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Friday, August 05, 2005

Baidu.com (BIDU) IPO

Trader Mike has a post about Baidu.com IPO (Briefing's profile):

Baidu.com prices its IPO at $27, above the $23-25 estimated range, which had already been raised form $19-21. The co, which is called the "Google of China" by some, is the most used Chinese language Internet search provider. Baidu.com was the second largest website in China and the sixth largest website globally, as measured by user traffic during JulQ.

Our Take: There is a lot of excitement about this deal as it's the largest search engine in a booming emerging economy. Also, its small size of 4.04 mln shares and the recent strong reports from fellow Chinese tech names (NTES, CTRP) is driving interest in the name. This is being led by CSFB and Goldman Sachs. Briefing.com Note: Telecom Communications (TCOM.OB) has seen a 49% advance since highlighted on Briefing Trader as a secondary play to the Baidu IPO.

PS! Baidu.com has been sued because of their mp3 search, but it probably won't slow down investor's exitement too much. Baidu.com had very successful IPO, so there are a lot of traders focusing on it right now.

Update (August 5, 2005 13:52):
Baidu.com (BIDU) is up more than 280%! Amazing!

See also:
Trader Mike: IPO Watch: Baidu.com (BIDU), the Google of China?

Performance Reviews

There is a really good reading on The Kirk Report blog. A trader talks about his performance so far in 2005. The best part is his analysis why, compared with previous years, the performace is below the average. He points out some possibilities what came to his mind:
  • Failure to capitalize
  • Lack of focus
  • Sitting in cash
  • Incorrect position sizing
  • Too much day trading
I believe it will make some of you smile in recognition at the mistakes he did. At least I feel that these issues have dragged down my performance also and I should work on these.

Read further:
The Kirk Report: My Performance Review

Thursday, August 04, 2005

How many stocks do you follow?

Roger Nusbaum comments on Jim Cramer, the number of stocks one trader can follow and porfolio diversification:
According to what I heard, the judge has 37 stocks which Cramer feels is too many. Cramer said he has a research staff and even so only has time for 25 stocks.

Obviously I believe in using individual stocks where possible. Most accounts I manage have 40-45 stock holdings.

Clearly, thinking about all of these different things and building a portfolio to address all of them is not something that everyone will want to do or have time to do. This is where do-it-yourselfers can employ various tools to blend together a properly diversified portfolio.
Read further:
Random Roger's Big Picture: Interesting Comment

VIX conundrum

Bill Cara on VIX:
VIX, in my view, may have been a good technical indicator in the past, but I too have recognized its dubious nature in the past year.

In addressing the VIX issue, and not my own concerns, I understand that VIX is a measure of how volatile future markets will likely be, according to the participants themselves. As the next reader comments, there has been a revolution in risk management, and I understand that as well.

I do not understand, however, how so many capital managers today can honestly believe they can trade out of situations caused by extreme events, such as the Kerkorian bid for close to a billion dollars worth of GM stock at very high prices, or a Crude Oil contract that could zoom or collapse, or a major dump of USD by an Asian Pacific central bank, and so forth.
Read further:
Bill Cara: VIX conundrum, Wed., August 3, 2005, 6:22 PM
Bill Cara: More on VIX conundrum, Thur., August 4, 2005, 9:46 AM

Wednesday, August 03, 2005

Update: Today's Earnings: SINA

SINA EPS $0.21, revenues $46.1, both inline with estimates.
SINA sees Q3 revenues $49-52M vs $50.82M consensus.

SINA shares are trading at $27.70 at the moment, sudden dip from $30, but seems to be recovering already a little...

See also:
Today's Earnings: SINA

Today's Earnings: SINA

Sina Corp (SINA) will announce its earnings later today.

Analyst estimates: EPS $0.21, revenue $46.49M.

SINA makes big moves on earnings, so keep a close eye on it tomorrow morning.

Update (August 3, 2005 4:20 PM):
We are seeing some action with SINA. Closed at $29.03, but now trading above $30.35 already.

Stocks to watch: NFLX

Netflix (NFLX) is struggling with $21. There is a big order at $21 (ask) at the moment. If it breaks $21, it may surge up even more.

Update (August 3, 2005 3:47):
NFLX breaks $21, ran up to $21.17.

