Yong-Long Lai

Broker called me today to warn me about my NWS position. It was touch and go, luckily it didn’t get assigned/exercise. My NWS position is 29.50/29.0, and he said that some of the $30 puts were assigned. In short, close call…. that being said, the market bounced back today so nothing too exciting happening for today for NWS.

 During our conversation he mentioned that PEM was on a pull back today and he told me the price, I had a look at the graph and PEM has pulled back to a support level and with another support level not far below. Based on the technical information from the chart and that I have previously traded PEM and I expect PEM to trade back up to its previous high of over $5.60. With all this information and since I had some idle cash in my CFD account I decided to re-enter PEM @ $4.31

My Trade
Buy 4,700 PEM @ $4.31 (Total Purchase Price = $20,257)
Margin Required: $2,257
Interest Cost: $4-5 a day

Opened LHG contract today, will not be opening anymore contracts for this month. I’ve got a full house of trade this month with NWS in the money and WBC paying dividends (which is not good if for me). If I clear out of this month, I will be very happy!

LHG recently raised more capital, hence the drop from $3.30 to $3.00. Its actually just a price adjustment to take into account the additional shares they have. Owners of LHG were compensated through another share scheme to even out the playing field. Even with the drop and without the adjustments, LHG has great support at $2.90 and should easily recover within the next few weeks.

Looking at the charts, there’s also plenty of support at $3.00 and $2.90, LHG has been sideway trading for nearly a year in a steady up trend. Its actually a good stock to do credit put spreads on.

Below are the numbers, its slightly more complicated for this trade because my order got filled over two prices, these sort of things can happen and does not effect the mechanics of how things work.

The Trade (LHG)
Sell May $3.07 Puts @ $0.075 & $0.07 (I got filled on two prices)
Buy May $2.83 Puts @ $0.02

Expiry = 24/05/2007
Share/Contract = 1060
Max Profit = 0.05125 [5/20*(0.075-0.02) + 15/20*(.07-.02) ]
Max Risk = 0.18875 [(3.07-2.83) - {5/20*(0.075-0.02) + 15/20*(.07-.02) }]
Return on Risk = 27.15%
Breakeven = $3.01875

I opened 20 contracts:
Reward for trade (excluding fees) $1,085.50
Reward for trade (including fees) $854.7
Value At Risk $3,775.0

The above assumes that on 24th May 2007 LHG is trading at or above $3.07
(LHG closed Friday @ 3.08)

Closed my KZL position for $6.448. I figured, since I doubled my money I should take it and compound it in another trade. I haven’t been trading long, that being said I am beginning to see that doubling your money with $1,000 doesn’t take a lot of effort, however doubling your money with $10,000 or more changes a person’s mind.

I am beginning to understand why buying insurance on your trades are important. If I had insurance on my trades, I would be willing to put $10,000 or more on one trade and if that trade moves 10-20%, I can easily double to triple my money. Obviously if the trade went against me, I wouldn’t feel bad because I have my insurance policy…. something to think about. I may have to seriously rethink my Tricom Trader account, it doesn’t seem to do it for me. I’m going to ask my broker about getting a US options account… see if they can set it up for me.

Trade Summary

24 APR 2007 Buy 1,700 KZL @ $5.87 for $9,977.30
07 MAY 2007 Sell 1,700 KZL @ $6.448 for $10,961.60
(edited, thanks vic)

Profit $984.30 (there is about $20-30 interest which I haven’t included, in addition I was charged $50 brokerage because my trade was less than $10,000…. not impressed)

Lesson: Never open a position less than $10,000 else you will get hit with an additional $50 brokerage (this applies for my broker – check with yours)

Got home today and found out I got stopped out for PEM, 2,400 @ $4.398. I had my trailing stop loss at 5% trailing 1% (Now I know this is way too tight, especially for PEM) PEM usually trades about 3% within a day. So what happened was PEM ran during the day with my trailing stop following 1% behind. Then PEM closed down for the day forcing my stop to get filled.

I would have like to hold on to PEM for much longer, I can see PEM going to $4.80 easily. Anyways I have learnt my lesson, that being said, this was a good trade.

Trade Summary

24 APR 2007 Buy 2,400 PEM @ $4.21 for $10,106.40
04 MAY 2007 Sell 2,400 PEM @ 4.398 for $10,555.20

Profit $488.80 (there is about $20-30 which I haven’t included)

Lesson: Put your stop loss at least twice the average trading range. i.e. average(high price – low price) * 2

Okay, today I Opened a WBC. Firstly the reason why this trade looks so good is because WBC is actually paying 63c dividend sometime this month. (so don’t be fooled) Bank stocks don’t usually pay such good premium so far out of the money…

So here is the reason why I entered this trade, looking at the charts its a very technically strong stock. There is plenty of support and WBC is actually blue sky (ie. all time high). Remember we are also expecting a 63c drop during the month and must take this into consideration. That being said, From the chart I think there is plenty of support to hold WBC up after the ex dividend.

Also, interest rates did not rise this month, so its good new for everybody. I also want to diversify my holdings, and I like banks, they always make money, especially big monsters such as WBC.

