Yong-Long Lai

Got stopped out of my PEM (CFD) position today. PEM is going up and down and actually trading at a nice support level now. There is a lot of volatility in the market causing some crazy movements.

 The Trade
15th May 2007 Buy 4,700 PEM @ $4.31 ($20,257.00)
30th May 2007 Sell 2,475 PEM @ $4.049 ($10,021.28)
30th May 2007 Sell 2,225 PEM @ $4.06 ($8.983.50)

Net Loss is $1,202.22 (there a $50 brokerage because my sell order got broken into two trades and interest)

Lesson:
With actually buying and selling options/CFD or Shares I’ve noticed that when you double dip (due to greed) you tend to lose out. It is better to do these sort of trades quickly in less than a week and turn it around because there is much more gain. I was actually advised by the broker to close this position out when I was up nearly $1,000 but I didn’t even though the previous support lines were broken. Its obvious the greed emotion kicked in and I was punished for it.

This is why I prefer doing spreads because when you enter a position you are usually winning, and the market can actually go against you and you still win. Your outcome horizon is fixed at the option expiry, and you know exactly how much money you can make or lose in a fixed period of time. The best part is you know what you need to do when the outcomes happen, its like having the answer before you see the questions. 

Trading options, CFD and shares requires you to monitor the shares daily and I’m just too lazy for that sort of stuff. I’m crap at timing and don’t like making quick decision on the fly especially if things changes every second. That being said, I think think CFD and options are great instrument if used together, e.g. protected CFD – I might test out some of Daniel Kertcher’s strategy for fun and see how it goes.

Thats it from me, have a good one!

ANZ pulled back today, been stalking this stock for the past few days trying to sell the $28.3 insurance for net credit fo 10c told my broker to leave the position open and see if I get filled. Since i’m a lucky guy by birth, I got filled for this one. ANZ has been hammered pretty badly over the past month shedding over $2.71 (8-9%) from the high of $31.5 to today’s close of $28.79. There’s plenty of support at these levels and looking at the banking sector, majority of the banking stocks have not be hammered as bad as ANZ. ANZ should be a good trade and a good stock to diversify in for my portfolio.

This month my whole pie is full using just over 50% of my money pie in 6 trades. This includes the NewsCorp (NWS) which i have rolled out from last month. If all goes well this month, i am looking to cash in $6,168.52($9,137.32 -$2,968.8 for NWS cost to roll from May 2007). This is the best part of my trading plan, I wait till about 2-3 days before 28th June 2007 watching the market once a week to check the position if I choose to. Its pretty passive.

 Anyway, need to post my CFD loss now.

The Trade (ANZ) – Traded on 30th May 2007
Sell Jun $28.3 Puts @ $0.245
Buy Jun $27.82 Puts @ $0.145

Expiry = 28/06/2007
Share/Contract = 1042
Max Profit = 0.10 (0.245-0.145)
Max Risk = 0.38 [(28.3-27.82) - (0.245-0.145)

Return on Risk = 26.31%
Breakeven = $28.2

I opened 10 contracts:
Reward for trade (excluding fees) $1042.0
Reward for trade (including fees) $832.6
Value At Risk $3,959.6

Opened a WDC today, this one is in the money – chasing the premium for this one. Jowy, my girlfriend actually bought some of these shares last week and I was actually telling her it was a good trade as long as it stays above $20.5 because there is plenty of support there. Today was a huge up day with plenty of volume support and is looking like a double bottom formation. That being said, the trade is good because there is plenty of support at $20.5 I also entered this trade to ‘diversify’ my portfolio. Most of my current holdings are resources and that one Newscorp from last month. Decided to chase the money for this one, I could have got about 12c for a 50c spread which is one strike lower (20.5/20) but opted for this one…

Lets see how it goes! I’m still on a look out for one more trade for this month. something not in a resource sector, wouldn’t mind a bank… was actually looking at ANZ, but it has already moved up. So have to see how it is tomorrow and for this week.

Anwayys, very busy this week! so many things happening, so will keep this on short

The Trade (WDC) – Traded on 29th May 2007
Sell Jun $21.0 Puts @ $0.445
Buy Jun $20.5 Puts @ $0.25

Expiry = 28/06/2007
Share/Contract = 1000
Max Profit = 0.195 (0.445-0.25)
Max Risk = 0.305 [(21.0-20.5) - (0.445-0.25)

Return on Risk = 63.93%
Breakeven = $20.805

I opened 10 contracts:
Reward for trade (excluding fees) $1,950.0
Reward for trade (including fees) $1,740.6
Value At Risk $3,050.0

My internet stuffed up yesterday and was in meetings after work yesterday till late so here is what I did yesterday. I was in LHG last month and is still looking good this month, it had a pull back recently and is bouncing off its support. Entered this for a good return, even though its at near the money.

The Trade (LHG) – Traded on 28th May 2007
Sell Jun $3.07 Puts @ $0.105
Buy Jun $2.83 Puts @ $0.035

Expiry = 28/06/2007
Share/Contract = 1060
Max Profit = 0.07 (0.105-0.035)
Max Risk = 0.17 [(3.07-2.83) - (0.105-0.035)

Return on Risk = 41.18%
Breakeven = $3.00

I opened 20 contracts:
Reward for trade (excluding fees) $1,484.0
Reward for trade (including fees) $1,252.2
Value At Risk $3,604.0

Broker called me this morning cause there was a strong pull back in the market, this effectively wiped out this months gain (ie big wipe out)

CSR has been side way trading for the past 5-6 months. Its currently trading at its support level of around $3.50, there is strong support there. In addition, there is further support at $3.25. This is a relatively good position as it is quite far out of the money and there are support levels close by.

