Stock Traders Blog

Baidu September Option Pain Raised Again

BloggingTrader — Sat, 05 Sep 2009 04:03:23 PDT

I brought and closed the 2 Baidu September put contract I was holding. I net about $400 hundred on that deal. I didn’t wait for it to expire because that was quite a return given the small amount of investment ($600) in a short period of time. I feel there may be chance for me to sell put again at a good price before the option expiration day. It is the third time I make money on trading options. Baidu’s September put options pain was raised again at $320 currently. Looks like traders are not as bearish on Baidu as they were at the end of last month.

account balance 2009/09/05

My account balance is still short of my initial investment amount. But I am not eager to earn it back. I will just take it slowly. I feel comfortable with what I am holding and I think the day I recover my initial investment amount is not far. My focus recently is to get back to work. I really feel it is not easy to get a job nowadays. I feel the companies that are looking for people are pickier and they take it slowly. With 9.7% unemployment rate the companies that are hiring are sure to have a lot more choices than before.

I am not convinced that the recession is ended. I believe the problems of the banks are not over yet. I kind of think that the real estate market is better only because of the government’s incentive for first time buyers. Retail sales didn’t have major improvement. Further more I believe foreclosure will continue to raise as more option ARM reset occurs. I am maintaining a major portion of cash in my portfolio and waiting for opportunity.

Seems That Baidu is Able to Predict the Market Trend

BloggingTrader — Wed, 02 Sep 2009 15:09:54 PDT

I mentioned in my previous post that Baidu’s September option pain was $300. I checked it again and the option pain was higher a little bit at $310 at the moment. What would be your guess if you predict Baidu’s price movement without looking at the option pain a couple weeks ago when Baidu was about $340? I would probably think it would go up instead of retreating. Obviously option pain can really tell something. It can tell how institutional traders see a particular stock. If option volume on an issue is large enough option pain on that issue may be able to tell how institutional traders see the market overall.

I checked INTC and BAC September and October option pain. They are trending downward. They seem to tell the bearish sentiment of the market should be extended into October. However Baidu’s Oct option pain is at $330 which is higher than September’s. I am not sure if you agree or not but I have already convinced that option pain is a very good leading indicator on the underlined issue or even the overall market.

Anyway I didn’t trade for a while. I was busy looking for a new job. I add 200 shares of CSKI at $13.09 and I sold 2 contract of Baidu Sep 290 Put at $3. I was thinking if Oct Baidu option pain is $330 I wouldn’t mind to have it at $290 in the mid of September. There is $20 difference or about 9% difference between $290 and Sep option pain. I thought it could be safe. But again who knows. We will see how it goes.

Baidu Option Went Well and I Saw a War Between CSKI Management and Professional Short Seller

BloggingTrader — Sun, 23 Aug 2009 02:46:31 PDT

My Baidu put option went well finally. I collected the $420 option premium. In my previous post I mentioned I sold a contact of Baidu Aug 320 Put. The market took a deep a few days ago. I thought the put would end up in the money and I would be forced to buy Baidu at $320. I didn’t mind if that happen though. But magically on expiration day which was the passed Friday Baidu closed at $344, a price very closed to its option pain. Seems to me the option pain theory has some credibility. It is the second time I sold put and it is the second time I saw stock price closed near option pain on expiration day. Baidu’s September option pain is $300. Does that mean institution traders are bearish on Baidu? I really want to fine out next month.

I believe CSKI is under value and I did some research on the stock to find out what was holding back this company. I found there was a so called professional short seller spreading news that he had reason to believe CSKI management was providing incorrect financial information. He even has a web site to tell his story http://waldomushman.com/. I don’t know whether I should believe this rumor. Maybe the short seller used to be a potential investor on CSKI but got opt out and felt pissed off. That is wild a guess and I hope that is the case. CSKI has to proof to all investor that the short seller is wrong. I feel there is a war between CSKI’s management and the professional short seller. I am still holding CSKI and of course I hope CSKI management will win the war at the end.

I Have Got Harsh Comments From CAP

BloggingTrader — Wed, 19 Aug 2009 02:11:44 PDT

I haven’t update the stock traders blog for a while because I was busy. I took a look today and I found someone name CAP posted some really harsh comments. I deleted most of them. Sorry about that CAP! I hope it is not because CAP followed some of my trades and lost money on them. The information on my blog can not serve as investment or trading advice by any means.

