Showing posts with label Fundamental. Show all posts
Showing posts with label Fundamental. Show all posts

Thursday, 23 June 2016

The consequence of stock market speculation

I have transacted more than 30 times last month, the highest in my history.

It all started with MISC, when it dropped 13% per day despite a good quarter report. I saw an opportunity coming the next day of the plunge: a chance of rebound. MISC has fundamentals. The daily chart is out of BB lower band. These two features satisfy my rules to catch a rebound. The feeling of securing a return of 20% intraday is so good.

MISC plunge


For a long time I have not earned like this in a single day. My next unconscious reaction is to continue speculation. I started to buy in stocks without even looking at the fundamentals and technical chart. KANGER and LSTEEL, just to name a few. I did not have solid grounds like I bought MISC call warrants. I just thought that luck will be on my side, and I can continue winning just like that. But once again, how unbelievably, I vomit out all earnings.

Only then I realised that the more I trade, the more I lose. 
Only then I realised that winning is the beginning of losing.
Only then I realised that my thought of playing stocks has ended up getting played by stocks.

After all, my best strategy is to hold for a few months. In the mean time, wait patiently for any opportunity of "fast money". If this kind of opportunity comes every week or fortnight, it is probably good enough to generate a considerable extra income.

Wednesday, 21 October 2015

KL: FGV call warrants analysis

I traded FGV once -- on the first day when it was listed publicly. The IPO price was RM 4.55, but opened much higher on the first trading day. I bought @ RM 5.39 early in the morning. Seeing that the trend did not going well, I sold on the same day @ RM 5.40, incurring a small loss after brokerage fee. That was more than 3 years ago. Luckily I was determined to sell at that day, or else?

Now that FGV seems to rebound from the bottom. I am interesting to catch a rebound, thus I studied FGV call warrants.


*Credit to the Macquarie Group, an Australian based company, for having the very useful website Malaysia Warrants to enable me to summarize this in a few minutes.

Based on how I choose a call warrant, I look for CW with >180 days expiry. Thus the choice comes down to C6-C9. For low premium, FGV-C6 and C8 (newly listed) stands out. C6 has a lower premium and higher gearing but C8 has a lower conversion ratio. Although FGV-C9  has high gearing (also newly listed), the premium is way too high. Therefore, C6 and C8 will both be a good choice.

Both C8 and C9 were issued yesterday. Hence you can see the style of CW issued by different issuers. 

1. Macquarie exercise price is really high, while RHB is really nice.
2. Macquarie CWs always have relatively shorter expiry date.
3. A conversion ratio of 3.4 for a share price of RM 1.7x is too high. I am very impressed with the CW issued by RHB, for having such a low conversion ratio!

Disclaimer: at the time of posting, the author does not have any FGV nor FGV call warrants.

Monday, 28 September 2015

KL: MYEG proposed bonus issue, again?

On 18-9-2015 MYEG upped with huge volume. There was no sign at all before that, until last Friday: MYEG proposed a 1:1 bonus issue, AgainAnd the fact that the price will soar one week before the announcement clearly shows that somebody does know the news well beforehand, and individual investor like me is always the last to know.


MYEG


A 1:1 bonus issue means that if you have 1000 shares of MYEG, you will get 1000 bonus shares. In this case, MYEG currently has a total of 1.2B shares. Hence a total of bonus share of 1.2B will be issued, making the total share to be 2.4B after the change. As the net profit remains the same, the EPS will be halved, i.e., MYEG share price will be halved after adjustment.

In short, since your total share x2 and the share price x0.5, the portfolio value remains unchanged. But the term "bonus issue" conjures up the idea of free, that the company is rewarding shareholders with free shares. As a consequence, share price will usually go up after a company announcing bonus issue. Technically, it increases the liquidity of the security so that more people can buy the share. The drawback is that the shareholding will generally be more widespread and diluted.

Back in 2012 I have always been eyeing on MYEG, but I was too naive to think that the security has high PE (60), without considering it as a fast growing company. I lost chances after chances for not buying it. That is why I always seek opportunity to earn from MYEG. Has the opportunity arrived now?

