Archive for the ‘Futures & Options Tips’ Category

Another Shot at Suntech Power Earnings Play on 20th Nov

November 18, 2006

Shares of Suntech Power (NYSE:STP) dropped almost 10% on 16th Novemeber – 2 days before options expiration. It fell from $28.50 to $26 on no news. Read somewhere it may be due to something known as pinning or whatever that is related to options expiring. Not too sure about the mechanics but I seen it happened many times before so I am sort of a believer now.

Looking to buy some STP DEC 25 call options to play the earnings on 20 Nov. Have to buy the DEC options because the NOV options expires today!

I have always been a great fan of this stock. I reiterate that Suntech Power is the best solar stock in the market.

The following reasons sums up why I think STP is a great long term play.

1. Leader in Solar and Solar is the way to go for alternative energy.

2. Low cost manufacturing in China.

3. Locked in long term supply for polysilicon – a key raw material – with major suppliers like MEMC.

4. Finally and most importantly, demonstrated consistent quarter over quarter revenue and earnings growth.

So I bought some DEC 25 calls on Friday for $3.10 a piece when shares were trading for $27 each. Gotten pricey due to a last minute upgrade by Thomas Wiesel. Shares were up to $27.88 in the afterhours trading – almost to where it was 2 days ago.

Update: Sunpower (SPWR) just acquired Powerlight – a major solar systems provider in America. Perhaps this is the reason for STP’s recent decline. On the other hand, SPWR getting stronger and more promising now. Maybe good to buy some when they hit the low 30s.

Surprises from NCTY and STP

November 17, 2006

Shares of The9 Ltd. (NASD:NCTY) shot up a day after the company reported a sharp rise in profit and the completion of server upgrades that slowed it down in the quarter.

I comtemplated a straddle play days before but decided against it as it will half my ROI and double my loss potential. Lucky for me, I stuck to my out-of-the-money call.

Shares hit as high as $29.20 before closing at $28.36. I exited my call position early when shares were trading at around $27.60 about one hour into trading. Bought my NOV 25 call for $0.60 and sold them for $2.20. Hooray!

Hmm… I should have held out for more but since it had hit almost 300% ROI, I thought better not coz actually, I didn’t think the earnings report was that fantastic though…

What a beautiful chart…

NCTY 5 day chart (16 Nov 2006)

Alas! My overall portfolio value took an unexpected dip though due to a strange sudden decline of my Suntech Power (NYSE:STP) position.

What an ugly chart…

STP Stock Chart 16 Nov 2006

CBAK Covered Calls Looking Good

November 14, 2006

After beating myself up for not buying more STP call options when stock price was $24 two weeks ago ($27 now as I blog), its time to go back to scouting out more opportunities in this exciting world of options trading. Hey Xcalibus, $24 is very low already!! What the **** were you thinking!??

Anyhow, going back to this topic, after checking thru my portfolio, I came across some CBAK shares sitting in my account.  Bought them for $5.79 a share in August, now they are $7 a piece. A paper gain of 20% over 3 months. Not too shabby. For your information, CBAK, or China BAK Battery Inc. is a Chinese company (yes I love China stocks!) that makes lithium batteries – lots of batteries. They have probably sold like US$100 million worth of batteries last year. Bought their stock at the time because I thought the Tesla Roadster is a really cool idea – an idea that may soon change the way cars are built. Oh boy, how many tonnes of batteries will they need by then huh? Huh?

Remember this car?

Back to the Future!

We are going BACK! To the Future!

This baby's electrical... 1.21 gigawatts...

Yes! But its gonna take like a few years (or a decade!) at least for that future to happen and judging from how the stock price of CBAK been trading lately, this multibagger is not going to happen anytime soon. So I was checking on the prices of the call options on this baby and found that the DEC 7.50 out-of-the-money calls are selling for $0.60 a piece. Obviously some folks think this baby is going to hit at least $8.10 by mid December.

You know what? I hope he is right! I going to encourage him by selling him my CBAK Covered calls! If he is wrong, I hope he is right by January 07 coz I will again sell him some covered calls!

I earn 3 x $0.60 = $1.80 if he is wrong 3 months in a row. If he is right and CBAK hits $8.10, I will also earn $0.50 from my shares and another $0.60 from selling the calls for a not too shabby total of $1.10 in one month’s time.

What the heck am I talking about? This blog post is not a good tutorial on how covered calls work. Check out this article to learn more about how to profit from writing out-of-the-money covered calls on shares you plan to keep long term.

A Better Way to Gain Leverage than Buying on Margin

November 13, 2006

Five years ago, when I just started investing, I read books about great investors like Warren Buffet, Peter Lynch – people who made big bucks investing in stocks. So what better way to start than to emulate the legends of investing and all they talked about are stocks. So at that time, I have not heard about derivatives. Or rather, all I have heard about derivatives is that they are very risky and people lose lots of money trading derivatives so I basically avoided them.

