Greetings from Lisbon Portugal. It is really nice to be here, especially knowing that we just kissed and avoided the blizzard in New York. Hope we will have no problem on our way back! Lisbon is really a beautiful city although one can sense the underdevelopment for years due to poor economy here. Weather-wise it is more beautiful this time of the year compared with what we have in the NY area. Cannot complain! It would be a bit difficult to communicate with local people if you don't know Portuguese. Fortunately my son is very good at Portuguese and we are spoiled by just being following him.
Back to my topic. I cannot help but made some trades today. I think the market is really very close to the tipping point for a significant correction if not a total collapse. I have read some guru's analysis, which indicates that 4 or 5 major momentum indicators have reached the point only seen twice before: both were just before the major market collapse, one prior to Oct 1987 and the other in 1999-2000. I know it is very unlikely this collapse will occur in the final days of 2010 since everyone is so bullish. However, when this occurs, it will be fast and brutal without any notice. I don't want to miss this incredible opportunity. So I traded VXX again and heavily today! Simply buying VXX at the current price will be profitable in the next few months, I believe. For myself, I used more sophisticated option methods so that I can still make money even if it drops another 10-20%.
Looking forward to the prosperous 2011!!
Monday, December 27, 2010
Wednesday, December 22, 2010
Even if you don't have Euros.........
If you have any Euros, sell them right away. It is guaranteed you will lose money if you hold them. The situation is just too dire to have any hope for a real return! The stock market is wildly bullish with almost all the technical indicators pointing to a bearish trend. This is the most dangerous time to trade for either direction as you never know which way it will go in the short time period. While I know it will be one heck of bloodshed correction at some point, I just don't know exactly when. The market has reached the point of stupidity with the hyperactive euphoria, which can push it further to more extreme for some time. I always have the impulse to short more but rationality tells me: do not fight with the market. The market can be irrational for longer than you can stay solvent. Having said that, one thing I'm almost 100% sure about is the outcome of the Euro. And even if you don't have any Euros, I think it is a very safe bet to short it if you want to make some money in the current irrational market.
They have just gone through Greece and Ireland, right? Now comes Spain and you may have heard that Moody's has downgraded the Spain's credit ratings. This is a big deal, friends. It means on top of the already very dire financial situation Spain is facing, it is more costly and difficult for them to borrow money. Spain is much bigger than Greece and Ireland in terms of its economy and I'm not sure there is any possibility to bail it out without a deadly consequence for the Euro. More terrible things are that many countries including Germany and US have huge exposures to the Spanish debts. See the Spanish "Ghost Towns" here and details about its crisis. In the line the next crisis may come with Portugal, Italy, Belgium, and even France. So what can you do from the trading perspective?
Well, the easiest thing to short Euro is to buy EUO. Buying EUO is just like buying a stock with no time limit. You can hold it for as long as you like if it goes the direction as you are hoping for. Currently it costs about $21 per share ($2100/100 shares). However, if you would like to have a bit more juice with some leverage, you may think about its options. You pay less for the same number of shares you'd like to control and the potential gain is much bigger if you are right. Of course, if you are wrong, you may lose all the money you put in but just limited to the amount you bet with. You also have to think about the time limitation with options. Personally I like the long-term options as I think Euro has a long way to go down. E.g. EUO $17 call option expired in Jan 2013 (EUO130119C00017000). You may buy this call option (to bet it to go up) likely around $5 or so per share (one contract = $500/100 share) for about 2 years time period. If EUO dose increase during the next year, ie. Euro further depreciates in 2011, the percentage increase for the call option will be much bigger than if you simply buy EUO.
We are heading to Portugal for the Christmas time. Likely this is my last blog for this year. Wish you all the best for the holiday season. Hope my blogs have given you at least some food for thoughts and wish prosperity will come more with you in the new year.
MERRY CHRISTMAS AND HAPPY NEW YEAR!
