TRADE: InterActiveCorp Inc. (IAC) Short Put
December 7, 2022
Ticker: IAC
TRADE INSTRUCTIONS
Sell to Open IAC Jan 20 2023 $45.0 PUT (not the Call!)
Aim for a NET CREDIT of $2.0 to $2.5 per contract (you will receive between $200 and $250 in option premium as income into your account).
Keep in mind that you need will to have around $4,300 in cash or the equivalent in margin available on your account per contract that you sell prior to making this trade.
Our ultimate goal is to acquire the stock at or below $45. Market volatility and weakness in IAC’s stock price are providing us a terrific opportunity to get the stock close to its 52 week lows.
This is how the trade looks on Fidelity’s platform, but the order should appear similar regardless of which brokerage you are using.
INVESTMENT RECAP
IAC Current Price: $48.53
Market Cap: $4.7 Billion
Stock Price Target: $77
Upside: +58%
- IAC’s stock price has stumbled significantly this year, down around -64% so far YTD. It has weakened over the past few days, and is now trading only around 11% above its 52 week low.
- IAC is a classic Sum of the Parts (SOTP) situation, as it has historically monetized its portfolio companies at compelling valuations. As a deep value play, it will also serve an important diversification role in the SSI: Ultra portfolio.
- Its most recognizable portfolio companies today are Dotdash Meredith, Angi (85% ownership), Care.com and MGM Resorts (15%). While not terribly exciting in terms of name recognition or absolute growth potential, they are free cash flow generating and extremely likely to command higher multiples as potential spinoffs, once private and public equity markets recover from the current malaise.
- At current price levels around $45, IAC is undervalued. Rich will publish a more detailed write-up, but he thinks it’s conservatively worth $77. Here is his SOTP model:
- One of the company’s prominent directors, Michael Eisner (the former CEO of Disney), recently bought an additional $5 Million worth of the stock, tripling his position in IAC. His cost basis was right around $47, so our cost will be significantly below those levels if we were to get put the stock.
- Recent survey of 14 Wall Street Analysts covering the stock is constructive, showing an average price target of $84, or roughly 75% upside potential.
TRADE PROFILE
For a more in-depth discussion of each of these ratings, please visit the Trade Ratings Guide page here.
TRADE DETAILS
We are going back to the short put playbook that we previously used with TSVT, with the intention of ultimately purchasing the stock at $45 or lower. Based on Rich’s SOTP analysis, we think this is a great price to pay for a company with the proven track record for shareholder value creation of IAC.
RISKS
Just as a reminder: Expect that there will be periods where the stock price might be below our strike, sometimes by a substantial amount. Until we allow the put to be exercised, we should look at these periods as opportunities, because they provide us with additional chances to earn more premium income, and thus, opportunities to lower our final IAC acquisition cost.
Risk to the Downside: The total amount at risk is going to be around ~$4,300 per contract (counting the premium we receive from selling the put). That’s the MOST cash that we can lose in this trade, if the stock price declines to zero. Also, keep in mind that this is the highest priced stock that we have written options on in the portfolio to date. If you do not currently have the cash to support the exercise of the put, just be aware of any impact on the margin balances in your trading account.
Risk to the Upside: None. Once again, if the stock price is above $45 at expiration in a little over 6 weeks, we have the option to simply let the option expire and pocket the premium cash for a respectable +5% return (or ~40% annualized).
Anyways, good luck to everyone and let us know your thoughts via email or on the Discord channel!
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