The Trade (CSR)
Sell Jun $3.47 Puts @ $0.10
Buy Jun $3.24 Puts @ $0.04

Expiry = 28/06/2007
Share/Contract = 1079
Max Profit = 0.06(0.10-0.04)
Max Risk = 0.17 [(3.47-3.24) - (0.10-0.04)]
Return on Risk = 35.29%
Breakeven = $3.41

I opened 20 contracts:
Reward for trade (excluding fees) $1,294.8
Reward for trade (including fees) $1063.0
Value At Risk $3,668.2

===========

ZFX had a huge fall today, wiping out an entire months of gain (similar to the All Ordinary). ZFX remains a good stock from previous months trading as it is back to its ‘pre-breakout’ level. There is strong support at $16 and further support at $15.5. Managed to open this position quite far out of the money with strong support levels close by.

The Trade (ZFX)
Sell Jun $16.0 Puts @ $0.305
Buy Jun $15.5 Puts @ $0.195

Expiry = 28/06/2007
Share/Contract = 1000
Max Profit = 0.11(0.305-0.195)
Max Risk = 0.39 [(16.0-15.5) - (0.305-0.195)]
Return on Risk = 28.21%
Breakeven = $15.89

I opened 10 contracts:
Reward for trade (excluding fees) $1,100.0
Reward for trade (including fees) $890.6
Value At Risk $3,900.0

My broker mentioned that I could close out WBC for $0.04 so I had a look at the trade and decided to go ahead with it. I figured, since I got 15c for this and its going to cost me 4c to lock in my profits.

Why did I close this trade?

• Firstly, I am in a profit position
• WBC has been performing poorly over the past few days
• Its nearing options expiry day and WBC is trading very lose to the ‘danger’ zone
• Past experience has taught me not to ‘double down’ on a 50/50 outcome, if WBC was trading further away from the ‘danger’ zone I would hold it till the end. In this case, its way too close and tomorrow is just 50/50 and I rather make less money then wait a whole month

This trade made me $785.9 instead of an expected $1,290.6 ($504.7 less cause of the 4c and brokerage) – I’m happy with this trade. You would be too if you spent less than 30mins opening it.

I’m going to see if I can sell my long put for anything tomorrow, it might be worth something if WBC drops tomorrow!

Today is your lucky day, you guys get to see an example when things don’t go exactly the way we plan… Got called today by Nigel (one of my brokers from Tricom) They said NWS turned “delta one”, which is BAD. All it means is that I need to take action today to prevent people from making an insurance claim on me. Kind of funny when you think about it, all those insurance company always trying to NOT pay out on insurance, thats exactly what i’m trying to do!

Okay this is a simple transaction, what we essentially try to do is cancel the policy for this month and sell another policy for the next month hoping to make the same amount of money over 2 months instead of 1 month.

My Initial Trade (NWS) – Traded on 27th April 2007
Sell May $29.5 Puts @ $0.345
Buy May $29.0 Puts @ $0.21

Expiry = 24/05/2007
Share/Contract = 1000
Max Profit = 0.135(0.345-0.21)
Max Risk = 0.365 [(29.5-29.0) - (0.345-0.21)]
Return on Risk = 36.99%
Breakeven = $29.365

I opened 10 contracts:
Reward for trade (excluding fees) $1,350.0
Reward for trade (including fees) $1140.6
Value At Risk $3,650.0

Closing the above trade – Traded on 23 May 2007
Buy May $29.5 Puts @ $0.53
Sell May $29.0 Puts @ $0.14

It cost me $0.39 x 10 contract = $3,900
Remember I received $0.135 x 10 contract = $1,350 at the beginning
So, net loss $2,550

All up NWS it cost me $2,968.80 to close my position - brokerage etc. inclusive (in short, I made a loss on this trade)

If you except a full prove system you can keep dreaming! I am only managing the porfolio risk by employing simple money management system with great discipline. It’s not important which way the market moves, as long as you manage your money smartly over a period of time you will be up. Currently I have a 75%-80% win/loss ratio which will improve this month and in the future months.

You will now do one of the following things:

• Walk away from this trade and just trade another stock for next month
• Cry and never trade again because you got burnt on a trade (I highly do not recommend you do this – just get over it)
• Open the same trade or a variation of the same trade for the next month (this is what I did) 

Opening a trade for next month (NWS) – Traded on 23 May 2007
Sell May $29.5 Puts @ $0.895
Buy May $29.0 Puts @ $0.63

Expiry = 28/06/2007
Share/Contract = 500
Max Profit = 0.265(0.895-0.63)
Max Risk = 0.235 [(29.5-29.0) - (0.895-0.63)]
Return on Risk = 112.77%
Breakeven = $29.265

I opened 28 contracts:
Reward for trade (excluding fees) $3,710.0
Reward for trade (including fees) $3,460.28
Value At Risk $3,290.0 + previous loss amount ($2,968.8) = $6,258.8

This trade is actually tied in to the previous trade which loss $2,968.8
If this trade is successful then the net profit is $3,460.28 - $2,968.8 = $491.48 i.e. I would make less money over a longer period of time. Keep in mind I did increase my risk from by opening more contracts…

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