My Special Christmas Present

I have closed my BCM position on 2009/12/23 and on the same day and the following day I have purchased share of Pacific Basin (2343) with an average price of $5.35 per share. Which I think is a very good investment opportunity for long term.

Reason for entry:
Actually I have been buying share in 2343 since year 2008 in my own share portfolio. My first purchase was on 2008/08/11 at a price of $9.88 per share. Since then I have continue to increase my position in 2343 during the financial crisis. My current average buy price is around $6.

Fundamental Analysis
Pacific Basin is a company involved with shipping and transport of goods all around the world. The industry had a really bad year last year because of the financial crisis and the fall of BDI index. But to me it give me opportunity to buy this stock close to it net book value of $5.76 per share. Which is a good buy. The stock had fall from a high of $18.70 with it lowest at around $3. The company is very profitable ROE 35% and Net profit margin 24% according to last year annual report. With a current ratio of 4.4 and a very strong balance sheet. A cash to total debt ratio of 1:1.2. Which means if necessary the company should be able to pay off all its debt with its cash.

Technical Analysis
The share had been trending up for more than 6 months. So the overall trend is UP. Recently the share price had drop below the 30 week EMA which mean good value.

Plan
Invest for long term which aim for a price target of $15.35 which equal to around 200% return. In order to take this opportunity I had incurred a small loss from the option position.

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Trading Room
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Close BCM Put Option Position

Recently I have close my position with BCM which result in a net loss of -$0.03. It is not because BCM is not a good company, actually I really don't mind to hold my position until expiry and write some covered call on BCM if I get exercised. The reason for me to close my position at a loss is because there is some good investment opportunity in the share market which I will talk about in my next post. The loss I incurred with this trade is minimum compare to the potential gain I am going to get with this position. Thus I have unlocked my capital from the BCM position to purchase Pacific Basin share. In my point of view, it is ok to take a small loss and go for another trade with very good potential.

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Trading Room
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BCM Put Option Position

The stock 3328 (BCM) closed today at $8.78, by looking at my position I reckon there is 50-50 chance that I will get exercised and buy the stock at $9.00. In case I get exercised, my real buy price will be 9-0.24 (minus the premium from writing option) which is $8.76 per share. I will be happy to buy BCM at that price. If i don't get exercise, I will write some other stock options if opportunity arise. But at this moment I am also considering buying a certain stock with a target of 20% ROI if that stock fall to my price range. If I do so, I might need to buy back my put option at a loss so that I can free up my capital to purchase the share position.

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Trading Room
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Trading with the Trend

Remember the saying, “The trend is your friend” and don’t go against the trend. What it means is if the sharing is trending up, you should only go long by buying the shares, buy a call option or a call warrant or write a put option…etc. If the share is in down trend, you should only go short either by buying a put option or warrant or even start shorting the shares or write a call option…etc. So in summary, never go long when the share is in down trend and never go short when the share is in up trend.

P.S. By going long I mean entering a position which will benefit from appreciation in price. By going short I mean entering into a position which will benefit from decreasing price of the underlying.


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Trading Room
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Down Trend

The opposite of Up Trend is Down Trend, which is define by having successive lower crest and lower trough as shown in the graph above. And by drawing a down trend line connect the crest of price movement, it will give us a better idea of the underlying trend and provide a line of resistance for future price movement. This trend line will become a very useful tool when you start trading shares. An example of this will be for China Mobile (stock code 941), on the three months chart, it is currently in a down trend.

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Trading Room
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Up Trend

So how do I define an up trend. To make thing simple, you can identify an uptrend by seeing successive higher crest and higher trough. As you can see on the graph above. To make it more clear, sometime you will be able to draw a trend line connecting the trough. This trend line will give you a clear indication of the trend and provide a good support level for share price in the future.

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Trading Room
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Bank of Communications Put Option

I wrote some put options on BCM (stock code 3328) yesterday with a strike price of $9.

Reason for Entry:

Fundamental analysis
I always love banking stock, most of them are very profitable. For BCM it shown consistent earnings and acceptable ROE and Net profit margin both 15% and 30% respectively. Although the dividend yield is not that great only about 1.6% p.a. if I buy the share at $9. But still it is a good company I don't mind buying.

Technical analysis
Over the last 4 months, 3328 has been in a trading range of $9-10. It shown good support at $9. On the weekly chart, the current price is very close to the 30 week EMA which mean relatively good value.

Action: Write to Open BCM PUT DEC 09 with strike $9 and premium of $0.24.
Actually today premium is even better with a range of $0.29-0.32 despite the share price going up. Today will be a even better day to open this position.


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Trading Room
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