Wednesday, March 04, 2015

Old posts made new: Warrants Trading

I'm starting a new series in my blog, called "Old posts made new". I know, the name is quite lame and I'm not in a creative mood to come up with fancy name now. In this series, I'll look back at some of the past articles I've posted in my site and compare to see if it still stands true now. Most importantly, I'll share some of the psychology behind my thinking in the past and contrast against that of now. I hope that in this series, I can reflect and think about whether I had aged AND grown wiser over the years.

In this debut of the series, I'll talk about my trading of warrants way back in 2006. Using the word 'trading' might be a bit kind to myself - the actual situation is just whacking. If you look at the posts in my 2006 history, it's all about warrants. Why did I choose to enter the stock market using such an exotic instrument instead of the more normal blue chips or small caps?

It's capital. I only have a very small capital to begin with, and naive as it sounds today, I thought that if I can buy more because it's cheaper, I can make more. At that time, I didn't know that warrants are highly leveraged and also highly cornered. It's a wonder, even till today, that I didn't blow my account out.

My trading size back in 2006 was about 10k a pop. Since warrants are about 20 cts to 60 cts, I'm holding about 20k to 40k number of warrants. Scalping is what I think is the closest term I can use to describe what I'm doing. Since I hold such a large number of warrants, a small tiny movement enables me to reap profits (or losses) after transaction costs. And back then, I didn't know anything about charts so I was scalping without any guide or roadmap. Basically, I'm just picking pennies in front of a bulldozer.

I was going in and out several times a day. My stock screening 'technique' is just to see which counters are the top volume of the day, and trade that particular warrant. It was so incredibly funny looking back at how I 'played' the stock market, treating it like a casino betting on BIG or SMALL. Some days, I'll make 1k, sometimes I'll lose 2k, but I think most of the time, I'm making a few hundreds a day. Back then I just started my career as a tutor, so I'm earning less working for 6 hours a day, compared to just a few minutes trading the warrants. It was an amazingly f up realisation that you can earn more money in the stock market compared to your work, and that makes you NOT want to work. Back then, it was the height of the bull market and the music in the party was especially loud and intoxicating with everyone almost drunk with all the money they had made from the stock market. Who would know that in a span of 1 to 2 years, everything will come crashing down?

So why did I stop trading warrants?

Ironically, it was when I read more about it. I bought a book on warrants trading and initially I wanted to master it. I also picked up more books about technical analysis and charting. The more I read, the more I realised I can do it and I went in with greater and greater sizing, thinking that if I'm smart without knowing all these and I can still make money, I'll be invulnerable now! Such hubris!

In 2007, my position sizing increased to a staggering 40k in one single position. Let me break this down for you. The warrant is about 73 cts, and I went in 55 lots at 1000 shares per lot. One tick of 0.01 movement means $550 dollars. And warrants are very volatile and they move A LOT! I lost 1.5k on that trade alone. It could have much much worse, on hindsight.

In 2006, I was ahead by 3k but in 2007, I was down by 9k. Overall, I lost about 6.2k trading warrants, with most of it lost in 2007. It's like I've lost my magic touch. But no, I knew that I don't have any magic touch at all and it's really thankful that I didn't lose much more than that.

What are the lessons that I drew from this?

1. Everyone has a gambling nature. It's just whether we can find the proper channel to unleash that beast inside you. I think it's more important to honestly recognise that you are addicted than to say, oh, I won't ever gamble and I'm risk adverse and all the other bullshit you kid yourself so that you don't have to face your inner demons. I'm generally a careful conservative person who is extremely prudent with money. I'm shocked at how I can totally reverse 180 degrees to be a 'warrant prince'. It can happen to me, and it can happen to you too. Be honest and recognise that you have a Dr Jekyll and a Mr Hyde within you - it's just that most of the time, you kept Mr Hyde on a leash.