Sunday, 13 September 2015

KL: the rise of put warrants in KLSE

Index call and put warrants (FBMKLCI-CX and FBMKLCI-HX) have been a hot topic for discussion lately. Opening the trading platform, you see that FBMKLCI-H and FBMKLCI-C warrants are trading in the top volume, literally everyday.

This is something that has never happened before in KLSE. Usually you only see penny stocks appearing in the top volume section. Now the game has clearly changed. It has already gone insane until the stage that when KLCI rises, you will even see put warrant to go up and call warrant to go down; and vice versa.

As far as I could remember, call warrants started to gain public acceptance around 2006. Back then, put warrant does not exist in KLSE. According to this website, it wasn't until 2010-2011 that the first index put warrant FBMKLCI-HA was issued (apparently by OSK?). But this put warrant was born in unlucky time of bull period and ended up worthless.

Then, FBMKLCI-HB was issued by CIMB in July 2014. It became the spotlight in KLSE during the big drop in Oct 2014. And because of that, put warrants are mushroomed by investment banks. To date, the latest put warrant is FBMKLCI-H9: more than 30 index put warrants were issued in less than 1 year. This is unprecedented and extraordinary

After all this time, I would say that the late 2014 to 2015 is where put warrants have gained the public awareness.  This is good, investors know that now they can trade the index or stocks in both ways. However, I do doubt if now is a good time to trade put warrants: everyday in the top volume has already made me lost interest, what more to say when these warrants are extremely overvalued now?

Sunday, 9 August 2015

Currency talk 2.0

In currency talk, I mentioned that MYR has no cure but insidious depreciation. Unfortunately, the prophecy has become a reality. The chart below shows the trend of USD:MYR in the last 2 months:

USD:MYR
(Figure obtained from Yahoo finance)

Point A:  30th - 1st July. The credit rating of Malaysia remains unchanged and the outlook was upgraded to become stable. MYR has rebounded strongly in the following day. Shockingly, this rebound only last for 1 day! And because of this conspiracy theory arises...

Point B: 7th July. USD:MYR broke 3.80 for the first time since 1998. I thought that 3.80 will be a strong psychological support since it was the rate pegged 17 years ago. But it did not look as "strong" as it should be. The slope of that day is relatively steep, showing that it breaks the support "just like that":



Point C: 22nd July. After breaking 3.80, I was looking for a rebound -- to at least 3.70. The rebound did happen, but to a much lesser extent and a much shorter period than I expected. This scares me a lot.

Point D: 7th Aug. USD:MYR was trading at 3.92. Why does it depreciate so fast? Perhaps political issues has lower the confidence of foreign investors?

Seeing the rate of MYR depreciation, Many Malaysians stocking up on Singapore dollars, US dollars as ringgit weakens. This basically tells me that now is not a good time to change money.

In 1997, the damage on Malaysia was relatively "mild" as compared to its neighbouring countries (except Singapore). Looking back, it was definitely a right decision to peg USD. But the current situation in Malaysia seems to be developing another financial crisis. Keeping in mind that US has still yet to increase the interest rate and MYR already like that scares me a lot. What if US really increases the interest rate this September? It is also possible that BNM may raise the interest rate in September meeting in trying to stabilize MYR. Interesting things might happen in a few months time.

Tuesday, 21 July 2015

KL: Call warrant analysis

Recently, MYEG touched a low of RM 2.40 on 16-6-2015 and a high of RM 3.03 on 2-7-2015 in 2 weeks time, equivalent to a ~26% return. If you leverage your capital by trading call warrants instead of the mother share, what would be your return then?

MYEG trend


Call warrant^ Low High Return
MYEG-CD* 0.340 0.480 41.2%
MYEG-CG* 0.190 0.325 71.1%
MYEG-CH 0.185 0.320 73.0%
MYEG-CI* 0.030 0.105 250%
MYEG-CJ 0.080 0.200 150%
MYEG-CK 0.060 0.145 142%
MYEG-CL 0.075 0.160 113%

* MYEG-CD,CG and CI expire on July, September and August 2015 respectively.
^ MYEG-CM was issued after 16-6-2015 and hence it was not included here.

