OVTI ER play

I have already said many times, OVTI May 31st ER will be a critical one and the outcome will be bullish biased based on my previous research. And the key issues will be

1. How substantial is the "substantial recovery" they predicted in Mar 1st CC for the next quarter (May-July) revenue

2. Any positive surprise regarding the design win especially about TrueFocus and about new production process and WLO.

The downside risk is small, the upside potential can be big with small possiblity of short squeeze.

Fig 1 the probability distribution for possible price movement after ER (assuming OE day close) I use log-normal distribution.






4 different plays with June call option, suppose you use $5000 to buy call option at the last price. as you can see the max loss is $5000, the Y axis is the histogram # generated in the simulation. the X axis is the return in dollar values.

12.5 June call (last price $2.65)



15 June call (last price $1)


17.5 June call (last price 0.35)


20 June call (last price 0.05)



the expected return of the above strategy:
$2677.3
$3900.7
$1149.6
$421.6

the probability (in %) of losing half of your capital (here $2500)
6.9000
30.3700
72.0700
94.8600

which means using all your money buying 12.5c will give you expected return of $2677.3 with 6.9% proability of losing half of your capital

Given those number, if I want to bet ER, I will do a combination of 12.5c+15c to have the best risk/reward profile.

This is just for illustration purpose to show you why people lose so much buying OTM calls betting ER, even when it has bullish bias, the numbers are simply convincing. Therefore like I said before, for HCL ER play, play it before, play it after just don't bet on it.

What did we learn from this simulation:

1. Betting ER is never a "Sure Money" play.

2. Possible post-ER price volatility is largely priced in the short-term option price. Why should you bet it when you are essentially getting nothing (comparing with playing it AFTER you know the result) for taking a lot of risk.

3. If it is not for Hedge purpose, I see no reason buying(holding) short term options ahead of important news/earning report, long term leap option and vanilla stock shares are simply better choice.

The psychological pitfall here is people are afraid of MISSING out a major event such as a short squeeze on stock like OVTI(DNDN in the recent drama as well). However BEFORE knowing the news/ER, the real probability of such thing happening is small, it is never the focus in the probability distribution(see above Fig1). That's why I play post-ER/post-News momentum since at the first moment I get access to the data/news, I will know with very good certainty where will the price go, the above probability distribution is transformed immediated in my mind in the presence of new information, and then I see sure money lying in front of me. You will argue everyone else has seen the news, is market efficeient? Nope, I know things people don't know, simply because I know what to look for in the news/data according to previous FA research, and price movement takes time to reach its equilibrium. I play fool game with my informational and analytical advantages before most players on the market to react. TA people say, I wait for confirmation, I FOLLOW the trend, which is valid and safe move, however technical indications are always laggered, when you see them happening, you already missed most of the range.

So be a market leader not follower, however trade based on the fact you know not on what you believe, pure speculation or crapshot gambling.

Do you still worry about missing out GAP up/Gap down? Check PACT@May 24, it shooted up about 35% within one hour after I called, where is the gap you are worrying about? For my picks in this blog, this problem is the least you should worry about. Reason? I am not going to tell you, since I have already mentioned multiple times. Instead of worrying about missing out gap-up, you should focus exclusively on your downside risk. Hoping excessive return overnight without proper asset/risk management is the fastest way to wipe you out from the market.


Update:
before my post:
OVTI PPS (May 25 close): 15.05

Now 16.3 after a fantastic ER

June calls:
12.5c $2.65-->$3.85
15c $1-->$1.65
17.5c $0.35-->$0.2
20c $0.05-->$0.05

Did you see which calls are winners? Even if you can predict this would be a good ER like I did, it is still not good to bet OTM calls. If you like a company's fundamental and future, I will choose (in the order) Leap Calls(Jan 09 20c,25c etc), Stock shares, then short term option calls.

We are going to have a great week on OVTI.

Update on HNR

if you check SEC filling of HNR

Besides our very predictable and diligent buyer: Pabrai, the new impression is everyone in the company management is aquiring shares dated May 17th. Usually after getting such 0 cost shares, insiders will immediately dump them to the open market to enjoy the quick cash. Check Sec form 4 fillings from company like CRM.

What does this mean? Our party time is approaching, the management of HNR is making sure everyone on board to have a piece of pie to enjoy. Hopefully I still get time to play bigger fool game in China when the news is announced.

May Short Interest Out

OVTI up 6.13% to 20,198,856
ACUS up 22.09% to 2,263,566
JMBA up 17.57% to 5,196,318
SIGA down (6.31%) to 2,008,772
URGI up 25.74% to 164,765

OVTI Strong buy

Today's news is HUGE.


As an investor this is a strong buy, as a trader, you may want to confirm it after May 31st ER.

Update on Mohnish Pabrai

His new purchase

Now I kind of understand what he is up to. I just pumped RAIL twich, let along HNR

Update on HNR

Weekend Read, StokBlogs-HNR

I think he followed VIC article.

An overlooked conference call news

The most import message:

"
...
Even so, Harvest is moving ahead with development plans because, Edmiston said, "the government is behaving in a way that suggests they are 100% committed to what we've laid out. I think what we're doing, moving ahead with the business, reflects our own view reflecting certainty or uncertainty."