I was wrong on many of my trading positions taken lately. Especially the put position on Baidu. I sold one contract of Baidu Put and I am still holding it. As I mentioned before Baidu likes to follow its home market, the Chinese stock market. At this time PST 1:47 AM 2008-08-19 the Chinese stock market dropped some 5%. Seems to me the US market will be ugly when it open later today. In fact US future already dropped almost 100 points. If Baidu drop 5% today it will be below $320, the strike price of my Puts. There is a very high chance that I will lost money on the Puts. I will know this weekend. I added another stock to my portfolio though. That is Monlia Healthcare(MOH). I bought it at $19.95, 100 shares. And I am losing money on that again. CAP said I almost lost money on every trades and can’t believe I am holding an MBA. That’s almost true.

Indeed I wasted a lot money getting my MBA. If I didn’t take it I would have saved a lot of tuition. If I didn’t take it I wouldn’t trade stocks and I wouldn’t lost $70K. Do I regret taking it? I don’t think so. I might have gain something not in monetary terms while I lost this money. At least I felt OK that I still survive after this kind of lost.

Under Valued Stock - CHINA SKY ONE MEDICL (CSKI)

BloggingTrader — Wed, 12 Aug 2009 03:26:24 PDT

It is very hard to find under valued stock nowadays but I came across a stock that I believe under valued based on its financial statements. The company I mentioned was CHINA SKY ONE MEDICL (CSKI). I found its business is simple and its operation and its book are very easy to understand not like those banks you don’t know what is true and what is not. I brought 200 shares of this stock today at $15 something and I am planning to hold it for a while. I sold my Fortress Investment holding at $5 today. I made about $350 on that stock.

As I mentioned I like CSKI because its business is simple and easy to understand. It produces and sells over-the-counter drugs in China. I went to its web site. It has a portfolio of over-the-counter drugs. So its sales are not relying on a single drugs and it has a pretty stable sales trend. More importantly it has a very healthy cash flow. It makes profit for the past four quarters and its trailing 12 month P/E was lower than 8. Forward P/E is a bit more than 6. Price to cash flow is less then 10. Net income grow was more than 30% for the past three years. I don’t think I can find a second company like this. It was under valued by all measure.

If you are reading this post I hope you can take a look at it and post what you think about it. Are you able to find any company comparable to this one? I am thinking about all in again. By the way I bought 500 shares Dry Ship again at $6.45 a couple days ago. Planning to hold it for a while too.

Can I Be All in Selling Baidu Put

BloggingTrader — Tue, 11 Aug 2009 00:58:56 PDT

Once a while I have this crazy thoughts. I did not have too much crazy act though. Evey time I act crazy I got burned. I mentioned I ever short 3000 shares of Well Fargo using margin capital almost 2 times of what I had in my account. Today I had a crazy thought again. I thought about using all the cash in my account selling Baidu August 320 Put. I really don’t think that Baidu will go back to $320 a share by August 22nd. If it does I believe it will create a buying opportunity. That is why I want to sell Baidu August 320 Put. At the end I only sold 1 contract for $420. I ever mentioned that selling put is a strategy to earning more than CDs rates if you have cash sitting idl. I still believe so. But we’ve got to be very careful picking the stock and option strike price when doing that.

After I sold Baidu put I saw my account requires me to remain $6,374 of cash. So if I want to be all in the maximum number of contract I can sell is 4 only. 4*420 = $1680. So if everything works out the all in strategy can net me $1680 by August 22nd. It looks like Baidu is not going back to $320 given the current market sentiment. But my experience told me it is very hard to predict. Market sentiment can have 180 degree change over night triggered by a single story. So I dare not to be all in. Anyhow I am holding two positions now. 500 shares of Fig (Fortrest investment group) and 1 contract of short Baid Put. The picture shows my balance.

As to Fortrest investment group. I feel it will reach 6 if the market remain positive. Blackstone drop a lot today and it seem to me it will go up tomorrow and so will Fortrest investment group. let’s see what happen tomorrow.

I Bought Something Today

BloggingTrader — Tue, 04 Aug 2009 16:11:24 PDT

I finally decided to buy something today. I bought 500 shares of FIG (FORTRESS INV GP LLC). That is not much and I am planning to hold it for a while. I just bet it will report a good quarter. I thought Bank of America would go down after its earning release but that thought was proven so wrong. BAC just kept going up with the other big banks and with the overall market. If I don’t remember wrong almost all data released these few weeks exceeded expectations. The Dow went from 8150 to 9300 in a few weeks. It turned out that we should be all in when the DOW was at about 8000. And it clearly showed a V share recovery at least during the past two quarters.