They have just gone through Greece and Ireland, right? Now comes Spain and you may have heard that Moody's has downgraded the Spain's credit ratings. This is a big deal, friends. It means on top of the already very dire financial situation Spain is facing, it is more costly and difficult for them to borrow money. Spain is much bigger than Greece and Ireland in terms of its economy and I'm not sure there is any possibility to bail it out without a deadly consequence for the Euro. More terrible things are that many countries including Germany and US have huge exposures to the Spanish debts. See the Spanish "Ghost Towns" here and details about its crisis. In the line the next crisis may come with Portugal, Italy, Belgium, and even France. So what can you do from the trading perspective?
Well, the easiest thing to short Euro is to buy EUO. Buying EUO is just like buying a stock with no time limit. You can hold it for as long as you like if it goes the direction as you are hoping for. Currently it costs about $21 per share ($2100/100 shares). However, if you would like to have a bit more juice with some leverage, you may think about its options. You pay less for the same number of shares you'd like to control and the potential gain is much bigger if you are right. Of course, if you are wrong, you may lose all the money you put in but just limited to the amount you bet with. You also have to think about the time limitation with options. Personally I like the long-term options as I think Euro has a long way to go down. E.g. EUO $17 call option expired in Jan 2013 (EUO130119C00017000). You may buy this call option (to bet it to go up) likely around $5 or so per share (one contract = $500/100 share) for about 2 years time period. If EUO dose increase during the next year, ie. Euro further depreciates in 2011, the percentage increase for the call option will be much bigger than if you simply buy EUO.
We are heading to Portugal for the Christmas time. Likely this is my last blog for this year. Wish you all the best for the holiday season. Hope my blogs have given you at least some food for thoughts and wish prosperity will come more with you in the new year.
MERRY CHRISTMAS AND HAPPY NEW YEAR!
Sunday, December 12, 2010
Successful Investing (2): Be Inactive
I think there are 4 features which are most important in successful investing. I call them LIVE. Last time I detailed about "Lonely". Today I will talk about "Inactive".
Not sure if you have the same experience. At least I had and I think most of amateur investors will have the same behavior. In the past, I just could not have cash in my hands. I wanted to invest them as much as possible. Otherwise, I just felt I missed some big opportunities and wasted my money. So I frequently traded, in and out all the time. Of course I won some trades but most of the time, I lost. I always ran into such a situation that when I did see some really great opportunity, I had no money to work for me. So why is active trading not a good investment behavior?
If you study the characteristics of most successful investors in history, you will find they have a very common nature: be very inactive. One of the greatest living investors in the world, Jim Rogers, once said something like: I don't move often and just wait until the time when the money is lying at the corner. I then simply go there to pick it up. So what's the magic of being inactive? There are four things you will achieve by being very active in trading: first, you are among the 80-90% of those so-called investors in the market. Statistics have shown that 80-90% of people who invest in the stock market will ultimately lose money. So in essence you have put yourself in the pool with a 80-90% probability of failure for your trading positions. Honestly ask yourself if you are a frequent trading person: have you made good money over time? Secondly, you simply give money to your broker as they are the most happy persons to collect trading fees with zero risk! Thirdly, you will most likely significantly increase your tax bill. Capital gain, if held for over a year, enjoys a lower tax rate. Frequent trading may give up much of that low tax rate. Lastly but not the least, you will not have the cash reserve to invest when a real great opportunity comes.
However, don't get me wrong. Being inactive does not mean you are really doing nothing. Actually you should be very active as well. What I really mean is to be inactive physically but very active mentally! While you should refrain from trading frequently, you should actively do your home work to read, digest, and analyze to identify what are the best investment opportunities you need to focus on and put your hard-earned money in. When such opportunities are identified, you should also determine when is the best time to get in. Even you put money with the best company in the world, you may still lose all your money if you invest at a wrong time, period!