The above table summarizes the return for MYEG call warrants. Based on How to choose a call warrant, the first priority is that the mother share must possess strong fundamental. For this criterion, MYEG is a no-brainer.

Next, look for the maturity date. This means that CD, CG and CI will be out of my sight. While CI secured the highest return in 2 weeks time, this is not a risk that I would take.

Then, look for the premium, gearing and volume. CH was good back then, but its gearing is comparatively low now, meaning a lower risk and lower return/loss. For a higher gearing, both CJ and CK are satisfying all criteria. As CJ has a lower exercise price and a lower conversion ratio, if I were to trade, CJ will be my pick. It turned out that CJ is indeed the best choice. It wouldn't be too hard to choose a call warrant in this way.

Another handy information is that we can actually know how much these call warrants were held by the issuer at the end of each month. If you go to Bursa Malaysia website > Listed companies > structured warrants. In the announcement category choose "Issuers' announcement", you will see this type of announcement:

ANNOUNCEMENT PURSUANT TO PARAGRAPH 5.35(4) AND 5.35(5) OF THE MAIN MARKET LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD

RHB

You will see that for MYEG-CJ, 64.68% of warrants are not held by the bank, i.e., a huge portion of warrants are held by other people. It may be big fish or retail investors. Either way, when the bank is no longer the market maker, the buy/sell queue volume will be low (e.g., from 5000 lots per bid to 1000 per bid) and this provides another criteria to choosing a call warrant.

While call warrant could bring you high returns in short time, it is a double-edged sword product. It can accelerate your capital growth or completely ruin your financial dream. My principle is to only trade call warrants with strong fundamentals mother share. INARI is an example, MYEG is another. Call warrant for shares like KNM, no matter how attractive they are, will be completely blind to me.

Saturday, 23 May 2015

KLSE: VSOLAR-WA with a negative premium that is too good to be true

Is a warrant trading at a premium of -25% sounds too good to be true? It probably is.

VSOLAR-WA was trading at a premium of -25%. This implies that one could earn 25% by simply buying the warrant and converting it to the mother share, with the condition that the mother share price remains unchanged. A few years in KLSE, I can still see new things by now, how exciting is the stock market?

How can I come to know this stock? Well it occupied a conspicuous spot in the trading platform -- most actively traded counter. While a negative premium is certainly "attractive", let's have a glance at its financial summary first:

VSOLAR financial summary
Financial summary for VSOLAR (Source: Malaysiastock.biz)

As you can see, this company has no fundamental and it is not making any profit. The table below details the price of both VSOLAR and VSOLAR-WA with its premium, and how the negative premium "quickly vanished", turning into positive premium. (Historical price obtained from KLSE.my)

Date VSOLAR VSOLAR-WA Premium
22-4-2015 0.380 0.165 -25.0%
23-4-2015 0.340 0.150 -20.6%
24-4-2015 0.360 0.145 -26.3%
27-4-2015 0.305 0.140 -13.1%
28-4-2015 0.250 0.110 -8.0%
29-4-2015 0.255 0.115 -7.8%
30-4-2015 0.255 0.110 -9.8%
5-5-2015 0.260 0.110 -11.5%
6-5-2015 0.210 0.090 0%
7-5-2015 0.205 0.085 0%
8-5-2015 0.210 0.080 -4.8%
11-5-2015 0.170 0.070 11.8%
12-5-2015 0.155 0.065 19.4%
13-5-2015 0.155 0.075 25.8%
14-5-2015 0.155 0.070 22.6%
15-5-2015 0.145 0.070 31.0%

What is left now? Nothing. If there is no improvement in the fundamental of this company, I do not think the price will go up in the "foreseeable future".

You may want to ask: why does this happen? The big fish wanted to sell the shares. Making the warrant to have a negative premium is very easy to attract people to buy, because everyone is hoping that the warrant will "catch up" with the mother share to its reasonable price. Obviously the opposite happened in this case.

While everything written here is in hindsight, I did not touch this stock though. The purpose of writing this is to alert fellow investors and not to fall into this trap in the future.

Saturday, 16 May 2015

NYSE & NASDAQ: what are GAAP and non-GAAP profits?

