A123 has fallen fully in half since I wrote that and those puts are up 300-500%…

I was asked for an update on A123 Systems.  Back when I flagged A123 as a short idea but was unable to borrow any, I was looking for two catalysts to the downside —1.  a loss of welfare subsidies for alternative energies like the kind of batteries that A123 makes but needs taxpayer assistance to make profitably.2. a need for capital as this company in particular was underfunded for surviving more than a few more quarters without access to much more capital.As I wrote at the time:—

And here’s another place I’m looking for a crash. Alternative energy and solar. Back in June I wrote up a detailed analysis of why I’m looking for solar to crash. The upshot is that the appetite for government subsidization of this industry is over and we’ve seen the top. I didn’t want to start shorting the names at that point because I was too bullish overall and the stocks in the sector were in rally mode.
Well it’s five months later and the alternative stocks are up big now and starting to crack and I’m looking to start adding some shorts here. Two of the names I mentioned in that June 8 newsletter were Ener1 and A123 Systems. A123 reports after the close today and while that means it could go either way tomorrow, I’d be looking to start shorting this name either way. Perhaps some long-dated slightly in the money puts today, giving yourself at least a year out, say the January 2012 $10 or $12.50 puts.
Either way, I’m adding A123 to the Revolution Investing portfolio as a short today.

—

A123 has fallen fully in half since I wrote that, and those puts are up 300-500% in the time since.  I still expect this company will have a very hard time getting to profitablity even with existing welfare subsidies.  It’s very hard to stay short a stock that’s already fallen in half, but because of the company’s future financing questions, I’d still stick with this one.