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Predicting the CHK common
While I am off in the direction up to the March 2016 bond repayment; I am NOT wrong on the final outcome for the company. CHK is bankrupt unless oil and gas prices rise a lot. And by a lot, I mean over $50/bar for oil and over $2.50/MCF for NG; and even then there is a question that CHK can survive. The only question at current prices is when, not if. Normal supply and demand would have allowed prices to rise long ago, except Saudi Arabia, Russia and Iran are in the middle of a trade war with each other plus Saudi Arabia wants to drive companies like CHK out of business and have the means to do so. Saudi Arabia will not allow the price of oil or gas to rise until after CHK is dead and buried.
Only a portion of CHK oil and gas is hedged, and even that is at level lower than what they were selling product for in 2015; meaning one can expect CHK to continue lose hundreds of millions of dollars per quarter in 2016 unless oil and gas prices rise.
People talk about WTI rising in price, but within the past week I can now buy gasoline at under $1.60/gal at three stations in my area; something that has not happened in years. While the WTI is up a little, it is not translating into prices at the pump, or for home heating oil (some companies in Central Mass list prices of $1.45/gal) and natural gas just touched a 17 year low ( http://www.cnbc.com/2016/03/02/natural-gas-crashes-as-japan-demand-wanes-australia-supply-takes-off.html ).
CHK will continue to turn in horrible quarterly numbers, and at some point, will run through all of its cash, drained its credit line, and be totally broke.
The whole idea that the former CEO dying is a 'great thing' because now the company can't suffer any losses from the bid rigging is at best misguided, and at worst unbelievable that anyone would think like this. The muppets, who had no idea three days ago that CHK was even involved in any bid price fixing, meaning it could not have had any effect on the common shares being down, now take it as a positive that this problem has gone away, except the problem is that the problem has not gone away. CHK is probably going to have to pay some kind of damages for the people that got ripped off on the bidding process since CHK was probably the company that benefited from the rigged bids.
In addition, while I did not bother to mention, there are articles mentioning, within the past few weeks, that CHK may have to post an additional few hundred million in collateral for some of the contracts they have in effect. While this should not kill the company, it is another indication that things are going to wrong way and another lose that will drag on the company.
10K listing additional collateral calls:
http://www.sec.gov/Archives/edgar/data/895126/000089512616000395/chk-20151231_10k.htm
Very smart CEO?
I hate to speak ill of the dead, but he got what he deserved. Aubrey McClendon ‘danced with the devil’ and when it came time to pay for what he had done, he took the coward's way out and decided to off himself instead of confessing to his crimes and trying to make amends.
His actions ripped off CHK, ripped off the shareholders, and stole from the owners of the land where he fixed the bidding on for oil and gas rights.
The reason the stock is up so much today is because people hope that with his death, CHK will not have to pay a large penalty for the illegal things that were done with the oil and gas bids. None of the news stories have mentioned that the fixed oil and gas bids must have been ones that CHK won, since who else would have been the winning bidder for the bids?
While he was a pioneer with his founding of CHK and the fracking method for extracting natural gas and oil, in later years it seems that he did everything possible to divert as much money to himself as possible at the cost of all other stakeholders; and now has left company that is in such bad shape that it may stager for a number of months, or maybe a few years, before it implodes taking the money of shareholders, bondholders and vendors.
Examples of the wreck less behavior and self dealing he did with CHK below.
Details wreck less gamble on margin on about $1 billion worth of company stock that CHK then voted him $100 million bonus so he could rebuild his fortune from company funds:
http://bizbeatblog.dallasnews.com/2013/01/chesapeake-ceo-aubrey-mcclendon-refused-to-see-his-self-dealing-ways.html/
Details of the self dealing he did where he took loans of $1 billion, sometimes even from companies doing business with CHK, to buy stakes in wells of CHK :
http://www.dallasnews.com/business/columnists/mitchell-schnurman/20130114-mitchell-schnurman-chesapeakes-chief-distraction.ece
On top of all of this and that, storage continues to fill up, as detailed in the below two graphics. As of right now, we are on track for storage being operationally full (80% of capacity) on June 17, 2016. While something like this has never happened before, I believe, it is not a good sign that we are still on track for this possibility.