SEC Extends Compliance for Sub-Penny Rule

Ant & Sons: Word on Wall Street writes:
The Securities and Exchange Commission extended the compliance date for Rule 612 of Regulation NMS, also known as the Sub-Penny Rule. Rule 612 will prohibit market participants from submitting quotations or orders in NMS stocks in increments below $0.01, except that quotations or orders priced less than $1.00 may be priced in increments as small as $0.0001. Brokerage houses will likely cheer this move as it will increase the spread on the bid and ask of most stocks. However, traders will not be smiling as the competitiveness of trading orders will be more limited than before, decreasing liquidity. Orginally, this regulation adopted a compliance date of August 2, 2005, but now that date has been extended until Jan. 31, 2006.

Update 2: Briefing.com Launches Special Situations Trader

Briefing Trader:
Briefing Trader Beta Period Concludes Today

Thank you for previewing the Briefing Trader product. We appreciate all of the feedback and hope that we helped you make money while previewing the product.
They will continue to offer Briefing Trader with $300 monthly (or $3000 yearly) fee after today. Quite expensive service, but they do have some quick and accure comments. I don't know, if it is worth $300 a month or not, the beta testing time was too short for me. The news feed was faster than their Platinum subscription service offers.

See also:
Update: Briefing.com Launches Special Situations Trader
Briefing.com Launches Special Situations Trader

Strange options prices

QQQQ (Nasdaq 100 index tracker) Aug $40 options calls are trading at $0.80/$0.85 and puts are trading at $0.70/$0.75. What makes it strange, is QQQQ price. QQQQ is trading below $40 ($39.50$39.95). Puts should be more expensive than calls in this situation, does everyone see the market in too positive light (and too less fear for correction)? If so, it might go just the opposite way than the market expects.

Update (August 3, 2005 11:56 AM):
In reply to the comments I'll add a chart to show some warning signs:


I am definitely not saying that QQQQ will go down (I would buy puts myself, if I was so sure), just pointing out that the rise is not so easycoming as the market predicts (according to the prices of QQQQ Aug $40 calls and puts).

Correction (August 3, 2005 12:34 AM):
Of course, QQQQ was trading at $39.95, not $39.50 as I wrote. Sorry for the typo!

August Selloff Beginning?

John Mugarian writes:
Despite the recent rise in the market, insiders continue to sell at a rate of 3 sellers for every 1 buyer. In addition, many of the insider purchases are among "no name" stocks. While the tech stocks continue to be touted by guests on the financial channels, the technical rankings among the group has been moving lower. This indicates that stock prices have moved above earnings expectations.

We need to remember that the tech sector has not come back into favor, it is just drawing attention. The summertime move in tech reminds me of a similar move in 1994 just prior to a nasty selloff. While I cannot rule out another move higher later in the year, I need more confirmation among the entire sector before I get excited.
Read further:
John Mugarian's Investor Alert: August Selloff Beginning ?

Tuesday, August 02, 2005

Update 2: Live Action: IAC/InterActiveCorp (IACI) options

IAC/InterActiveCorp (IACI) reports earnings of $0.30 per share (excluding non-recurring items), $0.05 better than the Reuters Estimates consensus of $0.25. IACI reports revenues $1.96B vs the $1.8B consensus.

See also:
Update: Live Action: IAC/InterActiveCorp (IACI) options
Live Action: IAC/InterActiveCorp (IACI) options

Monday, August 01, 2005

Stocks to Watch: MDII

Keep an eye on MDII, it raised more than 80% today and is up even another 20% in after hours.

Update: Google – Heading to $300 or $280?

Briefing Trader comment on Google:
After holding support at its 50-day simple moving average (286.92) on Friday, the stock is staging move towards Friday's high of 292.84 late in the day here. If you took this "gimme" at the 50-day sma when we pointed it out on Friday afternoon, would look to lock in some profits as it nears Friday's high and trail a stop for the balance.
Google – Heading to $300 or $280?

Live Action: Williams Companies (WMB) calls

I just bought a few Williams Companies (WMB) Aug $22.5 calls with $0.25 as WMB made a new intraday (and 52w) high at $21.66.

Jack Rothstein has also featured this stock in his blog.

Update: Live Action: IAC/InterActiveCorp (IACI) options

I got the "final" part of my IACI options position: IACI Aug $30 calls with $0.10.

