Summary
- Altria bears are relatively rare on Seeking Alpha, but Biotech Beast made a short case against the company recently.
- His short case was based in part on declines of traditional cigarette sales and regulatory challenges related to e-cigarettes.
- My site is currently bullish on Altria, but I present ways Altria shareholders can stay long but limit their risk in the event Biotech Beast's bear case comes to pass.
- Looking for more? I update all of my investing ideas and strategies to members of Bulletproof Investing. Get started today »
A reproduction of a sign by Altria's Philip Morris brand (photo via Reedyville Goods).
Biotech Beast Is An Altria Bear
In a recent article ("Altria Becomes An Even More Compelling Short"), Seeking Alpha contributor Biotech Beast made a short case for Altria (MO) based in part on declining sales of traditional cigarettes and new regulatory obstacles to e-cigarettes. In this, Biotech Beast has taken a brave stand, as most Seeking Alpha contributors, including this author, are bullish on Altria.
Screen capture via Seeking Alpha.
In the event Biotech Beast is right, and most of the rest of us are wrong, below are ways that cautious Altria bulls can stay long while strictly limiting their downside risk.
Downside Protection For Altria
Up until recently when I've posted hedges for securities, I've used expiration dates approximately six months out. That's been Portfolio Armor's default for years, partly out of convenience for investors and partly for the reason, Riskalyze CEO Aaron Klein explained here: Investors seem to be better able to conceptualize risk over six-month periods than longer ones. That's still Portfolio Armor's default, but we've just added a new feature that lets users select their own expiration dates.
This raises an interesting question: What's the cheaper way to hedge if you adjust for the different times to expiration? To enable an apples-to-apples comparison, I've highlighted the annualized cost of each MO hedge below, two of which expire in early August (shortly after Altria's scheduled earnings release at the end of this month) and two of which expire in January. Each of these hedges is designed for an investor unwilling to risk a decline of more than 20% in his MO shares.