As a newbie in the US stock market, a first sight at a financial report will often baffle at "GAAP profit" and "non-GAAP profit". What are they?

To start with, Yahoo finance offers a very convenient avenue of looking at the earning release of listed companies in the US. The date and time of the release of the fiscal report are clearly stated (as opposed to KLSE in which you really don't know when will it be released but within 2 months from the quarter end).

For example, this is the Q1 earning of TESLA (NASDAQ: TSLA). 8-K form is the name of form that contains financial results.

TESLA 2015 Q1 Earnings

GAAP stands for Generally Accepted Accounting Principles. It is the standard norms of how companies should present their earnings in NYSE and NASDAQ. In a simple way, what we see on the balance sheet is based on the GAAP profit, i.e. the common way of reporting profit.

However, a company may write-down an asset or restructure its organisation. These actions usually come with large one-time cost that may not be truly reflected in the GAAP profit. As such, a company will also provide “adjusted” earning figures that excludes these nonrecurring items. These effect, usually is one-off, will be regarded in the non-GAAP profit. And because of this, I personally think that it will more accurately reflects the company's performance.

The balance sheet of TESLA:



We see that a GAAP net loss -$ 154 M or $-1.22/share was incurred according to the conventional way of account reporting. After considering compensation expense, non-cash interest expense and deferred profit, its actual net loss is only -$ 45 M or $ 0.36/share, which is significantly less than the GAAP standard way of reporting.

The above exemplifies the use of non-GAAP reporting to account for a more accurate earning which truly reflects the company's performance. There are good and bad with both measures of reporting in the sense that the report could be manipulated to favour the desired outcome. Which one to look at is then completely up to your discretion.

Tuesday, 28 April 2015

NASDAQ: Amazon soars after earning release

I fail to fathom the US stock market. Amazon (NASDAQ: AMZN) was trading at USD 445 (24-4-2015), jumped from USD 390 on the day preceding the earning release. The "dumbfounding" thing is, the net profit of the latest fiscal report is a net loss of USD 57M / EPS of USD -0.12 (compared with a net gain of USD 108M / EPS of USD 0.23).

Yes, of course you cannot look at net profit alone in isolation from other figures. The revenue jumped 49% to USD 1.6B. The operating cash flow also increased significantly. The main reason for this is reported to be due to the outperforming cloud services and strong retail sales.

Having bought something from them once, I am very impressed by Amazon. The item is of great value, even after including the "international shipping" (which is really not much) and the weakening Australian Dollar. 50% discount is very common. For example, PNY Turbo 128GB USB 3.0 Flash Drive is now selling at USD 40 shipped to Australia. This is equivalent to  AUD 51.2 (based on the current rate of 1 USD: 1.28 AUD). The cheapest you could find on Ebay is AUD 68. The example goes on and on, and applies for all sorts of items.

Amazon has invested a lot to provide all kinds of new services, with a hope that in years to come, they will gain the "market share" and what they have invested in will pay back in avalanche.

According to the earning forecast, even in year 2018 the EPS would only be USD 8.29, i.e. the PE is still sky high. Perhaps this is something you can only find in a "matured" market, that considering really long term growth of a company, Amazon worths to trade at this price. This is something you cannot find in KLSE, and this excites me to involve in NYSE and NASDAQ, a market that really requires a sharp investing insight.

Sunday, 22 February 2015

Currency talk

USD:
"A while" ago I was so innocent and thought that the Kingdom of USD as the international currency will "terminate": to be replaced by CNY, thinking of how fast CN grows. I was wrong. This will not happen, at least for years to come.

In 2008 when US was trapped in the subprime crisis, they "invented" a bond buying plans, or the so-called "Quantitative Easing" -- as the euphemism goes, to stimulate the economy. Six years after the US stimulating programme, I do not see a single sign of weakness in USD. In fact, it becomes even stronger.

AUD:
The experience of living in AU will let you aware that AUD is not a strong currency. Recently, Reserve Bank of Australia (RBA) cut interest rates to a record low of 2.25%. AUD has been depreciating against USD for some time since 2013, because the head of RBA  wants to see AUD to trade at 75 US cents, which I see as a really wise move, because AUD has no "qualification" to trade high (i.e. 1:1 ratio) against USD.

