beat down with the market. I think it will be a place to see plus 50% gain in the next 6 to 9 months. Providing we all don't fall into a depression.

[Jakensama]

If you find a solid publically traded bulk or container shipping company in the world, please let me know.

If you absolutely want to try to gamble and get a bargain, wait till you see the BDI (baltic dry index) fall again in the next few weeks and the shipping stocks should fall with it.

[Grieve]

DRYS and the Baltic Dry Index have been much discussed on CNBC over the last few weeks, on the basis that if things start to improve in shipping, the rest of the world economy should follow. Also, commodities have been shooting up recently, which theoretically should help the shippers. Sure wish I'd gone with my gut and gotten back into Potash when it dipped below $50 in December...

[Jakensama]

The problem is that many of the cargos require letters of credit to load, and credit is strangely hard to get as of late.

I have fixed (rented a ship for) 13 voyages in the past month and 12 of them failed because the shipper could not get the letter of credit.

[Grieve]

Jake, I've been reading some of the bad news in shipping, including Samsun Logix going belly up yesterday. DRYS is suffering accordingly, down another 9% today already. What do you think the chances are that DRYS goes bankrupt? If they survive, it seems like there is some huge potential upside.

I notice they announce number after the close today. Thinking of rolling the dice with some Feb calls. Pretty amazing PEs - 0.27x trailing and 1.79x forward. I'm sure those PEs will go up as their estimated earnings drop, but even so...

[Jakensama]

He is just a bulk owner so the chances of bankrupt will depend on who he has the ships rented out to. If Econemau (sp) has 20 of them rented out to a big player who goes bust and all dryships has to pick up the operating costs of 20 vessels in a market where they are hardly employable, they will be in trouble.

But he has also diversified into offshore drilling which is probably more stable.

I'd say if it goes really low it might be a good gamble stock, i'd considering buying a few grand sub 5 for shits and giggles, but it would have to be money I am willing to loose.

[Vanraw]

hmmm interesting stuff. I with grieve that this could have serious up potential. Bottom line is shipping will be the first boom to see a sustainable recovery. At least that's the theory Im working under right now.

Good article on Dryships. Its interesting that it had a market cap of over 5 billion and now just 330 million.

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"Until DryShips is done raising cash we think the shares are likely to have pressure on them. The only reason the shares are doing as well as they are today and over the last week or so is just because (freight) rates have been going through the roof."

Question for Jaken, Why are freight prices going through the roof? Wouldn't supply and demand be pushing the cost down?



Ive been watching CNBC on the BDI as well. Its interesting that it took a significant jump in the past three weeks after massive drops. like 20 days in a row of upside.

Its all a risk, but I'm betting we will see a recovery. Its probably going to get worse though. I still think we will see the dow close to or slightly below 7k. The question is will Drys be there or will it be another shipper?

Here are some others Ive been watching.

Eagle Bulk Shipping Inc. <!-- m --><a class="postlink" href="http://www.google.com/finance?q=NASDAQ:EGLE">http://www.google.com/finance?q=NASDAQ:EGLE</a><!-- m -->
Danaos Corporation <!-- m --><a class="postlink" href="http://www.google.com/finance?q=NYSE:DAC">http://www.google.com/finance?q=NYSE:DAC</a><!-- m -->
Navios Maritime Holdings Inc. <!-- m --><a class="postlink" href="http://www.google.com/finance?q=NYSE:NM">http://www.google.com/finance?q=NYSE:NM</a><!-- m -->
Safe Bulkers, Inc. <!-- m --><a class="postlink" href="http://www.google.com/finance?q=NYSE:SB">http://www.google.com/finance?q=NYSE:SB</a><!-- m -->

[Jakensama]

Going through the roof is a relative term.. When the BDI falls 95% in three months and then the BDI pulls a 100% gain, it looks a lot better than it actually is. Its till at a small fraction of what it was before.

The BDI is actually a composite of 3 different index for various sized ships. One size is doing very well (the biggest, the baltic capesize index), up to 40,000 a day from about 10,000. (In november it was at 200,000 a day) The other ones not so much. I dont think dry has many ships of this size, so a lot of the improvement is smoke and mirrors.

As I said, ill post relevant articles I find in the various shipping periodicals I get if you want to keep an eye on it.