If storage does fill up in this country, it is not going to matter what the spot price is since there will be no where to put the stuff; prices in the middle of the country would have to crash in order to entice everyone to take as much as possible to free up storage.
As a side note, I have suggested that to my friends that have oil to hold off on refilling their tank, if possible, with an eye towards seeing if the price crashes in June or July if storage fills up.
Louis J. Desy Jr.
Very little will be left for common shares
It looks like the common shares are getting some part of the new shares plus warrants.
The problem is that it looks like so little is left that I expect it to only be worth less than a penny from what I can tell. It looks like over 90%+ of the new equity is going to all of the other classes that are higher in priority.
There was a Jan 2016 operating report filed but it looks like the company is losing money still.
Louis J. Desy Jr.
Spot market higher price not showing up at pump
I expected that higher spot prices would effect the price of gasoline at the pump in going higher, but this morning I saw two local gas stations selling regular under $1.60. One station was at $1.57/gal and another one just a few miles down the road, was at $1.59. This is the lowest price for gasoline that I have seen in years, maybe more than a decade.
In the 10K, CHK mentioned that they have their production hedged at $47/barrel for oil and $2.50/MCF for NG.
If all of their production is hedged at those prices, it will not help CHK unless prices go above those marks.
Louis J. Desy Jr.
Activision Blizzard is partnered - ALL BS
Yea, what does that mean? It means we can con the muppets into piling into this con.
Activision just allows them to use the name of some games?
Whatever Activision is going to 'partner with', it looks like no money or assets will be involved.
NO MENTION OF ACTIVISION ACTUALLY PAYING FOR ANYTHING! ALL BS!
Does Activision even say they are going to partner with GG?
Louis J. Desy Jr.
When CMGO bought Good Gaming (GG)
So CMGO bought the company (GG) that his wife was the owner of?
That does not seem like an 'arms length deal'.
How did they make sure there was a proper valuation?
Louis J. Desy Jr.
Good Gaming prior owner, Barbara Laken
That is interesting. So how did she become to be 'the owner' of Good Gaming?
Somehow, I do not get the impression that she is the one that had the technical ability to program it.
Louis J. Desy Jr.
10Q/K filings, when will they be filed?
Any word on then the late quarterly reports will be filed?
Is anyone planning on asking this at the conference call?
Louis J. Desy Jr.
Why put wife in to HDSI?
Why wouldn't CMGO put in an officer from CMGO, why bother putting in the wife?
Nothing I found so far seems to indicate any kind of business experience or special capabilities to help with the business.
Louis J. Desy Jr.
HDSI annual report filed 02/17/16, new officers installed
HDSI finally paid up the owed business license fee and the company license is valid until November 2016, and listed new officers for the company.
One thing that I found surprising with the annual report filing is that the officers are Vikram Grover as President and Treasurer plus the other officer is Barbara Laken as a Director and Secretary. I expected that someone with CMGO would be the officers and directors of HDSI.
I do not see much of anything interesting on the new officers, so far, but I have not looked that much.
The only interesting news item I could find about Barbara Laken, from a quick search, is that her mother, Florence Banta, was involved in a tragic accident at the age of 80 by falling down a trash shute in her building. The worst part of the accident is that, according to the newspaper accounts, that accident was the second time something like that happened at her mother's building. A similar accident took place about a year before, so there was a chance to fixed the problem before it happened again.
http://articles.chicagotribune.com/2013-04-02/news/chi-gold-coast-tash-chute-fall-neighborhood-20130401_1_trash-chute-garbage-chutes-chute-door
http://www.nydailynews.com/news/national/elderly-chicago-woman-found-dead-bottom-trash-chute-article-1.1306166
Vikram Grover is listed as an investment adviser with the SEC. The register as an investment adviser or broker was until 07/2015, so it looks like he does not work at the moment, as a broker or a SEC registered investment adviser.
http://www.adviserinfo.sec.gov/IAPD/Individual/2525942
He use to be registered with Source Capital Group in Chicago, IL from 2006 to 2015 as an investment adviser, and another section of the report lists him as still working there. He passed the series 63 exam according to the report. The report also lists he worked at Merriman Curham Ford and Company in 2006; plus currently has 150,000 stock options with a strike price of $0.07 for Infrax Systems Inc. (According to the Dec 31, 2015 10Q report, Infrax Systems seems to have no revenue, is trading at $0.0001 with an average of only 6 million shares per day for the last 30 days trading or $600 worth of stock, cash is negative $53, equity is negative $641K. It looks like the company is dead since liabilities are far higher than assets and there is no revenue.)
