TRQ and USAT, A Quick Update

I’ve discussed the rights offering in Turquoise Hill Resources (TRQ), expiring today, and the USA Technologies (USAT) warrant expiration with a few of you and wanted to give a quick update as I return from vacation.

First USAT, which had a warrant expire on December 31, 2013. The stock has moved up nicely from where it was trading on December 31st, the day of the expiration. If you’ve read the other posts on the site here or my ebook then you know this is exactly the pattern I look for in a rights or warrant expiration.

It reached a low of $1.76 and printed a high today of $2.00 so far today. I don’t like using the highs and lows to calculate returns, since I never seem to buy the low or sell the high. So, let’s say you bought it at $1.80 the day of the expiration and sold at $1.97. That’s an almost 9.5% return in 4 business days. Nice return.

Side note, from a charting perspective if USAT can get above $2 it may have a decent shot at $2.20. $2 has been resistance for several months and IF it breaks through that with the warrants no longer providing a drag it may trade back up to the next resistance at around $2.20 (the actual high was $2.18 on July 30th). But FYI, I no longer have a position in the stock.

Second, let’s take a quick look at TRQ. I actually took a position in the TRQ puts a few weeks ago believing it would drop to around $2.75. The stock has stubbornly held above $3 and I hedged those puts yesterday by purchasing the stock. I purchased the January 2014 $4 puts for $.80 and then bought the stock for $3.05 on Friday. A small profit, but nothing to write home about.

The main show for me is not in shorting the common (or buying puts) during the offering, but in buying the common for a bounce after the offering is completed. I’m reluctant to take much of a position in TRQ for a bounce for a few reasons.

First, it’s a gold stock, so when you trade it you’re mainly playing the commodity as opposed to a company producing products or services. Second, and most importantly to me, when I purchase an expiration for a bounce one of my main criteria is that the sector be in an uptrend or at a minimum trending flat. This is obviously not the case with gold — see GLD.

I’m content to hold my puts and be long the shares I bought to offset those puts for now. If TRQ rips up over $4 I’ll be a happy camper. Otherwise I’ll likely hold my small gain from the put / long stock position and simply let those puts be exercised next week.

Hope everyone had an absolutely great holiday season! I heard on the news this morning that today, the Monday after New Year’s Day, is the “most depressing” day of the year. Here’s hoping the “most depressing” day of the year is a profitable one for you!