However, when I started dvelving into options, I realised they provide so much versatility that I asked myself why didn’t I learn about them sooner. For instance, if you don’t know about options and just started buying stocks to invest, you might possibly come across concepts like buying stock on contra or buying stocks on margin. These are the financial tools available if you are very bullish on a particular stock and looking for some form of leverage so you can earn more from your sound judgement. However, after I learn about options, I found that gaining leverage by buying stock on margin is so much more inferior to simply buying call options. Read on to find out what I mean.

The Mobile TV future

November 13, 2006

Imagine a future where you can watch TV whenever and wherever you are without paying for anything except perhaps the TV enabled phone? That future may not be very far away. Recently Google launch a Gmail Application that you can download and install onto your cellphone. Using my Nokia N73 and 3G connection, I was able to download the application in seconds. I uninstalled it because I had 3G connectivity on my cellphone which allow me to connect directly to Gmail using the Mobile Web Browser. However, I thought to myself, what’s stopping Google from letting me download an application that lets me download YouTube videos?

Mobile TV

Personally I would not mind viewing a 30 sec commercial if I can download an entire episode of say South Park. Hopefully my Nokia JAN ’09 LEAPS Options will benefit from this trend. Nokia’s multimedia computer series of cellphones are great devices for viewing mobile TV.

Warcraft Options Play

November 8, 2006

Been playing World of Warcraft for about a month now and as far as MMORPGs (Massively Multiplayer Online Role Playing Games) are concerned, this one’s a winner. Unlike most other MMORPGs, this one is very well thought out. It’s easy to play but difficult to master – a trait all great games possess. Not since Ultima Online has any MMORPG gotten my seal of approval.

Unfortunately, the game’s developer, Blizzard Entertainments, is not a listed company. In fact, its a subsidiary of Vivendi, a french media company. There is, however, a NASDAQ listed company call The9.com (NCTY) that you can buy if you think World of Warcraft will still be a smash hit for the next 2 to 3 years. Or rather, a smash hit in China. You see, The9.com is a Chinese internet gaming company which is the sole distributor of World of Warcraft in China. In barely one year, the number of WOW players in mainland China has grown to 1.5 million! Another reason why I think the Chinese will love to play such games is that I believe people living in overpopulated areas, like in China and Korea, will find such games a great escape into another world.

NCTY is poised to announce its 2006 Q3 earnings on 15 Nov. Shares are currently $24 a piece. The year high was $30 but was down recently due to some server outage issues with the game. My guess is that with explosive growth comes such problems. These are problems you wish to have if you are a business.

Bought some NOV 25 call option for $0.60 a piece to play the earnings. Not cheap and definitely speculative. 🙂

Updated 13 Nov ’06: 2 more days until earnings are announced. Came across an article mentioning that the number of concurrent players of the WOW game did not increase during this quarter. Makes me wonder whether I should purchase a NOV 25 put option to implement a long straddle strategy instead.

Blue Nile Trading Options

November 4, 2006

I’ve been thinking about Blue Nile (NASD:NILE) lately… after the recent earnings report, shares were down from $40 to around $36 now. I don’t see any near term catalyst for the stock to go up and beyond $40 anytime before the next earnings announcement in say late Jan or early Feb 2007.

As such, my guess is that the stock price should trade in the range between $32 to $37 until then. A quick look at the option price reveals that I can enter a JAN 30/35 bull put spread for $2 credit. Looks like a pretty safe bet to me.

To all Blue Nile fans out there: any better way to play this stock?

OptionsXpress (OXPS) NOV $30 Iron Butterfly Options

November 2, 2006

Shares of OptionsXpress (NASD: OXPS) appears to be trading at the $30 resistance level. Both the November at-the-money calls and puts are currently $0.80 a piece.

With less than 10 trading days to go before options expiry, the time decay on these options is at its highest now.

Going to enter an iron butterfly spread with strikes at 27.5 – 30 – 32.5

Wish me luck!!

I love Dreamworks Animations!

November 2, 2006

Gotta celebrate today! Dreamworks shares rose more than 10% to $28.31 after announcing surprise earnings.

My NOV 25 call options rose from $1.2 to $3.2, bagging a 167% return on my investment! Time to buy some Dreamwork DVDs! 🙂

Next quarter’s earnings should be good too, with Flushed Away and Over the Hedge DVD sales to boost earnings.

Part of the reason why I think Dreamworks earnings will continue to grow is because I came across some Madagascar DVDs speaking cantonese and I thought to myself “Wow… the beauty of animations is that it can be translated to any language easily, so the potential to sell their animated flicks to the entire world is enormous! You can easily translate them to indian, arabic..etc”

MEMC (NYSE:WFR) buying opportunity?

October 30, 2006

MEMC is a strong company in a strong industry but suffered a 15% drop on earnings release last week. If it drops to $30, I am going to buy all I can.

If it sticks around $35 for a few days, please remind me to buy a 35/40 bull call spread again 😛

If you wonder why I love bull call spreads, I guess its because I only research stocks which I think are strong companies with strong growth potential and so I am usually bullish on stocks I cover in my blog. And why spreads? Spreads are cheaper to buy and I love to buy cheap stuffs. Haha.. actually, its just that I can’t bear to fork out $3500 for 100 shares of MEMC but spreads allow me to pay just over $200 for the same amount of shares. Leverage is such a cool thing.