Thinking back I was quite stupid to liquidate my entire portfolio back in March when the market was close to its lowest. As I mentioned I had a portfolio of about 100K back in year 2000 and when I liquidated my portfolio I got back about 30k. I still keep track of my original portfolio and my original portfolio has MSFT, INTC, ORCL, JNPR, EMC and SNPS. If I didn’t touch it I would have 65K today instead of 27k. So I started to question my new ways of investing - day trading. What I see is that there is no one way of investing to work well at all times. I bet no day trader worked better than someone that bought and held for the past couple of quarters.

I ask myself do I want to go back to buy and hold? I don’t know the answer yet. I feel there are some companies worth to buy and hold. I am recently looking at something very conservative like Q(Quest Communication), OB (OneBeacon Insurance Group) and BP. I might be too late on OB because I feel its price is going to jump starting today. I am watching the big banks also. The big banks were doing very well but somehow I feel they are just very good at hiding the bad news or postponing them. I still think they are overvalued unless they resume a reasonable size of dividend payout which could be years away.

I haven’t report my balance for a while and there is not much change. My balance stood at $27,107 and I am holding 500 shares of FIG at the moment

Off Balance Sheet Financing Example

BloggingTrader — Sat, 01 Aug 2009 05:23:34 PDT

There are a lot of concerns about the banks’ off balance sheet asset lately. New accounting rule will take effect starting next year and require banks to move certain off balance sheet asset back to their balance sheet. This change was triggered by the shady practice of using off balance sheet financing in the Enron case. Many analyst expect when that happens banks with large off balance sheet asset will be forced to raise capital again.

I tried to find an example of bank’s off balance sheeting financing but didn’t really find one. However I found the following was very close to an example and it is the best explanation about off balance sheet financing. “Uncovering Hidden Debt“

Wells Fargo and Bank of America were said to have huge off balance sheet asset.

2009-07-24 Wells Fargo’s Balancing Act
2009-07-21 Analyst sees $12 bln reserve charge for B. of A.

That was why I didn’t trade any financial stock lately. I don’t want to short. I don’t want to trade in and out as frequent as I did. I don’t believe in the banks’ balance sheet. All of these make me trading nothing lately. I am still waiting for the DOW to come down below 9000. I believe it will happen.

Wells Fargo Earning Highlights Compare

BloggingTrader — Wed, 29 Jul 2009 11:17:15 PDT

I read through Well Fargo’s first and second quarter earning releasing and jog down the hightlights of the report in a comparable list. Hightlights number 24 and 27 to 30 are the focus. I will blog more about them in later post.

Reference: https://www.wellsfargo.com/invest_relations/earnings.

Wells Fargo 2009 Second Quarter Earning Highlights

1, Net income: $3.17 Billion
2, Net income applicable to common stock: $2.58
3, Diluted earnings per common share: $0.57
4, $0.7 billion ($0.10/per common share) credit reserve build
5, $0.24 billion ($0.03/per common share) merger-related expenses. $0.57 billion ($0.10/per common share) FDIC assessment
6, Revenue: 22.5 Billion
7, Legacy Wells Fargo revenue 13.6 billion
8, Net interest margin 4.30%
9, Core deposit: $765.7 billion
10, Tangible common equity: 54.9 billion, TCE ratio 5.24%
11, Tier 1 capital ratio 9.80%
12, –
13, Allowance for credit losses to $23.5 billion. 2.86 percent of total loans and 1.5 times nonperforming loans
14, $0.04 billion write-down of impairment on debt and equity security
15, Pre-tax pre-provision profit: 9.8 billion
16, Net interest income: $11.8 billion
17, Total loans were $833.9 billion
18, Noninterest income of $10.7 billion
19, $1 Billion MTM gain. $2.3 billion increase in the fair value of the MSRs offset by a $1.3 billion economic hedge loss in the quarter
20, Trust and investment fees of $2.4 billion
21, Service charges on deposit accounts of $1.4 billion
22, Card and other fees of $1.9 billion
23, Trading revenue of $0.75 billion
24,

Net unrealized losses on securities available for sale reflected in equity of only $0.4 billion down from losses of $4.7 billion at March 31, 2009. “The net unrealized losses were virtually eliminated as credit spreads narrowed during the quarter and as unrealized gains emerged on new mortgage-backed securities (MBS, purchased during the quarter at the peak in MBS yields)”
25, Noninterest expense was $12.7 billion
26, $0.57 Billion FDIC assessment. $0.24 billion merger-related expenses
27, Wachovia’s total net charge-offs in first quarter were only $0.98 billion
28, Second quarter net charge-offs were $4.4 billion
29, Total nonperforming assets were $18.3 billion. $15.8 billion of nonaccrual loans (nonperforming loans)
30, Loans 90 days or more past due and still accruing totaled $16.7 billion
31, –