You may notice that I haven't talked about investing in specific stocks in the past months. It is true that while I'm sitting in a substantial pile of cash right now, I haven't made any long trades for many months now. On the contrary, I have made several trades to short, as you should know, for Euro (EUO), the whole market via volatility index (VXX), gold (NEM), and rare earth (MCP). It dose not mean I don't have any long positions. Actually I have a lot of long positions, which I placed them 1-2 years ago. While I'm also enjoying the ongoing market rally for my long positions with quite hefty paper gains, I have become increasingly nervous of the extreme complacence of the market. I think we are very close to the tipping point for some very severe market correction, against which I only want to hedge myself with short positions. So personally I'm very inactive at the moment and mostly observe and sit at sidelines. However, I'm very active in thinking and researching to be prepared to get in with all the force when the moment is right. I advise you to do the same.
Not sure if you have the same experience. At least I had and I think most of amateur investors will have the same behavior. In the past, I just could not have cash in my hands. I wanted to invest them as much as possible. Otherwise, I just felt I missed some big opportunities and wasted my money. So I frequently traded, in and out all the time. Of course I won some trades but most of the time, I lost. I always ran into such a situation that when I did see some really great opportunity, I had no money to work for me. So why is active trading not a good investment behavior?
If you study the characteristics of most successful investors in history, you will find they have a very common nature: be very inactive. One of the greatest living investors in the world, Jim Rogers, once said something like: I don't move often and just wait until the time when the money is lying at the corner. I then simply go there to pick it up. So what's the magic of being inactive? There are four things you will achieve by being very active in trading: first, you are among the 80-90% of those so-called investors in the market. Statistics have shown that 80-90% of people who invest in the stock market will ultimately lose money. So in essence you have put yourself in the pool with a 80-90% probability of failure for your trading positions. Honestly ask yourself if you are a frequent trading person: have you made good money over time? Secondly, you simply give money to your broker as they are the most happy persons to collect trading fees with zero risk! Thirdly, you will most likely significantly increase your tax bill. Capital gain, if held for over a year, enjoys a lower tax rate. Frequent trading may give up much of that low tax rate. Lastly but not the least, you will not have the cash reserve to invest when a real great opportunity comes.
However, don't get me wrong. Being inactive does not mean you are really doing nothing. Actually you should be very active as well. What I really mean is to be inactive physically but very active mentally! While you should refrain from trading frequently, you should actively do your home work to read, digest, and analyze to identify what are the best investment opportunities you need to focus on and put your hard-earned money in. When such opportunities are identified, you should also determine when is the best time to get in. Even you put money with the best company in the world, you may still lose all your money if you invest at a wrong time, period!
You may notice that I haven't talked about investing in specific stocks in the past months. It is true that while I'm sitting in a substantial pile of cash right now, I haven't made any long trades for many months now. On the contrary, I have made several trades to short, as you should know, for Euro (EUO), the whole market via volatility index (VXX), gold (NEM), and rare earth (MCP). It dose not mean I don't have any long positions. Actually I have a lot of long positions, which I placed them 1-2 years ago. While I'm also enjoying the ongoing market rally for my long positions with quite hefty paper gains, I have become increasingly nervous of the extreme complacence of the market. I think we are very close to the tipping point for some very severe market correction, against which I only want to hedge myself with short positions. So personally I'm very inactive at the moment and mostly observe and sit at sidelines. However, I'm very active in thinking and researching to be prepared to get in with all the force when the moment is right. I advise you to do the same.
Wednesday, December 8, 2010
Follow up regarding Orexigen
Obviously I was on the wrong side betting. However, I'm not sure this is the end of the game, at least from my perspective. While more experts voted positively for the drug, Contrave, the discussions and comments even from those voted for it were actually quite negative. I believed 2 or 3 experts used the word "technically meeting the criteria" when discussing about the results and were questioning about the clinical significance. Safety including cardiovascular effect as well as seizure was definitely a huge concern.