Strangely, many Malaysians mindset still fixed at the era of AUD 1: MYR 3.00+, or hoping that it will soon go back to 1:3+. I am sorry but this is not going to happen. Many people (Malaysians residing in Australia) do not like to hear this, I do not like to hear this as well, but it is a fact. The day of AUD 1: MYR 3.00+ is over. Now it is only AUD 1: MYR 2.80. And this is still with a recent rapid depreciation of MYR. If you really want 1:3 back in the days of 2012, you will have to hope for a quicker depreciation of MYR than AUD. But even if that happens, how worthless is MYR at that time? And how much you could do with it?

A friend of mine said he wanted to put AUD in bank to wait for it to go up. Frankly, how stupid can this thought be? Going back up? No way.

SGD:
Whenever you see newspaper headlines of "MYR hits lowest in XX months/year against SGD" etc, you will see people saying the day of SGD 1: MYR 3.00 is coming next month/year. Please, even with the most basic knowledge of forex, one will know that 1:3 is not happening in at least years. Having said that, SGD is a rather strong currency in my opinion.

EUR:
The European Central Bank has announced a stimulating programme last month. Well, when an idea/method is implemented for the first time, the effect is always good. But will the same trick work again for EUR (or JPY)? And how long can Greece stand before something happen? People have been speculating a collapse in EUR too. I bet this is something EUR's "rival" wants to see.  Will it happen? Only time will tell. But I do not look good on EUR.

MYR:
No cure but only pernicious depreciation. The self-interest gained by you-know-who politically will cause the country to pay the price economically. Maybe 5 more years to sustain?  In these few months MYR has depreciated "considerably" against USD, and is now trading at USD 1: MYR 3.60+.

I am sorry but I do not look good at this currency. If I were to choose a currency to keep, my first choice would be USD, followed by SGD.

Conclusion:
I am not a forex expert neither I know much about it. I just blow some water here. Don't hit me if you want AUD to go high.

Sunday, 1 February 2015

NASDAQ: Is Apple expensive?

When Iphone 5s/5c was released in 2H 2013, I thought that the sales would go down as there wasn't any  "jaw-dropping" innovative features. The market proves me wrong.

In 2014, 169.22M of Iphone was sold as compared to 150.25M in 2013, a 12.6% increase, according to the global Apple Iphone sales. Note that Apple (NASDAQ: AAPL) has a financial year ends 27 Sep, such that the sales of Iphone from Oct-Dec 2013 will be reflected in Q1 2014. In fact, the sales is breaking record quarter-to-quarter if compared with the preceding year. I was terribly wrong about the trend.

So I observe the way how Apple fans stick to Apple products:  the joy and excitement of having it, the honour of using it, the sense of playing with it and the pride of owning Apple products. Last year, Iphone 6/6+ was released. While the most prominent difference with previous releases is a larger screen, which has no surprise, this time I stand on a view that Iphone 6 will create a record sales as well.

On 27 Jan, AAPL released its latest financial quarter report. 74.5M of Iphone sold in Q1 2015 as compared to 51M in Q1 2014. This is an incredible result. A record EPS of 3.06 with record profit.  2014 full year EPS of $7.36, with a current price of $117.16, this is equivalent to a PE of 15.9.

Now, the question is, is AAPL expensive? Let's look at some technology stocks:

Name    Stock Code    PE
Google    GOOL       28.1
Facebook  FB         69.13
Avago     AVGO       104.13
Amazon    AMZN       Negative EPS, Stock price stood at $354.53!

You can see how "insane" is US market. A stock trading at PE 100 is not unusual. Is AAPL really expensive at a price of $117.16? Of course, I am not suggesting to buy with expectation of AAPL to reach a PE of 100, but if you are confident that AAPL will still grow, then it may look attractive at the current price.

In 2012, my lecturer once said something wise:

20 years ago you can eat apple. But can you eat Apple now?

20 years ago, nobody will ever think that Apple is inedible. Nowadays, when the very same noun is being mentioned, how often it means Apple, and how often will people will think of apple? The answer is obvious, isn't it?

Saturday, 24 January 2015

How to choose a call warrant?

