I have been squeezed on my short position in Firsthand Technology Value Fund (SVVC). Av entry $26, av sell $29, I now have a small position. I was short in size, that's what really hurt me. I thought the upside was very limited, but my thinking was wrong.
The catalyst that sparked the dramatic stock price run-up was the disclosure that SVVC has bought Facebook shares. Before this disclosure, SVVC was a sleepy closed end technology fund, holding largely cash and trading at a 35%+ discount to book vale (BV).
On 31st December SVVC had a book value of $84m. The current mkt cap is 97m a whopping 15% premium. A closed end fund normally trades at a 10-20% discount, $19-$22 would be reasonable share price for SVVC.
Given Facebook (FB) only represented a small portion of the portfolio (10% approx), this for me was a short at $25.
The game changer came at the start of the month when SVVC announced they had doubled their FB holding. I shorted more on this, this was stupid, this was great catalyst for a long entry. FB is one of the most anticipated IPO's in history, demand for stock will be huge and the only option for retail shareholders to get a guaranteed piece of the action before the float is SVVC - an illiquid micro cap!
Even slapping on a 30% premium to SVVC's FB holding (this giving FB a $130b valuation), the current share price is still at a 7% premium to BV. If SVVC double their FB holding again this takes BV to the current share price ($29). In this instance this extremely illiquid stock could explode up to the mid to high 30's. This would create a phenomenal short opportunity. Once FB goes public, there is no reason to own SVVC stock at a premium. Post FB IPO, SVVC will track back to the low $20's.
Open Trades Short
AMPE, HUSA (April $7.5 puts), NGSX, SVVC, GMLP
Open Trades Long
PLX (May $5 calls), VXX