2. Position sizing and loss cutting. The relation between these two are inversely related. If you have a huge position sizing, you must have a strict cut loss. If you have a smaller position sizing, you can have a wider cut loss. If you already planned out your portfolio such that no position is more than x% of your total portfolio, then you might never have to cut loss if you're not of the trader mentality. The point I'm making is that you should make sure that any individual counter CANNOT rock your entire boat. It applies equally to nonsensically averaging down techniques. You can literally average down a sinking stock all the way to kingdom come. If you use leverage, and you screw your position sizing, and have a lax cut loss, I hope you have a put warrant out there so that I can buy it to short you!

3. In bull times, everyone wants to be a trader. When you see your returns from the stock market earning more than the time and effort from your work, it can seriously f up your mind. History repeats for those who do not know them. I'm very sure in the future, I'll see a new batch of young punks wanting to earn easy income from the stock market and complain about the purpose of studying/working/earning active income etc etc. I might already be seeing signs of them now.

4. Greed and fear can work magic on your mind. I noticed during my warrant trading days that if I'm wearing a certain T-shirt, I usually win more than lose. So, I try to wear my lucky shirt in order to win from the market. Stupid shit like these are warning signs that my emotional state is fragile and I need astronomical and godly help for everyday life to function in the way I want it. You'll notice that I always pay attention to my emotions and psychological state. Now you understand why.

It wasn't easy talking about old battle scars. I wasn't proud of them and I wouldn't normally revisit and peel off those scabs just to see if the wounds are still bleeding red or not. But I think it's important to make your mistakes, own them and make f-king sure you won't ever repeat them.

Gosh...I lost count of how many 'F' I mentally scolded myself during the course of writing this post.


Createwealth8888 said...

It is still good to learn real market lessons from real people.

No snake oil selling stories!

:-) :-) :-)

la papillion said...

Hi bro8888,

haha ;) I'm as real as it gets :)

OT83 said...

Hi all,

Add one more.

Don't follow hot tips from "Gushen" without doing your own homework

think I burnt around 8-9k last time from averaging down with no proper position sizing.


Singapore Man of Leisure said...



To put it into perspective, one tick with the Simsci contract is "only" $20.

That means you were trading the equivalent of 27 Simsci contracts in 2007!?

Trading part-time some more!?

You were "lucky" to only have paid $6K as school fees...

Hey! That's the power of youth! Fearless! (Or maybe clueless, LOL!)

But then, it's what make us who we are today ;)

la papillion said...

Hi ot,

Haha, I know which one you kena ;)

I also have a story on averaging down that I will share in future posts in the series :)

la papillion said...


I'm a hero mah, invincible and young! I agree with you that I'm very lucky to have lost only 6k+ doing stupid things like that in the stock market. But now my Mr Hyde is revealed and thus I can control him and keep him on leash.

It's better this way than not ever knowing when your beast within will appear. Everything happens for the best ;)

la papillion said...


I'm a hero mah, invincible and young! I agree with you that I'm very lucky to have lost only 6k+ doing stupid things like that in the stock market. But now my Mr Hyde is revealed and thus I can control him and keep him on leash.

It's better this way than not ever knowing when your beast within will appear. Everything happens for the best ;)

Createwealth8888 said...

We shouldn't play play with leverage unless we really want to turn Pro.

There is one Chinese saying:"Lose until ki siao" and betting even bigger to recover losses.

One of my close relatives almost bankrupt doing shares financing during AFC by betting even bigger. Shares financing was quite popular among retail traders/investors before AFC.

SGRetailTrader said...


I think your "school" gave you heavily discounted rates.. mine charged me $50k for the same lesson! :P

la papillion said...

Hi bro8888,

Agree. Leverage amplifies your gains as well as your losses. I don't see why we should be in a hurry to gain a lot more money and also to lose a lot more money.

I hardly hear of margin financing these days. Seems like after the sub prime, these kind of things quieten down.

la papillion said...

Hi RT,

Oh, wow! Gulp...I think I got a scholarship, that's why a bit cheaper for me...pai seh pai seh!