6:30am
wake up, the sun is still down, some rays are trying to break thru
6:35am
reach for the laptop, turning it on seems like it took forever
6:37am
www.finance.yahoo.com .... ticker: BIDU
6:37:30am
FUCK! pre-market has started BIDU is up $98.12 from last close (a whopping 15%)!
Spend some time reading the news releases (I had listened to their call last night- stellar results)
Everything surprised The Street..... and why shouldn't it, they're a bunch of MORONS
Just a day before the earnings Credit Suisse had downgraded the stock setting everyone up for a fantastic surprise!
7:00am
The Alarm goes off! I hate hearing that sound after I'm already awake!
7:20am
Go to the desk and bring up the trading account! I'm not gonna like what I see!!!
Half wishing I wouldn't see the RED, half expecting that I would!
....NEGATIVE EXCESS LIQUIDITY! ........ in English, "Hey you, I see you like under-estimating risk, we don't like taking on your risk for you.... put in more money!"
8:00am
Call brokerage. Thank God for another human being on the other side, not an automated "If you would like to wait another 500 minutes, Press 1"....
Guy tells me money has to be wired before 9:30am.
8:15am
Call Bank. Thank God for 24/7 service!
"Sorry sir, we can't do a wire over the telephone," says some mellow dude, "You have to go into a branch!"
"I see a branch across the street, at XXX Yonge street! Can I go there?" I say, thinking problems are almost solved.
"Sure, it opens at 9:30!".......... Great!!!! I will be six feet under by then!
8:30am
Send my account manager an urgent email.... No Response....
Call her desk repeatedly..... HURRA.... She picks up!
Explain the situation, Initiate the transfer by email.
8:50am
Call brokerage. "Money is underway!"
Brokerage, "We don't have it, send a confirmation by fax!" .......... WHO STILL USES FAX?
9:00am
Email account manager..... "I need a confirmation emailed to me, I need to send it to the brokerage"
9:20am
Still no response.
Call her repeatedly!
She picks up!....... "We're almost done!"
9:28am
Money still not in the account!
"We're almost done!"
9:29am
"OK!"
9:29:30am
Send confirmation to Brokerage.
9:29:59am
FUNDS ARE IN!
..... take first breath since 8am!
9:30am
Off to the races, BIDU opens high, Options are bid up...... expected!
After 10 minutes, prices are stable again, and liquidity is restored!
LESSONS LEARNED...... coming soon!
Thursday, April 29, 2010
April 29 - To the edge of oblivion and back
What a mess! If BIDU posted any better results I would bet they were faking! Everything was stellar... they beat on EVERYTHING!
Yesterday was dooms day as I anticipated what the $90/share jump in their prices will do to my account this morning. I was right, sure enough this morning the big bad red sign on my account told me that if I don't post collateral the account will be liquidated!
How can I allow them to liquidate the BIDU positions when they are still $90 out of the money!!!! After a hectic morning, the funds were wired from my bank to the account to cover the margin!
As I suspected the option prices had been bid up to about $15 this morning! With the extra liquidity now I am ready to manage these positions without some brokerage selling everything to cover their own ass!
I will post more as we go.... stay tuned!
Yesterday was dooms day as I anticipated what the $90/share jump in their prices will do to my account this morning. I was right, sure enough this morning the big bad red sign on my account told me that if I don't post collateral the account will be liquidated!
How can I allow them to liquidate the BIDU positions when they are still $90 out of the money!!!! After a hectic morning, the funds were wired from my bank to the account to cover the margin!
As I suspected the option prices had been bid up to about $15 this morning! With the extra liquidity now I am ready to manage these positions without some brokerage selling everything to cover their own ass!
I will post more as we go.... stay tuned!
Wednesday, April 28, 2010
April 28 - BIDU follow up
BIDU reported stellar results..... Credit Suisse, I would love to know what you're traders were up to yesterday when you downgraded the stock!!!!
Stock is up to $710 in after-market trading and according to my option modeller, this increases the prices of the calls I'm short to $15 a piece - increasing my required margin for holding these to unpredicted levels.
I will look to pre-market tomorrow to see if I should liquidate these and take a loss or if I can ride it out.
