The education sector belongs to what I called the "fraud" category when it comes to candidates for shorts. Other could be a poor or obsolete business model and blalance sheet that is too highly leverage especially current possible credit squeeze.
EDMC is a new candidate identified for a short trade.
While you could make essentially the same arguments against the enter for-profit education sector, EDMC seems to stand out.Its employees are its accusers.
Recently, there is a lawsuit against the company that alleges false statements to qualify for the Pell program totaling $11 billion. Additionally, the lawsuits alleges the company structured its compensation program for recruiters based on the number of new students enrolled, which if true, would make the company ineligible for the PELL program. The accusations were filed by two ex employees.
Trade
If EDMC trades below $17.7 on Monday, I will enter a bearish trade. I will post separately on the trade. If not I will wait for it to show some reversal signals like a candle stick reversal or the stock hitting some resistance.
If it moves up on Monday, it is not time to enter the trade.
Update: Aug 15 2011 - Monday
EDMC moved down today. According to plan, I enter the trade:
STO 1000 shares 17.35
STO Sept 12.5 SP .75
This is a synthetic put.
PE: Let the short SP be assigned for a profit of 35% by september expiration.
If very bearish, may decide to roll the put down
SE: If stock moves above 18 - either add 18 call > 45 days or get out of the trade.
Update August 18th
I was notified by my broker that I have to buy back my stock as they could not borrow security to short the counter.
BTC 1000 shares @ 16.339
BTC Sept 12.5 SP @ .7
Profit = $1351 for 1500 shares or 5.23 % for a 3 days trade.
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