The Trade (WBC)
Sell May $26.5 Puts @ $0.265
Buy May $26.0 Puts @ $0.115

Expiry = 24/05/2007
Share/Contract = 1000
Max Profit = 0.15 (0.265-0.115)
Max Risk = 0.35 [(26.5-26.0) - (0.265-0.115)]
Return on Risk = 42.86%
Breakeven = $26.39

I opened 10 contracts:
Reward for trade (excluding fees) $1,500.0
Reward for trade (including fees) $1,290.6
Value At Risk $3,900.0

The above assumes that on 24th May 2007 WBC will trade at or above $26.5
(WPL closed Friday @ 27.2)

Decided to get into WPL again (this will be the 3rd straight month) This is the same reason as the past 2 trades, WPL has been channelling between 39-40 for the past 2-3 months, there is plenty of support at $38.

The Trade (WPL)
Sell May $38.0 Puts @ $0.41
Buy May $37.5 Puts @ $0.30

Expiry = 24/05/2007
Share/Contract = 1000
Max Profit = 0.11 (0.41-0.30)
Max Risk = 0.39 [(38.0-37.5) - (0.41-0.30)]
Return on Risk = 28.21%
Breakeven = $37.89

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

The above assumes that on 24th May 2007 WPL is trading at or above $38.0
(WPL closed Friday @ 39.25)

======================================

Opened a NWS position this month, this is the first time I opened a NWS position. NWS has been sideway trading for the past 2-3 month and has created a strong support line at around 29.5 and a resistance at around 30.5 (channelling) There is potential for NWS to return to its previous high of32.5 from the recent pull back.

The Trade (NWS)
Sell May $29.5 Puts @ $0.34.5
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

The above assumes that on 24th May 2007 NWS is trading at or above $29.5
(NWS closed Friday @ 29.85)

Today is option expiry day!

3 of my positions expired:

OXR: $1,020.5 ($2,668.20-$1,647.70) - this was a rolled out position from last month
SGB: $940.60
WPL: $890.60

A total of $2,851.7 for April… not bad for my few hours  of work last month and only risking $10,500.60 (Pretty soon I’ll be able to replace my income) The best thing about this is I don’t have to pay tax until the financial year! This means I can use this money and roll it back into the strategy and make more money! This is the power of compounding!

Anyways, I will be spending the next few days to open up 3 positions to replace this one. (most probably take me a few hours, or if i’m lazy just follow one of the recommendation)

Wow, today was an exiciting day, the Australian market was down today, however all the zinc producers were up heaps! I’ve been stalking these stock for a while now, today I decided to open 2,400 PEM @ 4.211 and 1,700 KZL @ 5.869. Why? cause they are fundamentally good stocks, they have been hammered in the market over the past 5-6 months and this is the first few month of recovery (ie. there is a tecahical support, higher low, higher high etc.) there is good support level. There is strong support at KZL @ $5.00 & around $5.55. For PEM there definitely support at around $3.00 and again at $3.85

PEM

KZL

Nik Halik has a CFD Mastery program for the people who are interested…

Opened an OSH position on the Australian stock market yesterday (18 April 2007) – totally forgot about it. I opened 5,500 OSH CFD @ 3.66 and below is the analysis I quickly did when my broker called me.

Looking at the charts, there is very strong support lines at $3.40. OSH is currently in an up trend for the past 6 months following a very large correction. There is potential for OSH to return back to its previous high of $4.50. Technically OSH is sound in my books.

Following the fundamental rules that I learnt from Daniel Kertcher I looked at some of the basic profitability indicators:

• Earning Per Share was a little low at 5-6% (we want >=10%). 
• Earning Growth rate was also a little low @ 1-2% (we want >=5%).
• Not sure what the Revenue growth is,  but I remember the broker saying a +ve number (we want >=10%).
• The profit margin is insanely high at around 50%, (we want>=30%).
• currently ratio is 2-3:1 which is good (>=2:1 is good).
• Return on Equity is 16% (we want >=15%).
• Market capitalisation, ~4billion, is not the biggest, but its one of the biggest of the 2nd tier.
• There’s obviously a continuing high demand for oil and gas (energy) – so we don’t expect it to go bust over night

 What does all this mean?
earning per share – making sure the company is earning money!
earning growth rate – making sure the company will be making money in the FUTURE
revenue growth rate – making sure they are selling more stuff, because companies can reduce cost to increase profit (cost cutting) we don’t want cost cutting companies
profit margin – making sure they can compete with others by cutting their margin (if they need to)
current ratio – making sure they have enough cash to pay wages, short term borrowings, operating cost etc.
return on equity – making sure money that is reinvested is earning more than what we can earn by clicking a button
market capitalisation – making sure its a big player

All in all, OSH is technically strong, could have been better on fundamentals, but seems to be relatively profitable. There currently good news in the market and is a takeover target, so hopefully this will push the price up. I don’t expect it to go back up to $4.50, but I expect it to get to around $4. Its about a 10% growth, which will 100% my portfolio with CFD.

Thats all folks.