The last time I wrote about call warrant fundamentals was years ago, see CW Fundamentals 1, CW Fundamentals 2, CW Fundamentals 3 for details . Words couldn't describe how fast time flies. Today I am going to write about how I determine which CW to buy.

Make sure you do some homework before buying call warrants. Every one knows it is of high risk. Before choosing CW, I choose mother share. First, mother share must have strong fundamentals, making profits. E.g., I will not buy KNM call warrants. Second, mother share has potential upside. By only having the right mother share, you can expect to have a positive return, because call warrants follow mother share movement.

Lazy people like me will go to i3investor to have a glimpse of all structured warrants available for a particular stock. It contains useful information about warrants listed in a form of table. For example, if I am looking at MYEG CW, search for MYEG, then go to warrants drop down menu. Easy.

MYEG Call Warrant
(Figure print-screened from i3investor)

How to decide which one to go for? For me, I look at the following preference in order.

1. Expiry. No long expiry date no talk. This is so important. Preferably at least six months. Under special conditions (e.g. negative premium, high gearing etc, will consider 3-6 months. Under any condition, I will not touch CW with less than 3 months expiry)

2.1 Premium & gearing. Low premium and high gearing are preferred.

2.2 In my opinion, volume has the same importance as premium and gearing. Liquidity is important (without "so" as in expiry). First, it ensures that the CWs are easy to buy and sell. Second, the buy-sell spread is small if it is traded actively, good for us.

3. Issuer. CIMB always has the "best valued" call warrants. Recently I see that Macquarie releases a lot of structured warrants in KLSE. Isn't this the Macquarie Group, the largest investment group in Australia?

OK. By looking at the first priority, CB, CC, CE and CF are out of consideration. Then, CD has the lowest premium, which is the best among itself, CG and CH (I look at premium more than gearing). But if you look at the graph of MYEG-CD:


Listed for 6 months, it is traded for less than 20 days. Clearly, I will not buy this kind of CW. You will find it hard to buy and sell. So, we are left with CG and CH.

CH has a longer expiry date, a lower premium and s higher gearing than CG. CH is also traded more actively than CG. So the choice is clear. Actually, given its low premium, CF is a good choice too. But it is expired in 4 months. So, I would go for the safer choice with longer expiry date.

Next thing to do? Prepare money, find a target buying price and queue. For call warrant, I will be very particular, even a price bid of 0.005 difference matters to me, because it is bought in quantity.

Saturday, 26 July 2014

KLSE: Thanks PNE, Bye PNE

My first entry price is 0.295. At that time, the relevance for me to hold a share which is not making profit is the cash/share > share price:

Total share: 65.7 M
Total cash (@ 30/9/2013): 24.2 M
Cash/share = RM 0.37

RM 0.295/share to buy a share that has a cash/share of RM 0.37, too good to be true, isn't it?

When the share went up to RM 0.60, I am still holding it. I convinced myself that the relevance now is the NTA price of RM 0.94. That the share is traded at a price well lower than its NTA/share. So I still holding that.

When it went up to RM 1.10, I keep holding. This is where all relevance turns into irrelevance, all rationality becomes irrationality. There is no fundamentals to support this share at this price. Yet I even think of waiting the share to flip twice (i.e. 300% return). But when volume comes, I know that it is time to sell, regardless of what's going to happen next.

Looking back, the price movements come in 4 rounds. I am surprise that I can wait until the 4th round. I might have still kept holding it,  had it not been the candle on 2nd July 2014, where the volume is just too scary for me:

PNEPCB


I felt a sense of freedom after selling. And I know that is a correct decision to have some cash on hand.

P/S:
This company has some direct business transactions recently, and it involved a large amount of shares:

26 June 2014: 5M shares dispose through direct business transaction.
1 July 2014:  14M of shares  dispose through direct business transaction. (gee, this is substantial considering that the total share is only 65.7M) 

And recently many patterns come out, change in boardroom, change in director's interest etc: PNEPCB announcement 

The price for direct deal is RM 1.10, which is higher than the current market price. I do not know what is the intention. And there is no point dwelling into the reason, cause you will never know what is going on.

The important thing is: I am free from it. That's it.

