How to hedge Caesars as bankruptcy saga continues into 2017

And we wonder why our public courts are always clogged. Caesars’ bankruptcy festivities continue into the new year, with more posturing leading to a near collapse magically resolved at the last minute. According to Bloomberg, an accord was filed hours before the deadline in late December. Funny. This thing is like the private version of the Greek debt crisis, with prospects looking completely impossible followed by miraculous breakthrough after miraculous breakthrough. The lesson to be learned here is that private bankruptcies are always better, because those affected are only affected because they voluntarily chose to invest their capital in a venture that went bankrupt. Nobody else cares, nor should they. But with public bankruptcies, it’s taxpayers forced to invest in government all losing out, so everyone gets justifiably livid.

In any case at this point it can probably be safely assumed that last minute saves will continue throughout the year. The next holdout is likely to be some fight with the U.S. Trustee, who opposes protections for Apollo and TPG, the two firms that wisely decided to embark on a highly leveraged buyout of Harrah’s on the brink of a global financial collapse. There will be some kind if last ditch fight with the Trustee that will get resolved at the last second and all will be well again.

The problem is that neither Caesars stock, CZR or Caesars Acquisition Company (CACQ), has any concrete fundamental value because the percentage ownership for each company is going to change for each group of equity holders after the restructuring is finally finished. There is no way to rationally invest in either one because the exact details of reorganizing this vast financial black hole are hidden from public view. But that doesn’t mean that no moves can be made by traders who can play the odds.

One thing is for sure, we will get a lot of volatility for both these stocks in 2017. If we look at a comparison chart for gauging relative volatilities, CACQ looks a lot more rollercoastery than CZR. So CACQ can be considered a leveraged play in CZR.