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Comment by sbierwagen | Hacker News Reader

Christ, Scott actually bought BP stock after the oil spill?

I can see how his "buy stock of evil companies" strategy might work, but typically you do that when the company is actually doing well, and not, say, when they're about to be curb stomped by the US government.

Also, his complaint about the "liberal media" is somewhat disingenuous, seeing as how he is part of the liberal media, what with the anti-corporate comic strip and the vegetarianism and the belief in affirmation and the whoa-hoy and the glaven.

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Up until today their stock price was down 25% from a month ago. He's pretty clearly betting that the short-term damage to the stock from the media coverage is just a blip in the long-term outlook of a pretty successful company.

Exactly. It's not like BP suddenly is a different company; they're just experiencing some bad publicity, and have some costs for cleaning up an oil leak. Sure, that should make their company less valuable, but there's no way BP has suddenly shrunk 25%. So either they were overvalued before, are currently undervalued, or a combination of both.

A lot of BP's value was tied up in it's brand as the greenest oil company of the lot. Now that that brand value has become significantly eroded, it's not implausible to suggest that BP has indeed lost 25% of it's value.

One might quibble that the long term outlook of an oil company are perhaps not the best.

Of course, they've got the alternative energy division, which had $5 billion in sales in 2008. Pity it operated at a net loss, costing BP one and a quarter billion dollars.

That's just it, though: the long-term outlook is irrelevant. The relevant part is the difference between the long-term outlook and what actually happens in the long-term. This is what speculative investment (which is what he's doing here) is all about: capitalizing on the difference between what is expected and what actually happens.

This is also why non-professionals (like myself) should not make purely speculative investments. You really need to have a finger on the pulse of expectations, in addition to what's actually going on.

The more scarce oil gets, the more money oil companies will make selling what's left.

well, "long term" as in next few years, not 50 years.

Your definition of long term is "the next few years"?

Even so, the near future prospects of BP aren't terribly good either, what with the crashing price of oil, (good for us, bad for oil companies) the numerous civil lawsuits and (singular) criminal investigation resulting from the oil spill, and the prospect of a moratorium on offshore drilling, coupled with additional regulation.

He's also just told everyone of his millions of readers to by BP, even at a small percentage uptake the prices should lift a little now? Once they start rising then people will think it's for a good reason.

Basically I think he's gaming the market ;0)

At least for today he won 3.5-5% on his gamble depending on the exchange.

Ditto for the recent Toyota brouhaha.

But if you're really smart, you buy when they've just been curb-stomped but not killed, then sell after they recover and return to their prior growth curve. (This presupposes that the company does not die and has an upward sales curve.)

I suppose if one thought both a) it isn't really so bad and b) the government is going to deliver a (self-)righteous spanking to them and spook other investors, one could buy call options for next year.

That's a great idea and I'm going to do just that. I looked at the Jan 2011 50 strike which has an Open Interest of 10k (largest of all the other strike prices) for a current ask of 2.14 a contract. The implied volatility isn't too high (35%) as well so the premium for buying those calls don't have too much time value volatility baked in.

Plugged in some estimates if bought now and sold on August 1st with the same IV (implied volatility) at different price points assuming it goes back to it's normal trading range of 50 - 60. Profit per contract (% gain in parentheses - divided by current ask price of 214) at different stock prices for BP.

50: 187 (87%) 55: 479 (224%) 60: 852 (400%)

The risk of losing the entire premium of 214 per contract by Jan 2011 doesn't seem to likely and the risk/reward ratio seems to be favorable.

I think the reference to the liberal media was tongue-in-cheek.

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