Esprit Put Option Expired Worthless

Esprit share closed above $50 dollars on our expiry date, therefore my option expired worthless. Good for option writer, as I keep 100% of the premium.

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Trading Room
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Dubai World Crisis Impact on Expiry

With the happening of Dubai World Crisis, which is a pretty big Dubai company having difficulty repaying its debt to its creditors. Causing huge financial impact globally. Yesterday the HSI drop more than 1000 points and it certainly had some impact on my option open positions. I really didn't expect this to happen, I am trying to hold all my position until it expire worthless.

So with my position in SHK, which had a strike of $110, at around 3pm the stock price is really close to my strike price. My first feeling of this Crisis is the impact should last for a few days. And if I get exercised from my SHK position. I will buy SHK at $110 which is the price I am happy to buy before the Dubai World Crisis. Now I am worry if I brought it at $110, the stock is likely to drop below $110 on Monday and it is still too early to tell the bottom. Therefore I have make a decision to close out my position with $0.32 per contract. Which means I still profit but not as much. As with my ESP position, due to some adjustment by the clearing house, my strike was actually lower to $48.8 which the reason I am not sure yet. At 3pm, the stock was trading at $50.5, which mean the chance of getting exercise is quite low. So I leave the ESP position open. And yesterday ESP close above $50, so my ESP position should expire worthless. Still waiting for the confirmation contract.


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Double Bottom

The opposite of Double Top is Double Bottom. This pattern represents a very potent signal for the share price to go up in the near future. When the first bottom is form, there is a support level established from the bottom so when price reach that support level again, buyer are much more confident to buy that share at that price which cause the share to rise. The Double Top and Double Bottom pattern are two very basic yet useful pattern for share trading in general. You will see it quite often on the share price chart.

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China Mobile Ltd (Cont.)

The stock (941) had indeed get back into the trading range of $75-80. On the short term, I think this stock will stay in this Channel for a while before it break up or down. The current 3 month trend is a sideway. If my capital allow, I will write some put option if opportunity arise. But currently my capital is locked up with my two open positions.

Regarding my SHK and ESP positions, both has been looking quite good. I hope it will expire worthless. Fingerscross.

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Trading Room
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China Mobile Ltd Option

I have been watching China Mobile stock limited lately. Over the last 2-3 months the stock has been trading in a Channel $75-80 for 2 months until it break down from the support line at $75 around the end of OCT 09. Since then the stock has been trading just below the $75 resistance level. The current 3 months trend for the stock is down plus possible sideway movement. If the stock close above $75 with pick up in volume. It can be a sign that the stock is back to the Channel. I might write some put option at that time.

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Trading Room
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Double Top

As shown above is a pattern call Double Top. It is seen on share price chart as a very potent signal that price is going to go down in the near future. Double Top is form when price was rejected from the recent high (top). People try to sell their share at the 2nd Top because they are afraid that the share price will be rejected from the Top again which trigger a huge sell off. This is the basic psychology behind the double top. So every time you see a double top pattern, there is a high probability that the share price will drop in the near future. Note that I use probability here, cause in the share market there is really no guarantee that the price will go a certain direction after a particular pattern.What this pattern really tell us is the probability of share price going in down is higher.

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Trading Room
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Sun Hung Kai Ltd Put Option

I wrote some Put options for SHK yesterday. With Strike $110, Expiry NOV 09, Premium $1.82

Reason for Entry

Fundamental: SHK is a pretty good company. Actually I had a list of 20 optionable stocks and within this list the company are all profitable and in my opinion is fundamentally sound. SHK is one of them. SHK pay about $2.3 dividend per year and show good earning and current ratio.

Technically: On the weekly chart, the share is close to the 30 week EMA. Which means the share is relatively undervalue. On the daily chart, the share show a good support at $110 level.

So with only 2 weeks to expiry, $1.82 per contact is pretty good premium to have.

Action: Write to open SHK PUT option NOV 09, Strike $110, with a premium of $1.82 per contract.