Wells Fargo 2009 First Quarter Earning Highlights

1, Net income: $3.05 billion
2, Net income applicable to common stock: $2.38 billion
3, Earning per common share: $0.56
4, $1.3 billion ($0.19/common share) credit reserve build.
5, $0.2 billion ($0.03/common share) merger-related expense. $0.34 billion FDIC assessment
6, Revenue: $21 billion
7, Legacy Well Fargo revenue: $12.3 billion
8, Net interest margin: 4.16%
9, Core deposit: $756.2 billion
10, Tangible common equity: $41.1 billion. TCE ratio 3.28%
11, Tier 1 Capital: $88.9 billion. Tier 1 capital ratio 8.28%
12, Credit write downs from the Wachovia acquisition: $40 billion
13, Allowance for credit losses: $22.8 Billion. 2.7% of total loans. 2.2 times nonperforming loans
14, $0.5 billion write-down of impairment on debt and equity security
15, Pre-tax. Pre-provision profit $9.2 billion
16, Net interest income: $11.4 billion
17, Total loans: $843.6 billion. $119.4 billion of consumer loans
18, Noninterest income: $9.6 billion
19, $0.88 Billion MTM gain. $2.8 Billion Reduction of (MSRs) mortgage servicing rights and $3.7 billion hedge gain.
20, Trust and investment fees of $2.2 billion
21, Service charges on deposit accounts of $1.4 billion
22, Card and other fees totaling $1.8 billion
23, Trading revenue of $0.79 Billion
24,

The net unrealized loss on securities available for sale declined to $4.7 billion at March 31, 2009, from $9.9 billion at December 31, 2008. Approximately $850 million of the improvement was due to declining interest rates and narrower credit spreads. The remainder was due to the early adoption of FAS FSP 157-4, which clarified the use of trading prices in determining fair value for distressed securities in illiquid markets, thus moderating the need to use excessively distressed prices in valuing these securities in illiquid markets as we had done in prior periods.
25, Noninterest expense: $11.8 billion
26, FDIC assessments: $0.34 billion. $0.12 billion additional insurance reserve. $0.2 billion merger related costs. Total integration expense to be $7.94 billion and will be spread over the integration period
27, Wachovia’s total net charge-offs in first quarter were only $0.37 billion after a total of $40 billion of credit write-downs have already been taken through purchase accounting adjustments.
28, Net charge-offs for the combined Company were $3.3 billion
29, Total nonperforming assets: $12.6 billion. $10.5 billion of nonperforming loans
30, Loans 90 days or more past due and still accruing totaled $15.1 billion
31,

“We have built reserves for six consecutive quarters, dating back to fourth quarter 2007 when credit deterioration became evident,” said Atkins. “These reserve builds have strengthened the balance sheet and position us for the future. We view a considerable portion of the $23 billion allowance to be essentially like capital since we won’t draw on this reserve until the credit crisis ends and loan losses decline. Current accounting policies will then require us to reduce the allowance, increasing profit and increasing capital ratios at that time.”

Trading is 90% Mental and Momentum

BloggingTrader — Wed, 29 Jul 2009 00:31:01 PDT

If you followed my blog you know that I was betting on the wrong site of the market for a while. I closed all position I was holding today and I am currently down 10% from my initial investment. In order to recover my investment I need to earn more than 10% now. I am not going to be trading as often as I did going forward because I think I made too many stupid mistakes trading in and out. Just a few days ago I shorted 1000 shares of HIG (Hartford Financial Service) at $14.18 and cover it at $15.83 yesterday.

One past experience told me not to take the short side so easily but another one (I Can’t Help Thinking About my Big Short Trades) told me if I could hold on to my short position I would eventually see profit. I shorted HIG not without reason backing it. HIG is one of the insurer that needs TRAP money. If HIG were able to return to profit so easily it wouldn’t need TRAP money in the first place. Because of this and the later experience I shorted HIG without carefully evaluating the news that bumped HIG (U.S. insurers to get 2nd-quarter investment boost). I might be right and I might be able to see profit if I hold on to the short HIG position till tomorrow. I might be able to see profit on my puts on Starbucks Coffee and US Bank if I hold on to them. But somehow I feel it doesn’t worth to take the risk. Risk on the short side is much bigger but return doesn’t seem to be better. So going forward I will not take the short side any more.

One last thing I want to remind myself again and again: Trading is 90% Mental and Momentum.. It is news driven. My blog’s commentator also reminded me that. I have got to take it seriously.