Louis J. Desy Jr.
Own research?
By research, do you mean objective facts, professional opinions and financial statements OR do you mean 'feelings'?
I do not see many people here citing to any objective facts. I have had to go to other sources for objective information. Somehow people seem to think that a company losing hundreds of millions of dollars per quarter is something to promote to the others as suitable for retirement accounts. Frankly, I am appalled at how anyone could recommend this with oil and gas prices so low.
Louis J. Desy Jr.
Negative? I think its positive!
I think CHK is doing great based on the 10K report. I mean look at the fantastic numbers they are turning out. They lost $14B last year, suspended the dividend on the preferred, are selling off all kinds of assets in order to meet the March 2016 bond redemption plus they have the opportunity to buy their debt back at a large discount because it looks like they will never be able to pay it off from profits, and they only used a mere $934 million in cash for the quarter. What is there not to like about CHK?
I am going fill my retirement plan with CHK common shares!
On top of that, if they hurry up and draw down the entire credit of $4B they can be floating in cash and stick the bank with every thing, such as how well things are going.
I think the company is doing a fantastic job. If they keep those number up in 2016, maybe they will lose only $8B in 2016 and even make it into 2017 with all kinds of debt and no assets that are worth anything.
The funny thing, is that when (not if) this mess finally goes 'belly up', there will be all kinds of 'how could this ever have happened' or 'I don't see what was wrong'; like one needed to be Nostradamus to see what the outcome was going to be.
Louis J. Desy Jr.
A loss on paper?
Don't you think that if equity ends up being negative one or two billion, that it might to start to become a problem for the common shares?
The assets sold off were bought when prices were a lot higher, and the expectation was that the higher profit would be able to service the debt, now the assets are sold off when prices are much lower.
Now all kinds of assets are being sold off, leaving most of the debt behind, with no signs of the company being able to break even.
There is also a problem with the borrowing base renewal on April 1, 2016. While I didn't like the whole idea of CHK using the credit line to pay off the bonds, I think it is possible that the credit line was not used because CHK does do not expect it to be available after that date.
IF the assets were sold for a profit, then I am wrong; but I do not see how it is possible for assets bought when oil was much higher and borrowed against based on that price, could have possibly sold for a profit.
I still think the company is not making a mistake by not filing for BK and is just dragging things out with the result that many of the people involved are just going to loss all kinds of money.
Right now a liquidation of the company would have a chance of making most stakeholders whole, and maybe even something left for the common shares, assuming CHK can get book value for the assets. Running everything into the ground until all of the equity is gone and sticking losses onto a number of the liabilities classes, in a bankruptcy, is just irrational, and helps no one.
Louis J. Desy Jr.
Lack of information on asset sales
So far CHK has released information about the assets sold, or are scheduled to be sold, but nothing about what was the cost basis for the assets sold off.
At some point an 8K report should be filed that will detail if there was a gain or loss on the sales, and how much.
I think it is troubling that CHK would release information that a sale took place, but not disclose if there was a gain or loss on the sales. For the amount of money involved the gain or loss could be important.
Louis J. Desy Jr.
Let it fail? I would expect they would give it a push
Why bother to JV when they can all let it fall into the abyss, or even worse, give it a little push over the edge?
While the stories are saying that CHK has sold off enough assets to avoid using the credit line to repay the March 2016 bonds, there is no word on if there was a gain or loss on the sale and by how much.
With prices the way they are, I would expect a loss on the sale of the assets.
Louis J. Desy Jr.
The company is still burning cash
When the company runs through the $4B credit line, and can't sell anything and has out of cash, it will be over.
The company may have already burned through the several hundred million this quarter, and most definitely can't pay off the March 2016 bonds and pay operations without drawing on the credit line.
I still find it amazing that the bank would be willing to let CHK draw on the credit line, since without any profits, CHK can never repay the money.
Louis J. Desy Jr.
Doing OK? You're kidding, right?
They had another $2B+ in write offs for the quarter?
For the full year they lost over $14B.