Tuesday, 1 July 2014

NYSE&NASDAQ: What is after hours trading?

When you browse for quotes for stocks in US markets, you will see something like this:

after hours trading
(Picture print-screened from the The Wall Street Journal)

The price above is the usual closed price. The price below is the so-called after hours trading price. So what is after hours trading? While this may seems common in US, it is not the case, at least in KLSE.

US market trading hours are below:
(All times are in Eastern Time (ET). Eastern time refers to the time zone in the eastern part of US, not the time zone for eastern countries in the globe, e.g. Japan.)

1. Pre-Market Trading Hours: 4:00 a.m. to 9:30 a.m.

2. Trading time: 9:30 - 4:00 p.m. (Unlike KLSE which has a break time of 2 hours in the afternoon, no break in US markets. Break time even in market trading, what a Malaysian pattern? )

3. After hours trading: 4:00 - 8:00 p.m.

We see that apart from the normal trading hours, there is also a pre-market and after hours tradings, which are also known as extended hours trading.

The reason for this is for investors to trade outside normal trading hours (nonsense?).  This is because a lot of companies make announcement, e.g. quarterly report, corporate news before market open or after market closed.

For example, Chicago Board Options Exchange ( CBOE ) plans to  list options for  GoPro, Inc. (GPRO). (NB: This GPRO has nothing to do with the GPRO in KLSE, although they have exactly the same listing name.) This was announced at 17:05, 30 June 2014 (i.e. after market closed). Seeing this as a positive sentiment for the share, the share of GPRO rose during after hours trading:

(Picture taken from Nasdaq.com)


30 June 2014, 4:00 p.m. price: 40.55 (normal trading hours)
30 June 2014, 8:00 p.m. price: 42.15 (after hours trading)
Change: 3.95%


30 June 2014, 4:00 p.m. price: 40.55 (normal trading hours)
1 Junly 2014, 7:30 a.m. price: 43.37 (pre-market trading)
Change: 6.95%


The price movement will continue until the market opens. Therefore, after hours trading and pre-market trading provides a very good indicator on how the market reacts to the news, and a good insight of the price once the market opens as normal. 

Extended hours tradings give investors to trade at a flexible time. It can also serve as the time to "digest" the news just announced by companies. In addition, for pre-market trading, it can reflect the conditions in other markets, especially EU markets since EU markets start earlier than US markets.


Last but not least, some facts about extended hours trading:
  • they are REAL trading, requires both buyer and seller for a transaction to match (in US, filled is used instead of matched).
  • All stocks listed in NYSE, NASDAQ and AMEX companies can be traded in extended hours trading. 
  • Only for stock trading, does not include options.
  • A lower extended hours trading activity (lower volume) will result in a wider spread (i.e. a larger difference between bid and ask price. Again, in US they use bid and ask instead of buy and sell.) 
  • Share price change, i.e. % change is still calculated based on closed price during normal trading hours. Chart only shows the price movement during normal trading hours.
  • You can view the most active, most advanced and most decline for after hours trading on Nasdaq.com
I hope you have an idea what is extended hours trading now after reading this.

Saturday, 19 April 2014

NYSE&NASDAQ: What is buy to open, buy to close, sell to open and sell to close?

When you are on your first time to trade options, you may be baffled by the choice of transactions:

buy to open (BTO), sell to close (STC), sell to open (STO), buy to close (BTC)

First time seeing this: what the heck are these? How come buying something can close something (buy to close)? How come selling something is to open something (sell to open)?

In stock transactions, there is only buy and sell, which is already self-explaining. But for options, because you have the right to buy or sell, every time when you want to OPEN a position, you need to choose if you were to OPEN a BUY or SELL position, i.e. buy/sell refers to the transaction you would like to make, whereas open/close refers to your position, whether you would like to open or close your position.

Assuming that currently you do not hold any open position (i.e. do not hold any options):

i) when you want to buy a call or put options, you choose BUY TO OPEN. When your transaction is matched, then you will have an open position. This open position will then required to be closed on or before expiration, e.g. if you wish to close earlier, then you choose SELL TO CLOSE, since you are SELLING your options and at the same time CLOSING the position.

ii) when you are selling a call or put options, you choose SELL TO OPEN. Then you will have a some kind of equivalent "short" position, e.g. when you sell 10 contracts, you will have -10 contracts for that options. You will then require to CLOSE the position by BUYING back, i.e. BUY TO CLOSE.

