Power To The Elbow

I am long RILY. I have sold puts that are in the money. I intend to roll them out and down until they become out of the money and expire worthless. The puts are fully funded with available cash so there is not any liquidity risk or potential margin calls. If I am assigned, I will replicate the earlier position by selling the shares and corresponding puts. This strategy should work as long as RILY continues to be a publicly traded company. Hence the title of this post, Is RILY going to zero?

RILY is the most heavily shorted security on the market. I can’t blame anyone for thinking that shorting this company is a good idea. First off, it has worked! The stock price has gone from the $40s to $5.78. Why, you ask. There are so many reasons.

1. RILY did not file their most recent 10-Q. 
2. They are facing major debt maturity starting in 2025 and 2026. 
3. A subsidiary they recently invested in is facing bankruptcy leading to rather large mark-to-market write-offs on their balance sheet. 
4. There are allegations of fraud surrounding a new banking relationship. 
5. RILY just stopped paying its dividend alienating a large contingent of their investor base. 
6. This is a hard business to understand and model which leads to investor confusion and wariness.
7. The founder and majority stockholder offered to take the company private at $7. This would be an amazing deal for him. Many shorts argue that it has put a ceiling on the stock’s price. Others have argued that it would be a floor. With the stock now at $5.75, the ceiling camp appears to be temporarily correct.

For my purposes I just need RILY to continue to be a going concern and publicly traded. It would help tremendously if the price appreciated. I am not counting on it given the list of headwinds they are facing, .

So now that you understand the background, I will ask again. What would cause RILY to go to zero?

1. RILY could be delisted from the NASDAQ for failing to file their financial statements.
2. RILY could file for bankruptcy because they can’t meet their debt obligations.
3. RILY could be taken private at $7.

In my next three posts I will dive deep into each of these three concerns. Subscribe to get automatically notified when those posts are made.

What have I missed? Comment below or send me an email. I look at everything!