Click Me TO Apply!!!

I always thought that I am some investment guru- whatever I invest in, I will surely make money. I soon realized that I am such an amateur after starting to trade 2 weeks ago.

Maybe let me explain what are warrants before I summarized what I stupidly did. Warrants are somewhat similar to options and there are basically 2 types of warrants. A call warrant and a put warrant. A call warrant gives you the right but not the obligation to purchase the underlying security at a given price (strike) at maturity. A put warrant on the other hand gives you the right but not the obligation to sell the underlying security at a given price (strike) at maturity. Even though that there are much theoretical teachings such as delta, gamma, etc hedging, I seriously think that for amateurs like you and me, we only need to know some of the factor affecting the prices and some fundamentals of warrants investing:

(1)   Call warrants – Generally, the price of a call warrant of a specific underlying asset will increase when the share price of the underlying asset goes up. (Of course at this time, the professionals will then talk about whether the warrant is in-the-money, out-of-the-money or at-the-money crap. Seriously, unless you want to exercise your warrant, you do not need to care about these things) – of course, the call warrant price goes down when the share price of the underlying asset goes down.

(2)   Put warrants – Works inversely the other way: Share price of underlying asset goes down; the price of the put warrant goes up.

(3)   Time value, as warrants do have an exercise/maturity/expiry date, the value of the warrant goes down as that date is nearer.

Okay, these are some fundamentals la. Correct me if I am wrong.

SO BEING A SMART ALEC,

Day 1 (Wed 20/02) 

I decided to purchase a STI 3100 PW expiring on the 280308. In short, I was betting against the STI to remain below 3100 points. During the day of the purchase, the STI was down. The price of this warrant is $0.25 per warrant. Since I thought that I could make a quick profit, I decided to purchase 10 lots = 10000 warrants, so that I can do intra day contra and make like a few hundred dollars in just a few hours.

I entered my order into the system. My order was executed almost immediately since I bought as the market rate. I don’t seem to enjoy any beginners luck as the moment my order was done, the price of the warrant went down.

Day 1 loss = $300 + commission 

Day 2 (Thurs 21/02) 

Observe the market for the whole day. Dow Jones Industry Average (DJIA) went up = STI went up. Cannot sell.

Day 2 loss = $300 + commission

Day 3 (Fri 22/02) 

DJIA went up, STI went up.

Day 3 = same loss

Day 6 (Mon 25/02 due date) 

DJIA went up again; STI went up up and away.

Price of PW = $0.20

Due date loss = $500 + commission (definite loss)

I have no choice but to sell it off at a loss.

BUT BEING A SMART ALEC again, I decided that since the price of the PW is so low now ($0.205 at market), I will purchase another 10 lots so that I can recover my loss.

Similar to the same trade, the order was executed immediately and as the usual fashion, the price went down a bit.

Day 7 (Tues 26/02)

DJ went up, STI went up

Nothing much to say

Day 8 (Wed 27/02)

DJ went up, STI went up

Haiz!

Day 9 (Thurs 28/02)

DJ went up, STI went up – since I picked up the warrants this time, I can sell it off anytime I want.

Sianz!

Day 10 (Fri 29/02)

DJ went down! Wohoooo! STI also went down.

My warrant’s price finally went up. I reminded myself that I have to sell off these 10 lots of PW by today (last day of Feb) because the expiry date is in a month’s time and there are more risks involved. Anyway I did sold off that day, at the price I bought the warrants – 0.205, losing the commission to the company. Warrant’s high was 0.215 which I didn’t sell it then. Stupid me.

So after my virgin trading experience, I am $540+ poorer. So much for an investing guru I thought I was.

 Lessons learned: 

(1)   Don’t be kan cheong, wait for the best price to sell or buy

(2)   Warrants are very volatile, quick profits are very possible but it goes for the other way as well

(3)   Hold your warrant for a slightly longer time as it takes time for the price of the warrant to reach your target price. Pick up the warrants.

(4)   Don’t put your eggs in one baskets

(5)   Trade within your means; don’t buy 100 lots if you can’t afford to pay for the contra loss

SO I DECIDED TO PUT EVERYTHING BEHIND ME, and treat what happened as an valuable experience -

Price of the STI 3100PW on 030308 (today) – $0.295 (highest)

What else can I say? 

Posted by: Fordy 赖 2008