This is the third post in a new series that we publish mid-month for InsideArbitrage Premium and InsideArbitrage Plus subscribers. These posts will contain updates related to the model portfolio (if any) or a new quick idea. This month we are going to focus on a busted deal that looks attractive despite the deal failure. In our last mid-month article titled A Time For Caution, we highlighted the need to start scaling back long exposure and/or hedging parts of the portfolio. We wrote the following last month,
While attempting to time the market may be futile, it may be prudent to adjust the risk profile of the portfolio while the exits are still open and either scale back positions or add protection through put options. I have started scaling back positions in my personal portfolio and will be buying put options on an ETF that is the poster child of this bubble. I am also going to sell half our position in the flooring products company Mohawk Industries (MHK) from the model portfolio and register a gain of 102.14% on the position since we wrote about it for the May 2020 newsletter. While I still like the company, with input costs rising, supply chain issues and the housing frenzy cooling off thanks to higher interest rates, the prospects for the company have dimmed a little.