I makes the total cost of the position $2.60.

I basically got a $27.50 straddle and $25/$30 strangle with this price.

Currently, the relevant options (to get the same position) are trading between $2.95 (bid) and $3.20 (ask). So, my position is already 13.5% to 23.1% in profit at the moment, but I am probably not selling any of it before tomorrow.

See also:
Live Action: IAC/InterActiveCorp (IACI) options

Update: About Options Trading, Implied Volatility

Roger Nusbaum has also commented the Barron's Striking Price column:
This week's Striking Price column profiled a do-it-yourselfer who very successfully maintains an account with 10-12 positions of naked puts.

The article devoted a little space to the what can go wrong part of this strategy but I would have like to have seen a little more. I don't doubt the success of the investor profiled but the way the article was written it made it seem like he was taking a tremendous amount of risk by way of being over leveraged.

The downside of this is a drop in the market. If the market goes down by 3% a $500,000 account would go down in value by $15,000. That same $15,000 hit to a leveraged $100,000 portfolio is obviously a 15% hit.
This is quite much what I wanted to say. I don't doubt that it's possible to earn money by selling naked puts, but you really must be at home with options and trading. And you have to have a good money management to survive.

Read further:
Random Roger's Big Picture: Barron's And Naked Puts

See also:
About Options Trading, Implied Volatility

Live Action: IAC/InterActiveCorp (IACI) options

I finished buying IAC/InterActiveCorp (IACI) options position. I got the following options (relative amount in the parentheses):
IACI Aug $27.5 calls (2 x): $0.575
IACI Aug $27.5 puts (1 x): $1.10
IACI Aug $25.0 puts (1 x): $0.25

The total price for this options position: $2.50.

I am thinking of adding some IACI Aug $30 calls with $0.10 to $0.15 also, but I am not sure of this yet.

IACI will release its earnings tomorrow before market open. Analyst estimate EPS of $0.25 ($0.23-$0.27) and revenue of $1.77B ($1.63B-$1.86B).

I expect IACI to make a big move on the earnings.

Google – Heading to $300 or $280?

I read some of my favorite blogs and found that everyone is giving optimistic comments about Google (GOOG) at the same time.

Michael (Trader Mike) points out that GOOG is right on the 50 DMA and stohhastics show that the shares are oversold.

The Knight Trader says that "Google, Inc. the stock is getting oversold and sitting right at the 50 dma. If GOOG can get support at the 50 dma this might be a buying opportunity."

Roberto's NasdaqTrader:
"I picked up some (GOOG) call options here as the stock has held the 50 dma and the volume is light on this sell off. Stop will be right under the 50 dma."

Stephen Vita (Alchemy of Trading) in his Charts Of Interest about Google:
"Buy pullback to 50 day?"

I surely don't underestimate their knowledge and skills about technical analysis, I just don't like the situations where everyone gets too optimistic about a stock. It's 50:50 (or even 51:49 ;) ) for me at the moment. I see Google going down to $280 with the same probility as going up to $300. One thing I have learned by trading Google is that Google knows how to fool traders and it makes a lot of fake moves.


PS: Google is trading at $288.74 (+0.98; +0.34%) in pre-market.

See also:
Trader Mike: Charts, Charts and Even More Charts
The Knight Trader: GOOG Chart
Roberto's NasdaqTrader: GOOG Option Trade
Alchemy of Trading: Sunday Notes From The Trading Turret: Stra-Tee-Gerists

About Options Trading, Implied Volatility

Stephen comments a Barron's column in his blog:
Barron's had some interesting stuff this weekend, and I was particularly intrigued by the decision of Kopin Tan -- who pens a lightweight column that leans heavily on useless "strategist" drivel -- to highlight the trading talents of a retail Put-Seller who brags, "if you had $127,730 and wanted to make 27% return a year", he asks, "how would you do it?"

That's a rhetorical question, you understand, and the answer is "put selling."

The more I think about it, the more amazing it is that Mr. Tan and his editor would publish something like this with Volatility plumbing the depths.

But what do I know.... according to Tan the guy "attended trading seminars to learn about options", so I suppose he qualifies as an expert.

And something else....I think that there is more of this sort of thing going on than you can imagine -- including Call Selling, a really, really suicidal gig -- but we won't know for sure until the Big Flood comes in and shows where all the bodies are buried.