In short, if you were to commence a new trade, and you wish to be the buyer, then you choose BUY TO OPEN. Otherwise, if you want to be a seller, then you choose SELL TO OPEN. 

Hope this thread will clear the doubts of many options beginners, as I was also confused by these terms at first.


Friday, 14 February 2014

NYSE: Selling call options: some basic stuffs

This time is the seller of call options. Selling options will always earn you premium, as you get the chance to be the "insurance company", as if collecting premium from buyers who wish to protect their shares. 
Case 1: Out of money

Buy: AMD JanWk5 3.5
Strike price = $ 3.5
Expired date = 31 Jan 2014
Cost: 0.13/options = 0.02*1000 = $ 20 + ($ 15.35 brokerage)
AMD cloased at 31 Jan 2014 = $ 3.43

AMD @ 30 Jan 2014 = $ 3.45. It has little chance to close above $ 3.50, hence the premium is very small. At the expired day, AMD closed below strike price, so premium was collected free by call seller.

Case 2: In the money

Buy: AMD JanWk5 3
Strike price = $ 3.5
Expired date = 31 Jan 2014
Cost: 0.13/options = 045*1000 = $ 450 + ($ 15.35 brokerage)

Call options is in the money at the expired date, i.e. call options will be exercised. I am required to sell the share @ $ 3 to the call options buyer. If I will to buy back immediately, this will cause me a loss of $ (3-3.43) = - $ 0.43 / share. But I collected premium from selling the call. So is a different story.

Based on yesterday closed price of $ 3.70, if I buy back to close my position, my net loss will be:

+ $ 450 - $ 3000 + $ 3700 = - $ 250.

There is something known as Sell Covered Call, which is pretty common in options. Covered here means that you own the mother share, and at the same time, selling call options to earn premium. If the shares go down, the premium collected will be yours. If the share rises, you still earn from having the upside of the mother share. This looks to be a good deal, although still need some time to have a deeper look on it.

Wednesday, 12 February 2014

NYSE: Buying call options: basic things to know

2 cases of call options are considered:

1. in the money: A call options is in the money when share price > strike price (opposite to put)
2. out of money: A call options is out of money when share price < strike price

Case 1: Out of money

Buy: BAC JanWk5 17
 (NYSE: BAC, Bank of America Corp)
Strike price = $ 17
Expired date = 31 Jan 2014
Cost: 0.13/options = 0.06*1000 = $ 60 + ($ 15.35 brokerage)
MSFT cloased at 31 Jan 2014 = $ 16.75

BAC price at 30 Jan 2014 = $ 16.93. As a call options buyer, I anticipate the share price to be higher than $ 17 on the expired date. This did not happen, so my premium is collected by the seller. The call options expires worthless.

Case 2: In the money

Buy: BAC JanWk5 16
Strike price = $ 16
Cost: 0.13/options = 0.87*1000 = $ 870 + ($ 15.35 brokerage)

This call options is most probably to be in the money, as BAC share price is higher than the strike price. Essentially, I paid a premium of  $ (16 + 0.87 - 16.81) / $ 16.81 = 0.4% as compared to buying the mother share directly. This is very much similar to buying call warrants, however, call warrants in Malaysia are all cash settlements, i.e. does not have the option to convert to mother share. 

Note: $ 16.81 is BAC opening price on 30 Jan 2014.

On 31 Jan 2014, this call options was exercised, so I can buy BAC mother share @ $ 16. 

BAC closed @ $ 16.72 on 10 Feb 2014. If I sell the mother share yesterday @ $ 16.71, I would make a profit of 0.71/share from the mother share = $ 710.

Then my net profit is
 = - $ 870 (call options) - 16000 (stock assignment @  $ 16/share) + 16710 + (brokerage)
= - $ 150

If I wouldn't want to incur any loss, I can hold BAC to wait the share price to go up until it breaks even my cost.

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.