Wednesday, 29 January 2014

Put options fundamentals: part 2 (end)

21 Jan 2014 is the fiscal date for AMD, announcing the financial results for Q4 2013. US companies are given one month to announce financial results, while Malaysia companies are given 2 months. The environment in Malaysia is really "senang" (relax), typical Malaysian style, I like it.

For the year 2013, AMD suffers a net loss of 83M or loss per share of $0.11. Refer to NYSE Press Release for details.


On 22 Jan 2014, AMD gap down with huge volume, after announcing a worse-than-expected financial results. Oh, this is the same as in Malaysia too. Gap down after a bad financial result, as what happended to ZHULIAN recently.

AMD chart
AMD Chart

AMD put options Jan wk 4 2014
AMD Put Option @  $4, Jan wk 4 2014


Put options has opposite trend against the mother share. As AMD price goes down, put options will have a higher value, and vice versa, as shown in the above figure.

24 Jan 2014 is the expiration day for this option. Both NYSE and NASDAQ suffered losses of about 2%, quite a huge loss in single day. AMD closed at $3.47, well below the strike price of $4. Since the price is below the strike price, put options buyer will definitely exercise his/her rights to sell
the share @ $4 to me. (e.g. imagine you hold an insurance policy (options buyer), that accident happens to you some day (touch wood), for sure you will claim from the insurance company (options seller))

put options exercised

Last row shows my sell transaction, that the premium I gained.
2nd row shows that AMD share was assigned to me @ $4/share. I have to buy it at this price. Since the mother share is trading @ $3.47, this means that I incur a loss of 0.53*1000 = 530 IMMEDIATELY.
1st row is to close my options position.

This means that my net loss in this trade is: 190-530 = -$340

If, say, I do not want to hold AMD share. I can opt to buy the put options to close my position. The put options closed at $ 0.56 on 24 Jan 2016. This means that I have to pay 0.56*1000 = 560 to buy back the put options.

In this case, my net loss is 190 - 560 = -$370

Is almost LPPL (i.e. almost the same). Of course, seeing that AMD plunged few days before the expiry date, I could have bought the put options to close my positions way earlier, to limit my loss. Another choice is to hold AMD until it recovers. But the catch for this is that my money will be locked in the share. Whatever decisions to make is dependent heavily on the capital, and this must be determined before executing the transaction.  

Sunday, 26 January 2014

Put options fundamentals: part 1

In options, you have the choice to be the buyer or seller. I believe this is exactly how this financial derivative obtained its name, because you have the choice to opt.

There are lots of internationally well-known companies listed on US market, e.g. AMD. I like this company, because I did my industrial attachment there. AMD (NYSE: AMD), microchips manufacturers, Intel's competitors. Without AMD, computer markets will be monopolized by one company, and we will not have affordable computers to use.

Call is the financial term meaning "going up", i.e. when you buy call warrant, you expect the share price to go up. Put is the opposite of call. One will buy put options if he/she thinks that the share price will fall below a specified price in a particular time frame. When one sells put option, he/she think the other way round, i.e. the price wouldn't fall below the strike price. 

I sold AMD put options on 17 Jan 2014.

Options sold: 1000
Price: $0.19/option
Strike price = $ 4 (strike price = exercise price in Malaysia)
Expire on: 24 Jan 2014

Note: AMD closed at $ 4.18 as at 17 Jan 2014. This price is above the strike price, i.e. the put options should have zero value if AMD stays above $4 at 24 Jan 2014. The premium (i.e. $0.19/option) is due to the buyer thinks that in 1 week time, AMD could potentially fall below $4. Being the options seller, I think that AMD wouldn't fall below $4 in 1 week time. 

This contract implies that:

1. I will get a premium of $ 0.19*1000 = $190
   Total sell = 0.19*1000 = $ 190
   Brokerage fee = $ 15.36
   Net premium gain = 190 - 15.36 = $ 174.64
   N.B.: In selling put options, a portion of your capital will be locked, to ensure that you have the money to purchase the mother share should the option buyer exercise his/her rights.

2. If, until 24 Jan 2014, AMD stays above S4, then the premium I got from selling the put options will be my free money. Put options buyer paid $190 to protect his/herself until 24 Jan 2014. Options buyer pay a premium to protect the mother share from falling. This is analogous to insurance, where you (options buyer) pay a premium to the insurance company (options seller). If nothing happen to you (i.e. stock price did not fall below the strike price), the premium will be free money to the seller. If something happens to you (i.e. stock price falls below the strike price), you can exercise your right to claim from the insurance company (i.e. seller).