Yes, then we'll know which Option Sellers completely relied on Normal Curve and Textbook Probability Distributions, not understanding the concept of "Fat Tails."

If you think I'm talking anatomy, then you and Copin' Kopin are on the same wavelength.
I couldn't agree more with Stephen on this issue. Selling naked options today (I don't take into account stock-picking, but we are talking about overall market, ain't we?) is real suicide. Take a look at the following graph, showing the implied volatility of QQQQ (NASDAQ-100 Index tracker):


I have done the exact opposite way and have a QQQQ straddle bought recently in my account. As you see, the volatility is at extremely low levels currently. You always have to look the price/risk ratio. How much room there is for QQQQ volatility to go down? And how much room for growth? What do you think global uncertainties (London bombings, the death of Saudi's King, etc) will do with volatility? Sure, it will help to boost it up.

See also:
Alchemy Of Trading: Sunday Notes From The Trading Turret: Stra-Tee-Gerists

Breaking News: King Fahd of Saudi Arabia has died

Saudi King Fahd dead
CNN
Monday, August 1, 2005 Posted: 0815 GMT (1615 HKT)
(CNN) -- Saudi Arabia's King Fahd -- whose reign was marked by unprecedented prosperity, but whose close ties with the United States stirred the passions of Islamic militants -- has died, Saudi Arabia's information minister announced Monday.

Dalek Weblog:
King Abdullah has stated that the Saudi oil policy will remain intact.

Gopinion:
Crude-oil futures topped $61 a barrel early Monday on news of the death of King Fahd. Oil prices already were higher on U.S. refinery outages, but the Saudi king’s death gave them an additional boost.

Front-month September light sweet crude reached a high of $61.11 a barrel in electronic trading on the New York Mercantile Exchange, before falling back to $60.88 a barrel, was up 31 cents.
Read further:
CNN: Saudi King Fahd dead
BBC News: King Fahd of Saudi Arabia dies

See also:
Dalek Weblog: the king is dead, long live the king
Gopinion: King Fahd dead

Sunday, July 31, 2005

Human Behaviour – The Greatest Barrier To Trading Success

Australasian Investment Review writes about human psychology, rationality and how it affects investing and trading. They point out that overtrading is one common mistake of overconfidence which drags down annual returns. The Big Picture has added some comments to this article. You can also read 2 posts in my blog about overtrading (see the links below).

Human Behaviour – The Greatest Barrier To Trading Success
Australasian Investment Review
May 30 2005
Have you ever held on to a stock too long, in the vain hope it would return to the price at which you bought it, even though you knew in your heart of hearts this was unlikely to happen? Well, you’re not alone.

Tilson suggests that one of the biggest problems facing human investors is that they tend to be overconfident in their view of things. Not just "robustly", but "wildly" overconfident. He provides the following statistical examples:

- 82% of people say they are in the top 30% of safe drivers;
- 86% of Harvard Business School students say they are better-looking than their classmates;
- 68% of lawyers in civil cases believe their side will prevail;
- 81% of new business owners think their business has at least a 70% chance of success, but only 39% think any business like theirs would be likely to succeed;
- Mutual fund managers, analysts, and business executives at a conference were asked to write down how much money they would have at retirement, and how much the average person in the room would have. The average figures were $5 million and $2.6 million respectively.

Tilson explains overconfidence by suggesting that people generally remember failures very differently from successes. Successes were due to one’s own wisdom and ability, while failures were due to forces beyond one’s control. Thus people will tend to believe that with a little better luck or fine-tuning, the outcome will be much better next time.

Overtrading is a fine example of overconfidence, Tilson suggests. In a study of 78,000 individual investors at a large US discount broking house during 1991-96, average annual turnover was around 80%. The least active quintile, with an average annual turnover of 1%, scored a 17.5% annual return. The S&P return was 16.9% over the same period.

The most active 20% of investors, with annual turnover of greater than 100%, scored a 10% annual return.
Read further:
Australasian Investment Review: Human Behaviour – The Greatest Barrier To Trading Success

See also:
The Big Picture: Human Behaviour as a Barrier To Trading Success
Saving Money by Doing Nothing
Avoid Overtrading By Pausing After Losses