timwest

PAIRS TRADE: SHORT JOY, LONG ABX

BATS:JOY   JOY GLOBAL INC
1169 13 4
Perfect Pairs Trade:

Mining equipment supplier JOY ( Joy Global             , formerly JOYG) is overbought and stalling while mining conglomerate ABX             (formerly American Barrick) is oversold and basing out.

Upside potential: 10% in a month
Downside risk: 5% in a week

NOTE: I like ABX             on its own as a long idea.

Tim West
10:24AM EST
1/18/2013
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Joy Global: When Will We See The $1 Billion Write-Down?

Joy Global (JOY) is a manufacturer and servicer of high productivity mining equipment for the extraction of coal and other minerals and ores. One particularly relevant fact about Joy Global is that the company reports a goodwill number of $1.38 billion as of October 26th, 2012 and I believe it may be facing a write-down of well over $1 billion if Caterpillar's Friday announcement were to be used as a barometer. Joy Global spent roughly $1.4 billion in 2011 and 2012 to acquire International Mining Machinery (IMM), a Hong Kong listed company, through its wholly owned subsidiary Joy Global Asia. It is worth noting that Caterpillar completed its acquisition of ERA Mining Machinery around the same time frame as Joy Global's International Mining Machinery acquisition. In this article, I will discuss the background of the story, Caterpillar's recent write-down announcement, the connections of the insiders and the likely implication for Joy Global.

http://seekingalpha.com/article/1126641-joy-global-when-will-we-see-the-1-billion-write-down
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timwest PRO QuantitativeExhaustion
I spend time on only one other site and that is seekingalpha. Thanks for bringing this article to my attention. Thank you JR. Tim
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Nice move today :-)
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JOY... sure was and with the market peaking!

Still like ABX
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Would be nice to get these for .10 to .15 per contract... if so load up the truck!

http://finance.yahoo.com/q?s=ABX130316C00035000
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10:30AM prices for these stocks for reference:
JOY 68.00 short
ABX 34.05 long
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If March 40.00 ABX CALLS sell for less than .10 I'll bite. Same for JOY 57.50 PUTS
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timwest PRO QuantitativeExhaustion
The April 40 calls are 0.32 bid, 0.34 offer. There aren't March 40 calls showing on any exchange that I can find. I could reference "AT THE MONEY" calls in future updates.
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Next week March options become available. We have to wait for January's to expire. I like the idea of option reference. Also if you care to vote on this option https://getsatisfaction.com/tradingview/topics/real_time_option_quote_option_chain_display

When you say 5% decline possible, you mean that there is the possibilty JOY goes up 5% next week and ABX goes down 5%.
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timwest PRO QuantitativeExhaustion
Almost. In your scenario, the loss would be 10%. I view the risk as 5% loss on the position, meaning that the spread between their prices would get another 5% wider than currently. If ABX is flat and JOY is up 5%, then that would be a 5% loss. If ABX is up 5% and JOY is up 10%, then that too is a 5% loss. If you set up the position in a portfolio monitoring spreadsheet, then you can see the summation of the P&L and risk $5 for every $100 of position size.
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