3. Should AMD go below $4 before 24 Jan 2014, say $3.5, then the put options buyer can exercise his/her rights to buy the share at $3.5/share, and sell it at $4/share. But at that time AMD is trading at $3.5, who will pay $4 to buy the share? The put options seller. This is the obligations tied to the options seller, i.e. in this case, the "insurance" works, the buyer can claim money from the insurance company (options seller)

[to be continued]

Friday, 24 January 2014

Is low PE shares attractive?

In the stock market you must have some principles that can never be violated. e.g. never buy PN17 company, some people never touch technology shares, some people never touch shares with price < RM 0.10 etc. I have my own too, I will never touch a category of stocks. The table below says enough:


China stock in Malaysia


Look at XINQUAN, an earning of 30 cent ++ per year, but only traded at about RM 1? If this happens to only 1 share, then a closer look is required, perhaps it is really undervalued? But with so many "similar" stocks together, I doubt if they are undervalued.

Look at XDL recently:



3 months + of accumulation and selling. After profit is secured, all shares are thrown without any hesitation. With this kind of volume, I believe there is no way this share can go up to RM 0.60 again, at least for few years. (although with an EPS of 11 cent). The company did make an announcement regarding this: price movementBelieve it or not is up to you.

Another example: CSL, a not-long-ago listed on Bursa stock, doing stationery.

CSL

It was first listed nearly 2 years ago, with an IPO price of RM 0.95. It went up to RM 1.80 within 2 months, can be easily seen in top volume at that time. People will easily get into the trap, because people cannot tahan (cannot see) seeing a share keep on increasing. Then what after that? The price keep on dropping until now, to RM 0.80!

I touched once before during my 1st year in stock market.. It cost me 40%+ of loss in 8 months, I am lucky that I cut lost at that time, a wise move even if I look back now. This is a priceless experience, preventing me from further losses in stock market.

Bursa Malaysia investors, open up your wise eyes when choosing company.

Thursday, 23 January 2014

NYSE: from options to mother share

Few months ago I did some virtual trades on options. One of the trade, due to a lower share price than the strike price, I was forced to buy the mother share at a higher price, the share is Bank of America Corp (BAC). See options exercised. But even if I have the mother share, incurring a loss at the time of conversion, I can hold the share until it is over my option strike price, i.e. purchase price of $15.

Now, BAC is trading at $17/share. This means that if I hold the share until now I can still earn money from this.

BAC

The above trade is virtual money. So i can "sai lang" as I like. Note that 1 contract in options = 100 shares. And the ratio to mother share is 1:1. So if I sell 5 contracts, then I have 500 shares of BAC options.

In selling options, you must be prepared to hold the mother share, if the buyer exercises his/her rights. For a good stock, I don't really mind holding it. However, one catch for this is your money will be locked when you sell options. But just like this case, even tough the options was being exercised, I can hold the mother share until the price has gone up, e.g. $17 in this case, not a bad return for 4 months.

Appendix:  BAC chart from yahoo finance


Sunday, 19 January 2014

Target price reached, where to?

Where to, is a verbal short form of English, meaning where are you heading to? what is next? etc.

Selling a share has always been a difficult task, much more difficult that buying. But if a person has no greed, is not that hard actually though. It is hard mainly because of greed, earn money then not satisfied, want more.

One of my rule to selling a stock is that target price has been achieved. From my previous experience, I never feel satisfied even my target price was reached. It doesn't bring me any good at the end. After that, I told myself to at least sell a portion of shares, locking the profit. But now I didn't deliver what I've learnt before.

I try finding excuses for this, e.g. because the graph is so beautiful, how to sell? Historical high, nice volume, how to sell? Like that cannot sell lah.


inari


So? See first lah. Now I set a higher target price and see what happens.

The financial market is really a good reflection of ourselves. When the decision point comes, it is a good time to see how if emotion(greedy) or rationale (sensible) prevails. Anyway, this is a good lesson for me, another chance to see what should I do when the target price comes.

Saturday, 18 January 2014

First dividend in 2014

Together with the interim dividend, INARI has announced a special dividend at the same time, a total of 1.5 cent of dividend for a quarter. I love the word "special dividend", although not much, it sounds like a bonus stuff to the shareholders. 




Yes, my first dividend in 2014 is brought by INARI. I love dividend. Looking forward for my second one next month, i.e. INSAS. Also, longing for a surprise dividend. if it were to come, it should come in two weeks time, hopefully.





Saturday, 11 January 2014

My share doubled its price, i.e. "kai fan"

Last month I just wrote something about a share that I've hold for the longest time.

Yesterday, I mentioned that I really look forward to my first "kai fan" share, i.e. 100% return, in 2013 review.

Note: "kai fan" = 开番 in mandarin
                = "open slip" by direct translation (meaningless)
                = doubled share price in English term

To my surprise, the share that I look forward to be the first share that doubled its price is not the first share that doubled its price in my portfolio. I am still very excited to see the first 100% in my portfolio, finally, after 3 years of stock investment.

pnepcb double share price


I've hold this for 13 months. Not too bad after seeing this return. But the process is not that easy, especially if you look at the market everyday. This stock can be completely deadly for weeks and months, with only small volume traded.

