Tuesday, January 23, 2007

Warrant scare

What a trading day...

Had another scare of my life today trading warrants. This is how I see it today. Dow closed badly last night at neg. 80 so I thought today we should we seeing some corrections. Not those major ones, but at least intermediate in strength because of the underlying strength in both hsi and sti.

So, I was tempted to buy puts in the morning but luckily the slow internet connection sort of saved me from buying. In the end, I waited till market open for hsi before buying call warrants.

1: Bought 10 lots @ 0.915
2: Sold 10 lots @ 0.925
3: Bought 10 lots @ 0.920
4: Bought 10 lots @ 0.900
5: Sold 20 lots @ 0.925

On retrospect, I should have stopped at trade 2. Looking at how hsi dived down to 20600 support and went back up is not a nice experience. I was faltering between cutting losses (big heavy losses around 1k) or holding overnight. In the end I did nothing and went to sleep during lunch.

When I awoke, the situation became more favourable because Merryll Lynch upgraded china mobile (one of the stocks in the hsi index). I guess it rose steadily upwards after that. At the height it reached 0.915 (enough to cover all my losses) but I was greedy and queued to sell at 0.920. Then it dived. That happens around 3:15pm. I thought OH MY GOD I'm going to screw my portfolio again?! At that time I calmed down a bit and told myself that I'll sell at the next high even at a loss. I prepared to cut at 0.910, taking some losses of around 90. Better than losing 1 k I thought and no way I'm going to hold overnight because we're near the market top.

Luckily, another chance came and I seized it. I was cancelling my order to sell at 0.920 and going to press the submit button, when I saw the ticker went up by another bid to buy at 0.920. I straight away key in the order and closed my position. Waves of relief came over me...and I thought what the heck, I won't be doing this kind of things anymore, at least for now.

The price went up slightly to a height of 0.935 after market closes for hsi, but eventually came down to 0.925/0.930. I wouldn't care, I closed my position with no losses and still a small gain of $100, I feel overjoyed already. Could have died today man...jeez..

The whole point of this is that if you bet with the trend, you are going to win big and lose small. Come to think of it, if you went contrarian and bet against the trend , potentially you could win big if you hit the magic spot which is at the peak or trough (depending on whether you buy calls or puts). But if you went with the trend and buy calls when the trend is up and buy puts when the trend is down, you are making less money but your chances of losing is lesser because the margin of error for wrong entry points is much much wider. Look at me, I enter a wrong trade, enter again to average down, waited for the index to go all the way down and went back up again, still made a slight profit. I've got a lot more to learn about this market...

Longcheer went downhill today, in fact it is now trading below my stop loss. But that was due to special circumstances in which insitutional investors bought the shares at a vendor placement at a discount of 1.14. I guess the price might reach around 1.14 for the time being but I think the prospect for longcheer remains. As such, I would not exercise my cut loss even though it is triggered. I hope my decision is correct.

A major revelation. I think the local and regional market is diverging from US market. Look at today, dow jones fell by 80 points and what? Hsi fell by 2 points? STI dropped 10 points, nikkei fell 15 points?? What is happening? Why the sudden bullishness in regional market? All so scary. I would rather STI drop more so that future drop will not be so painful and see it rise all the way so fast. HSI is even worse, you call today a correction?? Been rising non-stop for 4 consecutive days and we have a drop of 2 points today. Tmr should see HSI peaking, based on stochastics, overall still bullish. Same too for STI.

We're really in a crazy bull market.