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Trading Room
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Return on Premium

R.O.P. (Return on Premium) is a marker I create myself in order to measure my performance on writing option. The max value is 100% because the premium received on writing option is all the potential profit you can get from the position. That will happen if you let the option expire worthless. Usually I will close my trade earlier than expiration so that I can remove myself from the risk of getting exercise and also use my capital in other trade. The cut off I use is usually 70%. If I can get a ROP of 70% or higher I will close my position.

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Trading Room
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Hang Seng Bank Put Option Position Close

HSB (11) had break it consolidation pattern and rise to around $115 yesterday and the Premium of our HSB $110 Nov 09 Put has drop to around $0.4-0.5 per contract. Which had drop more than 80% from the original $2.68 premium. So I decide it is time to take my profit and buy back the contract with a premium of $0.42 per contract. From today I will include a past performance topic which I will post all the performance of the trade that I have put up in this blog.

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Candlestick Charting

There are two main types of share chart: They are the Bar chart and the Candlestick chart. The candlestick chart is compose of many individual candles. Each candle represents a trading period which can be 1 day, 1 week or 1 month…etc. And similar to the Bar chart, each candle tells us 4 different price information about that share. As shown by the two candles above, the thick part of the candle is called the real body. This shows the range between the opening and closing price. When the body was white in colour, it means the closing price is higher than the opening price. If is it black in colour, it means the closing price is lower than the opening price. The thin lines above and below the body are called wicks or tails or shadows. The tip of the upper wick shows the highest price for the period and the bottom of the lower wick represent the lowest price for the period.

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Esprit Put Option

I opened a new option position with Esprit yesterday. The stock was trading at around $51.50.

Reason for Entry

Fundamental: Esprit is a good company shown stable dividend payment history. If I brought the share at $50 that would approximately a 5%p.a. dividend yield. In my view the company is very profitable with a ROE of about 40% and Net Profit Margin of 16%. Also a very healthy looking balance sheet with current ration of 2.46 and a good cash to debt ratio.

Technically: The stock is touching 30 week EMA on the weekly chart which mean the share price is good value. With EMA point up trend. The three month trend is up, price had just pull back from the recent high.

So when I talked to my broker, I said I would like to write to open X number of put option contract for ESP with strike price of $50, expiry Nov 09 at a premium of $1.5 per contract.

P.S Every time I write a Put option contract, I always had enough cash to cover my exposure in case I get exercise on my position.



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Trading Room
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Important thing about writing option

In my option trade with HSB, I am writing a Put option. As I have said before, for option writer the risk is unlimited. So as a writer, we need to be aware of the risk involve. The worse case scenario for writing put option is when the option was exercise and you will need to have enough money to buy that share at that predetermine strike price. Therefore for every put option I write, I always had enough cash for cover my position if I get exercise. This is called Cash covered Put writing. Which means I have enough cash to cover my exposure. For example, if I write 1 contract of HSB Put option with strike price of $110. And each contract cover 100 shares. Then I will have at least 110*100 = $11000 in my account to cover my position if I get exercised. The option broker will also require you to have some cash to cover margin requirement for the position. So for every stock that I write put option on, it is a stock that I don't mind buying at that certain strike price. I only write put option on stock that I would love to buy. My rule for writing Put option is to always have enough cash to cover my exposure. If I don't have enough cash, i will write less contract or give up the trade all together.


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Trading Room
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Technical Analysis Basic Part 1

Bar chart

Above is the basic component of a bar chart. One bar can represent 1 min, 1 hour, 1 day, 1 week or even 1 month. Depends on the charting preference. So let say above is a bar showing 1 day of trading. The top and bottom of the bar represent the highest and lowest price of the day. With the horizontal line on the left of the bar represent the opening price and the horizontal line on the right represent the closing price of the day. So with a single bar, it already tell us the High, Low, Open, Close price for the whole day.

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Trading Room
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