They are going to have to draw on the credit line in order to pay off the bonds and keep operating. They are selling assets, for probably large losses since oil and gas prices are down, to get cash. It would be like ripping up wood from the floors and walls of a house to keep it heated and telling everyone that you are not having any financial problems.
How in the world is that doing ok?
Louis J. Desy Jr.
10K report for 2015, not all bad
The good part is that equity was not wiped out with write offs, as I had expected.
http://www.chk.com/media/news/press-releases/Chesapeake+Energy+Corporation+Provides+2016+Guidance+And+Reports+2015+Full+Year+And+Fourth+Quarter+Financial+And+Operational+Results+2+24+2016+
https://finance.yahoo.com/news/going-bad-worse-chesapeake-124614397.html
The bad is that the cash level is a little lower than I expected, with a little over half of the cash 09-30-2015 spent. This is somewhat in line with my earlier posts in that I expect the $1.7 billion in cash from 09-30-2015 to be gone by the end of Q1 2016. (I expect that the line of credit or asset sales will provide cash after 03-31-2016 to keep the company in business.)
While the results are not as bad as I thought they would be, since equity is still positive, the cash is being spent at a slightly higher rate than I expected, which is as bad.
Louis J. Desy Jr.
Bad news baked in? Going up? Cash?
Iran put out a statement it it won't go along with the cap, that was going to be a freeze at a surplus level of production. We are coming off on one of the warmest winters in recent memory where it was 50F in central Massachusetts on Christmas Day with many days in the 40s and even as high as 50f. Today is expect to be in the 40s and tomorrow 50F, and it is not even March yet. In a matter of a few months storage for gas and oil are expected to be at 80% of capacity, which is considered to be operationally full, since not all of the blends can be mixed and the extra space is needed to allow room to shuffle and transport the blends throughout the system. (At current trends this is expected to happen sometime in June or July 2016. If that happens prices for both oil and gas will crash since there will be no where to put the stuff.)
The entire cash showing from Q3 2015 is expected to be gone at the rate CHK was burning cash in the prior quarters, plus even with the earnings release we will not know how much of whatever was left of cash on Dec 31, 2015 has been spent in the almost two months since then plus the March 15, 2016 bond maturity has to be paid by borrowing on the credit line, providing the bank will allow it.
NG prices were low through the winter and lower now, and both oil and gas are below break even, meaning that BK is just a matter of when, not if.
On top of that, the sentiment the last few days is that CHK might be bought out! This is in spite of the company losing hundreds of millions per quarter and having write offs in the range of $4+ in Q2 and Q3 of 2015, which I expect to continue as leases can not be drilled with prices so low.
If there was any rational reason to think that CHK was going to recover, I would buy the bonds and maybe the preferred (which had its dividend suspended but is cumulative and accrues), but CHK is not going to recover with prices so low.
Louis J. Desy Jr.
Disclosure: I own CHK put options.
Iran and freeze
So much for the freeze at levels that still would have had one to two million barrels per day surplus.
Is this a bad sign?
Louis J. Desy Jr.
Watch, it is going to blow up
At some point, the stock is going to blow up and sink. IF the company was making money, it would be an opportunity to buy more shares at a lower price. Here, when the blow up happens, the muppets are going to have to decide how much they are going to lose.
I have no objections to people promoting this as a trade, but I do object to people pushing the fairy tale that the company is going to make it.
The only way the company can survive is if oil and gas prices rise by over 50% from where they are now (Oil over $40/barrel and NG over $2.50). As long as the prices are below those break even points, it is just a question of when, not if, CHK files for BK.
I think that the seekingalpha article suggesting a buyout for CHK is irresponsible journalism. Why in the world would anyone with the money to buy CHK, save them when there are all kinds of assets from other BK companies on the market?
A company that wanted BK could just buy the credit line at a discount and then use the credit line to 'push' them in BK in a matter of months OR buy the senior bond series. There would be no need to buy the company and assume the $10B+ in liabilities, when for $1B or less you can buy a bond issue that will end up with it all OR wait for the BK.
One interesting possibility for a large company, like XOM, is just keep production of NG high and wait for CHK to file, buy the assets and then reduce production to a normal level, it would cost but it would probably be cheaper than assuming $10B+ of liabilities.
Tomorrow at 9am EST we will see if the company has a chance or not with the earnings call.
Louis J. Desy Jr.