[Grieve]

I bought some Feb calls as a earnings speculation play (looks like Etrade had it wrong, earnings are tonight, not yesterday). Stock keeps on falling, though...

[Vanraw]

I bought some Feb calls as a earnings speculation play (looks like Etrade had it wrong, earnings are tonight, not yesterday). Stock keeps on falling, though...

February calls with 8 days to go? You have bigger balls then me . Although I have played options that's awful close.

Hey FYI I just read Drys next earnings date is 2/25/09.

[Grieve]

Oh, I've bought calls on the morning of expiration before. And yeah...looks like ETrade had the earnings date completely wrong...no driver for the options before the 20th now, unfortunately...

[grizzle]

So for those of us not too savy with the stock trade lingo, does this mean you want to buy this stock before the earnings report? And if so, then what - sell it right after the report if it goes up?

What's the typical strategy with this kind of stock?

[Vanraw]

He is actually rolling the dice to buy a call option. This is a contract to buy stock at a given price before a certain date. He bought a contract that has to be executed prior to February 21st, meaning he has to sell the contract, execute it (buy the stock) or let the contract elapse in which case it is worthless.

So for example. Lets say JNJ is trading at $58 and you are confident its going to go to 60 in the next month or so. You can buy a contract for blocks of 100 shares at say, $1.00 for $60 that have to be executed by March. The stock gets close to 60 and the contract value increases to $2.00. You sell the contracts and double your money.

You can also buy puts to "bet" the stock will go lower. So you buy a contract to sell the stock at a lower price. So you buy a put for JNJ at 60 and the stock is at 62. The price goes down to 58 and you have a contract to sell it at 60, or 2 bucks a share profit. You can sell the option contract for a profit though and never have to really buy or sell the shares.

The trick of course is that the contract keeps losing value the closer it gets to its expiration date. Its Wall streets version of Las Vegas. Its risky stuff and shouldn't be played with unless you are using "fun money".

The purpose of options isn't to really do this, but to secure stocks you want to buy or you own. Its like a insurance policy you buy.

[grizzle]

Ahh, okay, gotcha. Thanks for the explanation. Still don't quite fully understand it, but now understand it enough to know it's not something I should try at home without adult supervision. =)

[Grieve]

Yeah, it's basically a leveraged bet (at least the way I play). I tend to go for short term "out of the money" calls and puts, which is to say I'm buying a call option for a value higher than the stock is currently at, or a put for a value lower than the stock currently is.

The advantage of that is you have limited downside and (theoretically) unlimited upside. In Maul's example, if you buy $10,000 worth of JNJ at $58, and the stock goes to $60, you've only made about 345 bucks (minus commissions). And if by some calamity the company goes belly up (not likely with JNJ, but entirely possible with a bank or DRYS), you've lost $10k.

If you buy $1000 of $60 call options for a $1 and the stock goes to $60 (and the option to $2), you've made $1000. If it goes to $70, you're going to make at least 10 times that. Meanwhile if the company goes bankrupt, you have a maximum of $1000 downside.

Having said all that, I definitely don't recommend them unless you have money you don't care about losing. I've made a lot this way (in AAPL, GG, AUY, etc), but I've also lost a bunch on bad bets.

With the Dow testing it's lows today, tempted to buy some puts tomorrow before expiration on Friday...

[Vanraw]

Yea the other note is that volatility (like the market is now) is where option trading like this has greater potential. Potential being positive and negative.

If things are stagnant and flat then options plays like this wont work. But if you find stocks that are showing cyclical swings, you can guess a close bottom or top and grab a call or put and wait for the bump or dip.

[OrsunVZ]

This thread is awesome.

I actually think a seperate cannel dedicated to this would really be awesome.

[grizzle]

This thread is awesome.

I actually think a seperate cannel dedicated to this would really be awesome.

Yeah, that would be pretty helpful. To have a separate forum members channel for retirement chat, for us old (or gettin' old) farts in the guild.

[Vanraw]

A Off topic invest channel would be cool.

[Grieve]

Oh well, I was a little early with my DRYS bet, but it eventually did pop - up 37% today. March $5 calls are up 133%.

[Jakensama]

I'tll probably drop again in a couple weeks, the markets had a little stretch lately but not sustainable.