We have information the stock analysts don't have: Absent the sort of changes that would make it just another small bank, LC is going to fail as a lending platform.
If you'd like to place a bet, you can set up a synthetic short all the way out to January 17, 2020.
Buy the $4.50 strike put for $1.40.
Sell the $4.50 strike call for $1.48.
Thus you take an $0.08 credit to enter a trade that moves the opposite of LC stock (over time, not immediately/daily). LC is already down 21% YTD.
Wait two years for this house of cards company to tumble, or cash out at the next earnings release. Your breakeven is $4.58, which is 8% higher than today's price.
Best of all, this is portfolio insurance. If the broader stock market declines, speculative companies like LC will get hit hard and your synthetic short will make up for some of your other losses. With this synthetic short, your leverage is about 3:1 on a company that is 60% more volatile/risky than the market.
I'm checking in on the performance of my synthetic short idea from December 6th.
Last put price 1.55
Last call price 0.91
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Current profit: 0.64
Assuming you had to deposit 100% margin ($4.50/share) for the short call, that's an ROI of 14.2% since December 6th. Multiply by roughly three to annualize that! Interestingly, most of the profit came from deterioration of the call.
Today the call is worth 0.53 and the put is worth 1.45. Factor in the 0.08 received upfront to enter the trade and you'd be up $1 per share. In that time, the share price dropped about 84 cents.
It might still be a good deal to short LC. Options expiring in 2021 are now available, plus several reliable recession indicators are now in the red zone. However, someone might still acquire LC for a premium. High risks and high rewards...
Time to check the progress of this synthetic short idea. Since my last update LC did a one-for-five reverse split to prop up their stock price, so the options are now “non-standard” and represent 20 shares instead of 100. For comparison, I will multiply the usually quoted option price per share by 20 and compare it to the value of the entry position which is multiplied by 100.
Original idea:
Buy a put for 100 shares at 4.50 strike for $140
Sell a call for 100 shares at 4.50 strike for $148
———-
Net: +$8
Current value:
Sell a put for 20 shares at (1.68 x 20=) $33.6
Buy a call for 20 shares at (0.025 x 20=) $0.50
———
Net: +$33.10
Total return excluding commissions is +$33.1 + $8 original credit = $41.10
If I held this position I would have long ago rolled it closer to the money and to a later expiration. The reverse split and time decay have already knocked it down almost 77% since my last check in. The bleeding of time value is very high for far-OTM options nearing expiration such as these, and the liquidity of the non-standard options might get worse.
Still, this company with its horrible product still has a unicorn market cap of $1.21 BILLION. Half of that valuation will evaporate if either of the following happens next year:
1) a correction in which LC debt becomes more toxic than 2008-era NINJA mortgages, or
2) no correction and business as usual.
A short position in LC remains a compelling way to offset portfolio market beta while maintaining a chance for the appreciation of one’s hedge even if the market does go up (as would have worked in 2017 & 2018). This is offset by the risk of some fool buying LC for a premium, a change of leadership/strategy, or the issuance of a cryptocurrency by LC). Entering a bear spread would be a way to profit from LC’s probable decline while limiting risk.
