Closing Out My Long CCU/Short SIRI Trade

It’s time to close out my theoretical long CCU/short SIRI trade.

I proposed this trade almost two years ago, in December 2004.

Because of my investment in iBiquity, the creator of HD Radio, I’ve had a front row seat to watch the radio industry struggle with digital media. And struggle they have. But I felt back in December 2004 the same way I feel now. By using the Internet, podcasting, HD Radio, and a host of other digital technologies, radio can survive and even thrive.

So do a bunch of private equity investors who have agreed to pay $37.60 per share in a going private transaction for CCU. When that closes, my trade will close.

So how did I do? Not bad.

I suggested going long 15 shares of CCU at $33.92 and short 75 shares of SIRI at $6.90 so that the trade was zero cost out of pocket. If you close out the SIRI short at $4.05 (today’s price) and hold the CCU through to the closing of the buyout transaction at $37.60, the whole trade nets $268.95.

I believe the way you calculate the return on investment for a trade like this is look at the amount of capital you would have had to put up to cover the short position. I have no idea what that is but I assume its somewhere around 20% of the short position or roughly $100 according to a commenter it works out to a 24% annual rate of return.

So this trade nets a 24% rate of return over two years and a $268.95 profit. Not bad, but more importantly it shows that the prevailing wisdom in the winter of 2004 that satellite is the future of radio and terrestrial radio is dead was wrong. And it’s often quite profitable to bet on the prevailing wisdom being wrong.

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