So what I'd do? I would simply take the loss and walk away if I were not aware of the discussions. However, given the information as well as the fact that the final decision is in the hands of the FDA, I still doubt highly that the FDA will give a straightforward approval. More likely it may be either a very restrictive indication which will mean much less commercial value for the company or an approvable letter requesting more data or even studies before final approval. If that happens, it will be a huge blow to the stock price, which is currently priced in a full approval outright. If the hype for the stock is maintained in the next few weeks till end of Jan when the FDA decision is due, I may bet again for a negative decision from the FDA.
So what I'd do? I would simply take the loss and walk away if I were not aware of the discussions. However, given the information as well as the fact that the final decision is in the hands of the FDA, I still doubt highly that the FDA will give a straightforward approval. More likely it may be either a very restrictive indication which will mean much less commercial value for the company or an approvable letter requesting more data or even studies before final approval. If that happens, it will be a huge blow to the stock price, which is currently priced in a full approval outright. If the hype for the stock is maintained in the next few weeks till end of Jan when the FDA decision is due, I may bet again for a negative decision from the FDA.
Thursday, December 2, 2010
A Quick Money Opportunity
I just noticed that the call options for Orexigen (OREX) is skyrocketing right now. This company has a weight-loss drug, Contrave, which is scheduled for the FDA advisory committee meeting on Tue, Dec 7. People are betting that this drug will get a positive recommendation from this meeting and the stock is jumping 14.5% higher today. I'm not arguing it is not possible that the drug may succeed. However, I think the chance of failure is equally high. To me, it is a 50-50 bet. Given such an euphoria expected for its success, I see a potentially high rewarding trading for a quick profit within days to bet for its failure.
Two weight-loss drugs have failed this year due to concerns of potential cardiac side effects with such drugs. The FDA now has a very high risk-aversion for potential cardiac side effects for this population. People with obesity, although very bad from the public health perspective, are actually considered "healthy" physically and therefore there is a very low tolerability for any side effects, especially cardiac effects. Contrave contains naltrexone and bupropion. I used to work on bupropion and I know it has been associated with quite significant side effects. It was used for smoking cessation with the drug name called Zyban and it had got a huge public fuss due to its potential cardiac problems. My gut feeling is that Contrave won't go well at the FDA advisory meeting. Of course, this is purely a speculation and I'm ready for a 100% loss.
So here is what I'm doing. Given a high risk of this speculation, I won't bet with too much money, just a few thousands. I bought CREX $3 put options expired Dec 18, which is traded at $0.3-0.35 per contract at the moment. If I'm right, I will easily pocket in a few thousand dollars within days. If I'm wrong, I will lose all the money on the table. This is the beauty of options, with which you can define the overall loss if you are wrong for a trade but with a potentially unlimited upside gain if you are right.
Two weight-loss drugs have failed this year due to concerns of potential cardiac side effects with such drugs. The FDA now has a very high risk-aversion for potential cardiac side effects for this population. People with obesity, although very bad from the public health perspective, are actually considered "healthy" physically and therefore there is a very low tolerability for any side effects, especially cardiac effects. Contrave contains naltrexone and bupropion. I used to work on bupropion and I know it has been associated with quite significant side effects. It was used for smoking cessation with the drug name called Zyban and it had got a huge public fuss due to its potential cardiac problems. My gut feeling is that Contrave won't go well at the FDA advisory meeting. Of course, this is purely a speculation and I'm ready for a 100% loss.
So here is what I'm doing. Given a high risk of this speculation, I won't bet with too much money, just a few thousands. I bought CREX $3 put options expired Dec 18, which is traded at $0.3-0.35 per contract at the moment. If I'm right, I will easily pocket in a few thousand dollars within days. If I'm wrong, I will lose all the money on the table. This is the beauty of options, with which you can define the overall loss if you are wrong for a trade but with a potentially unlimited upside gain if you are right.
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