Stock is up to $710 in after-market trading and according to my option modeller, this increases the prices of the calls I'm short to $15 a piece - increasing my required margin for holding these to unpredicted levels.
I will look to pre-market tomorrow to see if I should liquidate these and take a loss or if I can ride it out.
Tuesday, April 27, 2010
April 27 - Interesting action by Credit Suisse (BIDU)
This morning BIDU was downgraded by Credit Suisse from 'Neutral' to 'Underperform'. Traders responded by selling, and the stock price currently stands at $628, down about 2% on the day.
This downgrade comes at a very interesting time - right before the earnings call tomorrow. Do they know something?? Assuming they do know exactly what's going to happen on tomorrow's call... are they downgrading to depress prices so their traders can buy before the prices jump tomorrow?? OR are they trying to get ahead a disappointing call for an "I told you so" kinda thing??
As for my position, the JUN 800 calls are trading at $2.20, which gives me about $1.80/share of paper gains. Realistically these calls should be trading a lot lower than $2.20 given that they expire in less than 8 weeks and they are still $170 (27%) out of the money, BUT the implied volatility associated with the earnings call coming up tomorrow is keeping option prices inflated.
Once the earnings call is over, the volatility will decrease and prices will come down (given that the stock price doesn't jump up huge). I will be watching this closely.
Now it's just a waiting game until tomorrow's call after market closes
.
This downgrade comes at a very interesting time - right before the earnings call tomorrow. Do they know something?? Assuming they do know exactly what's going to happen on tomorrow's call... are they downgrading to depress prices so their traders can buy before the prices jump tomorrow?? OR are they trying to get ahead a disappointing call for an "I told you so" kinda thing??
As for my position, the JUN 800 calls are trading at $2.20, which gives me about $1.80/share of paper gains. Realistically these calls should be trading a lot lower than $2.20 given that they expire in less than 8 weeks and they are still $170 (27%) out of the money, BUT the implied volatility associated with the earnings call coming up tomorrow is keeping option prices inflated.
Once the earnings call is over, the volatility will decrease and prices will come down (given that the stock price doesn't jump up huge). I will be watching this closely.
Now it's just a waiting game until tomorrow's call after market closes
.
Monday, April 26, 2010
April 26 - Why Trading
I'm still waiting for more developments on the BIDU trade, so I thought in the meanwhile I would post on why I like trading as a business.
Trading is a Scalable Business
It is important to have a scalable business to make money. Now what do I mean by scalable?!
Essentially a business that you can expand quickly and without adding too much costs; to gain more money from relatively the same costs. I'll give you an example of what business isn't scalable and what is.
A bakery shop is an un-scalable business. If a baker has a shop that makes and sells 100 cakes a day, that's its capacity. It has employees, equipment, and raw materials to handle that amount of cake making. If the business starts growing and the demand is now 1000 cakes a day, the baker has to hire more employees and buy more equipment and raw materials. The costs go up with more sales.
Microsoft on the other hand, runs a scalable business! Let's take the Windows OS for example. Considerable costs go into making the first copy of the new Windows 7; when it is complete, the profits are scalable. The amount of sales or demand for the product has nothing to do with the costs of making the product - cost will remain relatively constant no matter what the sales. So with the same costs, the business has the potential to make way more money! It all depends on how good the product is and the company is at marketing it.
Trading is a scalable business! The BUY/SELL/HOLD decisions are the same whether you have bought 100 share or 10,000 shares. You have the potential to make more money given your decisions are the correct ones. Your costs (time and effort of research and set up costs) will remain relatively stable, no matter how much money you put into the idea.
Profits Are Directly and Simply Measured
This is another reason why I like the trading business... It is not like working in a corporate culture, where the sum of everyone's efforts drives revenue. Your time, efforts, and efficiancy is direcly measured by how well you did at the end of the day! You can't blame the BOSS for your low income or bonus, and you don't dish out the fruit of your efforts to useless executives. You eat what you kill! Your profits (and losses) are 100% the fruit of your efforts and go into your pocket!
Trading is a Scalable Business
It is important to have a scalable business to make money. Now what do I mean by scalable?!
Essentially a business that you can expand quickly and without adding too much costs; to gain more money from relatively the same costs. I'll give you an example of what business isn't scalable and what is.
