Quick Update On Sears Holdings (SHLD)

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I will have an update on Sears Holdings (SHLD) at some point in the next few days, but wanted to point something out on this spinoff of Lands' End (LE).

This will the the third such spinoff by Sears Holdings(SHLD) in the past 2 1/2 years.  Seems the first two spinoffs preceded huge moves to the upside in the Sears Holdings (SHLD) stock.

On December 30th, 2011 , Orchard Supply was spun off and began trading January 3rd, 2012. Sears Holdings (SHLD) share price? $28.02.  A little over 2 months later on March 15th Sears Holdings (SHLD) hit $75.

Sears Hometown and Outlet Stores was spun off on October 11th, 2012, and started trading the next day.  Sears Holdings (SHLD) share price? $55.28. A few weeks later on November 6th, the stock hit $68.77.

Whats my point? Spinoffs have been a boost to Sears Holdings(SHLD) share price. But thats not the only possible catalyst coming for the stock. The first two spin-offs were different then this current one for Lands' End(LE). Both Orchard Supply and Sears Hometown and Outlet Stores spinoff's allowed shareholder of Sears Holdings (SHLD) stock to profit from the transaction but not in the simple  "You get xxx shares of the new company for every share of Sears Holdings (SHLD) you own". The most recent spinoff of the Hometown brand included a rights offering for shareholders. So what does that mean? That those betting on Sears Holdings(SHLD) stock to go down via shorting shares, were not effected.

This time it's different with Sears Holdings(SHLD) shareholders getting .30 shares of Lands' End(LE) for every share they hold. Now shorts are in a position that doesn't happen very often, they will be short two companies after March 24th. 

Did Eddie Lampert just engineer a monster short squeeze? Considering short interest in the stock is at an all-time high of 17.4 million shares or 22.6% of the float, the timing could not be better.

Will have more on Sears Hooldings (SHLD) in the coming days. Check the chart below for trading action after the last two spinoff's. I currently hold March 50/52.50/55/57.50 and April calls. And I may buy or sell more in the future.

If anyone has some feedback on the implications of being short during a spin-off, please chime in. I don't pretend to be an expert in any field and my thoughts here could be way off base...

 

SHLD LE spin

Profile photo of jimmybobJimmyBob (Scott)has been trading equities for over 15 years, a majority of which were OTC micro-cap stocks. He started trading high risk stock options over the past 7 years, and has proven winning trades in excess of 15,000%.

As one of the Co-Founders of optionmillionaires.com, Scott enjoys sharing his knowledge with other investors through timely blog posts, daily watch lists in the forum, weekly webinars, and helpful advice within the chatroom.

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