Stock Option Advisory

Auditors: Going Concern for Option Investors

Public companies residing in the U.S. are required to be audited by independent auditors. U.S. public companies must also file an annual report with the SEC (Securities and Exchange Commission), generally known as a 10-K. In each 10-K there is a section entitled “Report of Independent Registered Public Accounting Firm” outlining the opinion of the auditor concerning the status of the company. Most of the time this section simply says something like: “Corporation maintained effective internal control over financial reporting” and some other miscellaneous information.

However, when a company is in potential danger, the auditor section may say: “these conditions raise substantial doubt about the Company’s ability to continue as a going concern“. When this statement is contained in the auditor report, investing in a long position in the company potentially could result in a disaster, for example in the event of bankruptcy. For short option investors: stock option put, bear call spreads, etc. the resulting outcome could yield a large reward, but could also end in disaster, in the event company is acquired by another company, is able to receive needed financing, or is able to turn the company around, for example.

Below is a current list of the companies with optionable stocks having negative statements concerning their ability to continue as a “going concern”:

Ticker Company Name
BCGI Boston Comms. Group Inc.
BKHM Bookham Inc.
CYTO Cytogen Corp.
EMIS Emisphere Technologies Inc.
ENER Energy Conversion Devices Inc.
EPCT EpiCept Corp.
ETR Entergy Corp.
GNTA Genta Inc.
GRA W.R. Grace & Co.
LBTYA Liberty Media Intl. Inc.
MVIS Microvision Inc.
PANC Panacos Pharmaceuticals Inc.
PNCL Pinnacle Airlines Corp.
POP Pope & Talbot Inc.
RCNI RCN Corp.
RTK Rentech Inc.
USG USG Corp.

[tags]option investors, stock option put, bear call spreads[/tags]

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