NFI or NEW? You Choose

I have been tracking the subprime lenders too long now. By that I mean I should have been putting/shorting these troubled companies a long time ago. Oh well, such is life as the saying goes always a day late and a dollar short.

Well maybe not this time. As of 2/9/07, Morningstar just posted a fair value valuation on NFI and NEW of "BANKRUPTCY". Yes that's not a typo.

Here's two reports to chew on that probably will be a negative going forward for these two bad boys. NFI Judge certifies class in suit against NovaStar bizjournals.com (Fri, Feb 9)

And, Subprime Lenders Face Challenging Market at Forbes.com (Fri, Feb 9)

So what will I do about it. Unfortunately, the bad news is being baked in to the stock price but I think there's more bite than bark to the downside. I'll wait for a rally of sorts if any and then look for an entry in either one. Even with extremely high IV, there is now lack of sharkbait.

I might take a bite at the NEW Mar 12.50 Puts currently trading around $0.65 with over double the option volume to open interest or the Mar 10 Puts with over 6 times OV to OI (already released earnings 2/8/07). Or the NFI Mar 12.50 Puts at 1.10 or Mar 10 Puts at .50 (next earnings 3/5/07).

Remember this is a deeply speculative play because any hint of good news could propel this stock higher.

Stay tuned...