Two year Oil and Gas charts
Here are the oil and gas two year charts. As you can see, both are in a down trend.
A little 'blip' up isn't going to change anything, and there is only so much cost cutting that can be done. I think large parts of the write offs were from leases expiring due to prices being too low to drill on the land.
On top of that, most of CHK production if NG, not oil. While a price move up in oil helps, it doesn't fix anything if NG goes down by the same percentage or worse, a decline in NG prices more than offsets the price increase in oil.
I think the muppets are going to be confused with the Q4 2015, Q1 2016 and Q2 2016 earnings releases as they buy in on the price rise in oil, but NG causes the company to continue its string of bad results.
Louis J. Desy Jr.
Two year oil prices:
Two year gas prices:
Trying to save you? I hope it goes to $100!
That is not what is going on, either you want to face the reality of the situation or pretend that everything is ok in spite of months of terrible financial results.
Tomorrow is the earnings release. It seems that anyone who really wanted to see how the company was doing and if it 'turned the corner' in this downturn, should wait and see what happened Q4 2015.
Instead, people are piling in like this is the next great thing on a small rise in oil prices, that are still too low to turn a profit.
The trader side of me wants CHK to go to $100, then I can buy Jan 2018 put options that will make all kinds of money when the company goes bust and the common shares are all canceled.
Louis J. Desy Jr.
God Bless the muppets
I am sure CHK will go higher today, there is no shortage of people that have no idea what the financials are like or what to realistically expect in tomorrows earnings release.
Oil is in the $30s, and the muppets are all excited that somehow everything is going to be all right, even as the company prepares to pay off debt by borrowing against other debt. (March 2016 bonds paid off with bank credit line, if the bank allows it. As a point of reference, I can't beleive the bank is idiotic enought to allow this or that some bank regulator would not get involved and tell the bank they wouldn't allow it. zerogedge recently ran a story that some banks were trying to sell off thier exposure on some credit lines and having to take discounts to get it sold, meaning no one expects the credit line will ever get paid in full)
I just took a look at a two year chart for oil. CHK lost all kinds of money in 2015 and oil was a high as $60, so oil prices need to be higher than $60 in order for CHK to have a chance at break even but we have the retail market piling in because they think everything is ok now. On top of that, most of CHK is NG, which is in a multiyear oversupply, and with going into the spring season, will have more pressure put on prices.
In spite of all of this, I expect the muppets will continue to pile in since they seem to be buying into anything oil related.
Louis J. Desy Jr.
Up 21% on buyout article
Apparently, the reason given for the surge in price is a seekingalpha article that speculated on the possibility of a buyout:
http://seekingalpha.com/article/3916446-chesapeake-energy-prime-takeout-candidate
The author even started off the article with a bullet point of:
What a wonderful opportunity
Just what I would want, the opportunity to play a version of musical chairs, with the chairs being the cash and bank lines of credit available; hoping that I get out before they run out of cash and file for BK.
Louis J. Desy Jr.
You're sleeply
You should take a nap. I'll wake you went the BK is announced. It may be a while since the bank, at the moment, appears to be willing to allow bonds to be made whole at their expense.
Louis J. Desy Jr.
Shortys hold from $15
Shorty isn't going to be effected. It was only months ago that this was around $15.
Any rally is being driven by retail thinking the rise in oil to $35 is going to save CHK.
I am glad to see the price going up, it make the purchase of Jan 2017 or 2018 puts less expensive.
Louis J Desy Jr.
Using the line of credit changes nothing
Using the line of credit to pay off bonds is like making your visa credit card payment by charging onto your Mastercard because you don't have any money.
The only people who benefit are the bond holders who probably would have taken a large loss in a bankruptcy.
I believe it is possible that the bank will not permit the line of credit to be drawn down to pay the bonds since why would the bank want to get stuck with all kinds of assets that are probably generating negative EBITDA?
Even with the bonds paid off, losses have continued since the last 10Q report of Sept 30, 2015; and will continue.
While oil and gas prices are up from their lows, it is not enough to stop the quarterly losses, and as the hedges expire and the undrilled leases expire, the write offs will continue each quarter.
At this point I would consider it a miracle if CHK equity did not become negative for the quarter ending Dec 31, 2015 since I am expecting the losses of the prior few quarters of $4B or $5B per quarter to continue.