A bakery shop is an un-scalable business. If a baker has a shop that makes and sells 100 cakes a day, that's its capacity. It has employees, equipment, and raw materials to handle that amount of cake making. If the business starts growing and the demand is now 1000 cakes a day, the baker has to hire more employees and buy more equipment and raw materials. The costs go up with more sales.
Microsoft on the other hand, runs a scalable business! Let's take the Windows OS for example. Considerable costs go into making the first copy of the new Windows 7; when it is complete, the profits are scalable. The amount of sales or demand for the product has nothing to do with the costs of making the product - cost will remain relatively constant no matter what the sales. So with the same costs, the business has the potential to make way more money! It all depends on how good the product is and the company is at marketing it.
Trading is a scalable business! The BUY/SELL/HOLD decisions are the same whether you have bought 100 share or 10,000 shares. You have the potential to make more money given your decisions are the correct ones. Your costs (time and effort of research and set up costs) will remain relatively stable, no matter how much money you put into the idea.
Profits Are Directly and Simply Measured
This is another reason why I like the trading business... It is not like working in a corporate culture, where the sum of everyone's efforts drives revenue. Your time, efforts, and efficiancy is direcly measured by how well you did at the end of the day! You can't blame the BOSS for your low income or bonus, and you don't dish out the fruit of your efforts to useless executives. You eat what you kill! Your profits (and losses) are 100% the fruit of your efforts and go into your pocket!
Wednesday, April 21, 2010
April 21 - Portfolio Control - Part 3
The topic of today's blog is not so much portfolio control as it is self control!
No one else knows better than you!
If you haven't already, you'll find out soon that when it comes down to talking about the market, especially stocks, everyone is an expert.... everyone has an opinion that they are more than willing to feed you.
Some will tell you that they think the market is going for a crash, some will tell you its going through the roof, some will give you stock tips and 100 reasons why its sure to make you money. The sad part is that the human mind with all its complexities is a vulnerable emotional mushy machine! Add the potential for making money into the future and you have a potential for disaster. When it comes to trading, you are the only one who knows best. Take it from a guy who's made all the mistakes there is to make when he started out trading.
There are people who know what they are talking about and their views will be profitable, but more than 80% of time they will lose you money. What is worst is not that you lost money, but that you let someone influence you and didn't make the decision on your own.
So, stay away from stock tips. Or at least do your own research on what you've heard.
As a side note, what I've found to be very interesting is that people's advice is governed by their own confirmation behavior. This is a very strong human emotion. The people who will tell you the market is going up, have accumulated long positions. The ones that will tell you the market is going down, have short positions. Their advice is their own rationalization of their positions.
No one else knows better than you!
If you haven't already, you'll find out soon that when it comes down to talking about the market, especially stocks, everyone is an expert.... everyone has an opinion that they are more than willing to feed you.
Some will tell you that they think the market is going for a crash, some will tell you its going through the roof, some will give you stock tips and 100 reasons why its sure to make you money. The sad part is that the human mind with all its complexities is a vulnerable emotional mushy machine! Add the potential for making money into the future and you have a potential for disaster. When it comes to trading, you are the only one who knows best. Take it from a guy who's made all the mistakes there is to make when he started out trading.
There are people who know what they are talking about and their views will be profitable, but more than 80% of time they will lose you money. What is worst is not that you lost money, but that you let someone influence you and didn't make the decision on your own.
So, stay away from stock tips. Or at least do your own research on what you've heard.
As a side note, what I've found to be very interesting is that people's advice is governed by their own confirmation behavior. This is a very strong human emotion. The people who will tell you the market is going up, have accumulated long positions. The ones that will tell you the market is going down, have short positions. Their advice is their own rationalization of their positions.
Monday, April 19, 2010
April 19 - BIDU Follow up
Well the time has come and finally the trend is broken!!!
On March 25th I posted that I deemed BIDU to be over-bought and in an unsustainable uptrend. As mentioned on the post I sold several JUN 2010 calls with an 800 strike for $4 premium per share ($400/contract). After a period of time where the prices still kept increasing on the uptrend line the break came on Friday after the market reacted to the negative news on Goldman Sachs. As of right now the stock has declined another $29 (4.6%) and it's only mid-day. The call options are trading at $1.55/share.