The weightage of this share was 25% of my total capital by the time I bought in. Although I would think of buying not enough (greed has no bounds), but even if I put in a large portion of my capital, say 50%, being half of my capital locked in there for so long, how could I go through the process and how much opportunity would I lost? After all, there is no regret in stock market. The fact is, nobody will know when would a share move, just like this one, near to 50% rise in 2 days, how could one speculate this? Even tough you really look at this share all the time, the energy and time that you spent on it would not worth it too. It is impossible to know when a share will move, so the only way we can do is buy and hold. Buy before it moves. As long as you are confident with your choice, just hold.

Ironically, my portfolio seems to hint me to reduce my frequent trade in stock market -- I would expect INARI to double its price first, but at last is this "black horse", of which I've hold for so long that jump the queue. Is like telling me that as long as you are confident with a share, just hold, time will bring you the return that you deserve. I will remember this lesson. 

Now, question comes: when to sell it? I don't really have a target price for this. If really have one, I would say at least RM 0.80. But now I still don't see any reason to sell it -- this new high was broken by a record high volume too, nice chart!

Also, today the stock closed at Buy 0.595 & Sell 0.600 with a sell of 13000+ lots, i.e. a lot as compared to usual queue of 200-500 lots. I would say that this is a "fake" resistance, as most of the shares are in the big fish hand. Today high of 0.600 has only traded for 2 lots, an obvious act by retail investors. I couldn't print screen of the queue tough, after Bursa has upgraded its trading system to BTS2. It wouldn't take immediate time to break 0.600, I hope so, as this share should rest for a while now before continue moving.


Finally, some Manglish, i.e. Malaysian English. Whenever I talked to someone that I have this share, people will look at it and say:

this kind of stock can buy meh?

no volume one, how to buy?

like that need to hold how long? 

like this can earn money meh? 

Friday, 10 January 2014

2013 review: part 5 (end)

In summary, 2013 breaks several personal investment records: (it's easy to break though, cause I am only 3 years in KLSE)

  1. record loss of a single share, in terms of amount -- not something worth bragging
  2. record earn of single share, in terms of amount -- something I am very thankful for
  3. record dividend income, a bonus for me, still wish to get more dividend this year
Several mistake that (hopefully) can never be repeated:

  1. There is nothing like what I should have earned from a bullish market. The stock market does not owe me anything. That kind of thinking and attitude will only make me lost even more.
  2. It turns out that holding 0% share in a bullish market can make me to lose control in stock market for months. I am very grateful for the time this lesson came, fortunately it did not plunge by the time I got in to "revenge". Hopefully I will remember this lesson for years. Never fight with the market.
  3. Before buy / sell a share, read the quotes and experience that I've gone through before.
  4. All in style works pretty well when the capital is small, however, the style will need to be adjusted ones the capital gets bigger. All in a share using large capital is too risky - you don't have any more cash to buy other share or average down when the opportunity comes.
This year, I enthusiastically wait for my 100% single share return, I am pretty sure it will come very soon, and then only see if I want to continue holding or sell. Just like what typical Malaysians would say "later only see how lah". 

Dividend "sneak-peak": one to come next week (INARI), one to come next month if I hold the share (INSAS), which I probably will. "money, nobody will think it is too much one mah"

One more expectation: surprise dividend



After 13 years, this company paid out a dividend last year, announced on 29 Jan 2013. I was very happy to receive the dividend last year, and expect something this year too, hopefully not too long. Based on last month and today's performance (+17%), I guess something is coming very soon (less a question than a statement).


Tuesday, 7 January 2014

2013 review: part 4

I changed to INARI. This was quite a hot share in KLSE in 2013. This share has something to do with me. It was first listed on 19 July 2011, where I treated it as "one night stand", i.e. only hold for 1 day and sell.

In Feb 2013, I suddenly thought of it, and observe and took profit  not long after that. I bought it back later, this is very unusual for me, I don't usually bought back a share which the price is higher than then price that I've sold. But I don't want to regret anymore. Then, I hold it until now.

Since I've mentioned this share, let me share my view on it. Few weeks back, some in the Investalks forum said that the financial report look suspicious, especially from the cash flow side. I am not an expert in this, so can't comment about it. Technically, I found no reason to sell this share at this point.

INARI


Look at the graph:

All circle regions, i.e. pulling period were accompanied by big volume. Whenever there is a relatively high volume, the candle will be big white. And it doesn't move non-stop, instead, it move up steadily, move and rest, move and adjust. During adjustment, volume are small. 

Then, 3 vertical lines shows that whenever a white candle came, the volume is relatively higher. No exception.