Louis J. Desy Jr.
Stock offering won't work for CHK
No one is going to buy common shares from a secondary offering in a company that can't pay its bonds or preferred shares dividends. At this point the common shares are nothing more than a call option on the price of oil and gas going up before the company fails.
If someone really wanted to buy the assets, they could buy into one of the more senior debt series or offer DIP financing for a Chapter 11 financing.
If stockholders equity is still positive for the next report, CHK may have a very small chance of making it, but I am expecting all kinds of write offs and equity to be wiped out. At that point the credit line will be in danger of being pulled or not usable.
Louis J. Desy Jr.
CHK may not be allowed to use the credit line
While the Fed has guided banks to not put energy companies into bankruptcy, the Fed also does not want to see the banks extending more loans to dead companies. Some companies are so bad off that EBITDA is negative.
http://www.zerohedge.com/news/2016-02-21/us-government-breathing-down-neck-large-banks-limit-their-energy-exposure
It was not very good PR
I would have expected that if Ican had paid for it, that Cramer would have been more certain about CHK not going bankrupt. Instead, he seemed to be unwilling to say that CHK is going to be all right, which, if anyone sees his show on CNBC Mad Money, knows that Cramer is usually favorable towards most companies.
Here the best Cramer did was to mention another bond series maturing next year without saying if he thought CHK could 'make it' or not.
Most damning statement in my view was Cramer's statement, "They are doing the best they can". That was not exactly a ringing endorsement that the company is going to make it or be around in a year years.
Louis J. Desy Jr.
Cramer doesn't think bankruptcy is likely
http://www.thestreet.com/story/13463730/1/jim-cramer-chesapeake-energy-chk-is-doing-their-best-bankruptcy-unlikely.html?puc=yahoo&cm_ven=YAHOO
Carl Ichan and CHK holdings
When I first heard that he bought a large stake in CHK I was baffled. Either he sees something I don't, or he is just 'playing the odds' with multiple investments or doesn't know the numbers. My view at this time is that he did not understand how bad the oil and gas market could get and wa taken by surprise like everyone else.
I am starting to think that maybe there could be something else going on, like he has a bunch of CDS and wants the stake to help 'time' a BK filing; sort of a replay with what some people say happened over at RSHCQ where some people allege the hedge fund needlessly delayed the filing for BK until their CDS they had written had expired .
Louis J. Desy Jr.
Bond holder trustees are not going to wait beyond
The trustees for those bond holders are not going to wait a minute longer than they have to, to get their money. They are not in business 'to be nice', they are there to get their money when it is owed. ( *U, PAY ME! )
If SDOC does not pay the deferred interest prior to the end of the 30 days, the bond trustee will be under a legal obligation to take action. I expect they will do it the minute the grace period is over.
Louis J. Desy Jr.
Interest on deferred payment - $13,562.50
$21.7 million interest payment deferred
X 0.75% annual interest rate on money market account
X 1/12 since only for only month
Equals $13,562.50
Louis J. Desy Jr.
Taking advantage of a perk?
I find it hard to believe that anyone who was looking forward to the bond interest showing up in their brokerage account thought this way. I imagine the bondholders would feel cheated and be angry at what the company has done. The company can't, or won't, pay $21 million in interest but did have all kinds of money to buy new oil rights late 2015?
Anyone who owed the effected bonds was expecting to get paid, not to find out that the company decided to 'delay' the payment 30 days and that it is a 'perk' of their money.
I put delay in quotes because if the company files for bankruptcy it will be months before the effected bonds will see anything since the proceedings will take so long. It is possible the effected bondholders will never see the interest money.
Louis J. Desy Jr.
Re-negotiating the debt
The problem is that SDOC (and other companies like CHK) have been trying to renegotiate the debt for months now. I do not expect there is be any real meaningful change after all of this time. If anyone was going to agree to something, I would have expected that months would have been enough time to do it.
Louis J. Desy Jr.
Better entry?
There is no such thing as a better entry for SDOC.
Bankruptcy and the cancelling of the common and preferred shares is only a question of when, not if.
I do wish the stock would go up to a few dollars, then I could buy Jan 2017 put options and wait. Right now the options are not trading. Some have a ask price higher than the strike.
Louis J. Desy Jr.