As of Friday’s close, Short Screen showed an Altman Z”-Score of -0.13 for Trico Marine Services (Nasdaq: TRMA) and an Altman Z”-score of 9 for Oceaneering International (NYSE: OII). Recall that Z”-scores below 1.1 indicate financial distress and risk of bankruptcy, and scores above 2.6 indicate financial strength (scores in between are in the gray zone). Today I shorted TRMA at $5.31 per share and bought an equivalent dollar amount of OII at $64.70 per share.

I had a sell stop limit order on the OII, and when it hit within a couple of weeks, I went ahead and covered the short of TRMA, as I mentioned on the Short Screen message boards at the time. I netted a small gain on the pairs trade (6.5%), but, in hindsight, I would have been a lot better off letting both positions ride. See the graph below.

TRMA versus OII

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The Short Screen bear on the hunt.

Effective as soon as my developers implement the changes (most likely, within the next day or two), the premium membership fee on Short Screen is going up from $14 per month to $30 per month for new members. Current members will be grandfathered and continue paying their current membership fee.

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Sorry for the paucity of posts here recently. I was thinking of buying another speculative stock this week, but held off on that, so I didn’t post about it. Perhaps I will add a short post on it anyway. In the meantime, I did leave a few comments about hedging and shorting in this thread on GuruFocus this week, if you’d like to check them out.

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In an attempt to limit my risk, when I shorted BEXP I had set a stop limit buy order with the limit price a little less than 10% above the price where I shorted the stock. BEXP shot through my limit price in after hours trading that Monday and made a new intra-day 52-week high the next day, trading as high as $15.80¹. Looking back at the last time the company announced positive drilling results (on 1/5), I noticed that it had spiked up in price on the news, only to give back those gains a few days later. So I figured I’d let the stock settle down a bit before covering.

Later last week, I got a little greedy and canceled my stop limit order, thinking general market weakness might give me a second chance to make money on this short before the company announced additional positive drilling results. Last night, I thought better of that and entered a new limit order. I covered BEXP today at $14.35 for a 9.5% loss. USEG is up 7.9% since I shorted BEXP, so had this been an actual pairs trade (had I bought USEG at the same time², and sold it today) it would have been for a 1.6% loss.

¹This highlights a limitation (no pun intended) of limit orders: you have no assurance of getting them filled at your limit price or better; only options guarantee you the right to buy or sell a security at a specified price.

²I first bought USEG about a year and a half ago, at $2.85. I bought more later in the $2.70s, making my average cost about $2.80.

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