This graph is just beautiful, so why sell it at this point? More importantly, I am really looking forward for my 1st "kai fan" share, i.e. a share that double its price.

I am very fortunate to have swifted to this share, and hold it until now.

[to be continued]

Saturday, 4 January 2014

2013 review: part 3

I bought and wait, repeating this for several shares, until I realized that I have lost enough -- lost all earning from the beginning of this year. The last mistake I made was MAYBULK-CI -- ALL IN. When would I think of all in a call warrant in a normal situation? I do know how risky it is to all in call warrant, but I just wanted something back at that time. Kind of revenge, wasn't it?

I started collecting the CW in July, and finished all my cash in August - hoping that I can turn the table in one hit - too naive! Not long after that, world stock market "crashed", or more correctly if looking back now, adjusted. So did KLCI, it has no privilege against the world stock market.

KLCI august chart


MAYBULK is not like NESTLE or BAT, is not a defensive stock. So it followed KLCI pattern. 

Maybulk-CI


On 22 Aug 2013, KLCI opened with a gap, downwards. I decided to cut loss early in the morning - a right decision finally. For several consecutive days, Maybulk-CI went down to as low as 0.135, which I was fortunate. But not long after that, it climbed back to the price I sold, even went to as high as 0.325. While it may seem that if I hold until then, I could have earned some money, but I wouldn't sell even it is 0.325 though - my greed has no bounds. This is something I need to improve.

Maybulk-CI expired on 6 Dec 2013, at the same price that I have sold. Even if I hold until the end, it doesn't cost me to lose more in terms of capital, but it does cost me to lose time opportunity, a very important cost in the stock market - I could have switched share and manage to secure some earning, which I did.


[to be continued]

Thursday, 2 January 2014

2013 review: part 2

Looking back, it is not really hard to earn >26% a year in a stock market in 2013 -- with the condition that the capital is not big. When the capital is not big, simply "all in" a share can easily bring you a huge return.
Several shares that, at least double its price, from my memory -- DSONIC, INARI, TNLOGIS, MYEG, PWROOT, HOMERIZ, NAIM, PRLEXUS, HLCAP, HUAYANG etc.

Even not doubling the share price, a lot of share can grow >26% a year, providing that you know how to sell -- MMODE, REDTONE, INSAS, MAGNI, OLDTOWN, AEONCR, SBCCORP etc.

But how could I struggle to achieve my aim?

I still remember, right after GE13, construction shares fly like angels. While I am holding 100% cash, it is really not a good feeling, and my weakness are totally reflected in the stock market. After 1 week of GE13, the construction shares still kept rising, I really cannot tahan (stand), I all in GAMUDA-WD -- a very rash deicsion, without looking at the chart, volume, without even queuing, directly buy from seller. This is in contrast what I used to do -- always find a safe entry price. The market has made me to lose control.

GAMUDA

I went in 13 May, then sell on 14 May, making a profit of just 0.5%. Why would I be so impatience while I can earn 15% if I sell a week later? I just want the share I bought to fly INSTANTLY, because, deep in my mind, I have "lost" 1 week of earning from 6 May to 13 May, so I would like this to be COMPENSATED IMMEDIATELY. That was the beginning of my mistake. I couldn't wait even if it is just one day. In my mind, I want to find something to recover my "loss" during 6-13 May. Thinking back, that thought was HORRIBLE. All decisions are made emotionally. What if the market just crash at that time? 

Following that, I kept on hantam (i.e. all in), changing from share to share, to seek for "compensation", of what I thought I SHOULD HAVE EARNED. That made me lost EVEN MORE. Not only a loss in terms of capital, but the directional loss in stock market as well. What ever experienced that I learned previously was completely forgotten. 



[to be continued]

Wednesday, 1 January 2014

2013 review: part 1

Thankfully, my target is achieved by the end of the year, thanks to the share that I bought last quarter, that brings me a record paper gain, or my investment return will be in red.

For 2013, I still use the same technique as in 2012 - observe, buy in, wait and sell. This is in total contrast of what I planned at the end of 2012.What is planned is not delivered, especially the 30% cash part, I did not keep a 30% cash all the time. In fact, I all in all the time. How come like that one? Greed.

At 1H of the year, my return was negative. The bullish market after election reflects my weakness in stock market, I went in emotionally, without any rationale.  It costs me a big loss. Then, knowing that my target is even further away, I kept on doing the wrong thing - all in a call warrant. This is just too scary for me. Fortunately I admitted my mistake,cut lost within 1 month, still incurring a lost of 2k.

The turning point is in August, where I all in a share that I traded previously, that brings me the return I have today.


Dividend is a total bonus for me when I focus on capital gain- RM 998.30, touching 4 figures, that is surreal. And one more dividend to come in January, already ex in Dec 2013, I love dividend.