I will not buy them back yet as I think this dip will be followed by further downside. Even if the downside is not material it has delayed the uptrend enough that $800/share by June expiry is still far away. I'm looking to either let them expire or buy back at close to zero to close the position.
On March 25th I posted that I deemed BIDU to be over-bought and in an unsustainable uptrend. As mentioned on the post I sold several JUN 2010 calls with an 800 strike for $4 premium per share ($400/contract). After a period of time where the prices still kept increasing on the uptrend line the break came on Friday after the market reacted to the negative news on Goldman Sachs. As of right now the stock has declined another $29 (4.6%) and it's only mid-day. The call options are trading at $1.55/share.I will not buy them back yet as I think this dip will be followed by further downside. Even if the downside is not material it has delayed the uptrend enough that $800/share by June expiry is still far away. I'm looking to either let them expire or buy back at close to zero to close the position.
Thursday, April 15, 2010
April 15 - GOOG Trade Closed
Finally today I close the Google trade which was initiated on February 12, 2010 (click here for the post). I had sold June 2010 PUTS on GOOG for the strike price of $450 for a premium of $9/share or equivalently $900/contract.
Since then Google shares have traded up and the puts have lost value. So today I feel is best for buying them back as Google will report earnings after market closes today. Even with a disappointing report today, I don't think that the shares will tumble to $450, but by closing today I will take out some volatility out of my account and free up margin to take on other positions.
Today the puts which were sold for $9/share were bought back at $0.85/share - more than an $8 gain for a 2 month holding period.
Since then Google shares have traded up and the puts have lost value. So today I feel is best for buying them back as Google will report earnings after market closes today. Even with a disappointing report today, I don't think that the shares will tumble to $450, but by closing today I will take out some volatility out of my account and free up margin to take on other positions.
Today the puts which were sold for $9/share were bought back at $0.85/share - more than an $8 gain for a 2 month holding period.
Tuesday, April 6, 2010
April 6 - Portfolio Control - Part 2
Hi all... hope you've had a great Easter long weekend.... I know I did!
I've had a lot of great feedback from the last "Portfolio Control" post. Hopefully you've all had time to think about how important position sizing is to your trading and trading account. It is actually considered to be one of the main pillars of trading. There are more, some of which I will discuss in this post.
Don't Let a Trade Become an Investment
One rookie mistake that I must admit I'm very guilty of committing is rationalizing your trade as an investment when it doesn't work out. Let's say that you bought some shares in Advanced Micro Devices (AMD) because you thought it was a good short-term trade, but it didn't go your way and the stock fell. If you've had a predetermined stop-loss price it should remain there and you should get out when and if its hit. But what many beginner traders do is that they rationalize that AMD is a good company anyway and bound to go up eventually so maybe I will keep this for the long term.... it will go up.
This will ruin your account in the long-term, because its not good trading. Those positions pile up in your account, you lose track and they may very well end up going the way you want, but all the same they might go against you more and more everyday. When you finally close it, it will have eaten into way too much of your hard earned profits.
A very important trading rule, and one that I still need to remind myself from time to time is NOT to let a trade become an "investment."
I've had a lot of great feedback from the last "Portfolio Control" post. Hopefully you've all had time to think about how important position sizing is to your trading and trading account. It is actually considered to be one of the main pillars of trading. There are more, some of which I will discuss in this post.
Don't Let a Trade Become an Investment
One rookie mistake that I must admit I'm very guilty of committing is rationalizing your trade as an investment when it doesn't work out. Let's say that you bought some shares in Advanced Micro Devices (AMD) because you thought it was a good short-term trade, but it didn't go your way and the stock fell. If you've had a predetermined stop-loss price it should remain there and you should get out when and if its hit. But what many beginner traders do is that they rationalize that AMD is a good company anyway and bound to go up eventually so maybe I will keep this for the long term.... it will go up.
This will ruin your account in the long-term, because its not good trading. Those positions pile up in your account, you lose track and they may very well end up going the way you want, but all the same they might go against you more and more everyday. When you finally close it, it will have eaten into way too much of your hard earned profits.
A very important trading rule, and one that I still need to remind myself from time to time is NOT to let a trade become an "investment."
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