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IndyMac, a $0 Stock?

Written By Brian Hicks

Posted July 8, 2008

In my last position at a competing company, I recommended a buy on IndyMac January 2009 20 puts.  And I wasn’t the only one that saw the coming IndyMac disaster.

Jim Cramer saw it, too.  I may not like the guy’s advice, but I have to give credit where it’s due.  I’m just happy his advice followed mine.

In fact, here was the actual letter I sent to former readers on July 31, 2007:

“A friend of mine just e-mailed me the following:

“Hello Ian, Cramer on CNBC just brutalized IMB, stating what you already told us.

The exposure to Alt-A isn’t over for them, and he feels their dividend is in jeopardy, even though they stated it was still in place. Cramer feels if they take the dividend off the table in the near future, IMB is toast.  He said to short it here, several weeks AFTER your call.  BRAVO!”

Thanks for sending that, my friend.

It’s just nice to see that people are finally catching on to something my team and I have been saying for quite a while.

We closed the second half of our IMB put position early today to protect out gains ahead of that $5 jump on an earnings call.  But once that dividend is pulled, the ballgame’s over for IMB. 

Since the $5+ gain on the day, the stock gave back all of its gains.  We see further breakdown to $17.50 over the next six to eight months… if not sooner.  Again, we see further downside.  We only closed the second half to protect out hard earned gains.

We’re again recommending a short on IMB with the IMB January 2009 20 puts (IMBMD).”

And we were spot on… these days the company has stopped accepting some loan submissions in the mortgage lending division, has plans to cut 3,800 jobs, and just announced that its Q2 loss would be wider than expected. 

In a shareholder letter, CEO Perry said the company is working with U.S. banking regulators who have “determined the company is no longer well capitalized and have asked it to submit a new business plan designed to improve its financial footing.”

But the news is good for us.  You see, 12 months after issuing a doom and gloom forecast on IMB, the stock now trades at less than a dollar, and has a new price target of $0.00.

That’s right… nada, zilch.

That also means that the option I had originally recommended (at the time it traded at $1.90) is now up 953% at about $20 in just 12 months.  And I’ve got at least 15 more examples of similar gains I had in my former option service.  

Good thing I’m launching a new options product shortly.