Harvest has put out bids for two drilling rigs, which it expects to receive over the summer, and has already secured two workover rigs, as well as increasing its technical staff, Edmiston said. PDVSA agreed to foot the bill for some equipment that Harvest has ordered for PetroDelta, Edmiston said.

Harvest expects the business plan to "build production rapidly" and increase reserves, he said.
...
"

I have listened the CC webcast twice, I know this is for real. :)

Two HCL to watch for the next week

JUPM and VIMC

Initial sign of uptrend from bottom, watch and trade accordingly

update:

google-finance said VIMC will have its delayed earning report tomorrow. watch it closely, DT the momentum

Two winners to watch for the next week.

I don't trade losers only. If I like a company, and I think it is fairly valued or undervalued, I won't hesitate to trade and invest it.

Two examples: ESV and TSRA

ESV is in new high making mode

TSRA today's rebounce from daily low, and breaking even at close is very bullish to me

Plain fact about MPEL and their Crown Macau

On May 12th Crown Macau finally opened, 15 days after the initial estimation (April 27th) made on the IPO day, and 4 days after the second estimation (May 8th), missed the Golden May Weekend. That's it, it was eventually there, a not very timely execution, you may wonder why it plummeted so much to make lower lows everyday. Today it actually touched $13.61, which was a 28.5% retreat from its IPO price $19. And it was considered sizzling hot IPO then.

Here is why, it is really not about the 15 days or 4 days delay, it is about the confidence of the investors on management ability to run the first 6-star casino ever built on that island.

So what is missing from the openning?

Let's get the fact straight, from the recent conference call

Crown opened with

26 VIP table vs. 80 planned 32.5%
142 premium mass tables, vs 142 planned 100%
479 gaming machines vs 550 planned 87.1%

"the additional 54 VIP gaming tables and 71 gaming machines will be operational within approximately four weeks."

let's do a quick estimation, if every time unit each gaming machine makes $1, premium mass table makes $10, VIP table makes $100, which is just a rough estimation, every time unit, under full occupancy they are planning to make $9970, for the first 4 weeks, they are only going to make 26*100+142*10+479= $4499, which is roughly 45% of the planned profitbility.

So their first month report will be a huge disappointment, since they simply don't have the capacity ready.

This is not the only problem, their real problem is the hotel room.

"Crown Towers hotel will be operational with approximately 60 rooms available within three weeks. Approximately 216 hotel rooms, including all villas and suites, will be operational by the end of July 2007."

in plain language, in the first 3 weeks, no rooms at all, after that 60 rooms until end of July, after July (hope there will be no further delay) 276 total rooms.

This hotel room condition will impact its casino revenue much much more than the table/machine capacity issue due to their geographical location. Basically they assume most VIP table players want to stay with them in the original plan, now they don't even have this facility ready for the first Q.

So even after all the 80 vip table are operational, in the first Q the revenue and net earning will be way off the original plan, let's break down the number

first month, roughtly no room, 26 VIP table, best estimation is it will only make 35% of those 26 tables full earning potential if VIP guests have no room to stay with in CROWN.
so our previous number of $4499 per time unit is really about $2809 vs full potential $9970

second-third month, 60 rooms, 80 VIP table, this looks better, however it can only make the efficiency ratio stay the same of 35% if not reducing at the best since much increased # of table and barely 60 rooms, the number we are looking at will be

80*100*0.35+142*10+550=$4770

so the first quarter looks like $4470*2+$2809=$11749, and the planned full potential is $9970*3=$29910, so my view is 40%-50% at the best.

Here we made a lot of numerical estimation, however looking from any aspects, I have reason to believe the first quarter revenue data will be a huge disappointment by a large margin if you think in the sense of their planned configuration.

When market gets this data, it will further hammer this stock, so I would say, the future of MPEL might be great (actually they did mention together with the second stage hotel rooms, there will be 54% more VIP tables available, which is another 44 more VIP table if we calc from the initial number of 80). The results from second quarter after every facility is in place is really going to make it move. However 4-5 month from now, MPEL stock price will underperform.

For now I will watch it from the sideline, MPEL has long way to go to really reach its bottom. In the meanwhile, there will be a small scale pre-ER run between the announcement of ER date for reporting Crown's first ever Q results and the actual ER, largely driven by naive retail longs hoping for some good numbers and thinking they get the bottom price. However such hope will turn out to be bloody, being a trader, you know what to do to make the best out of it.

After that bad ER in mid-late August (my best guess), MPEL will be trading lower due to the huge disappointment (I have shown you my estimation above), once it stops dropping about 15-20 days after that bad ER, I will be a buyer waiting to jump for a nice and surprising second Q ER number.

AVNR is about to break out

keep watching, this time will be for real

update:
break out also confirmed, time to jump to ride the momentum

update:
position closed: 3.17-->3.56

One more cent

MCZ will become non-penny,
what does this mean,
it means significant upside momentum, nothing short of those livermore type of momentum when stocks making new high to 100, 200, 300 etc .

when ONT reached $1, it quickly ran up to $1.46 within very short period of time, so MCZ will be the next $1 swing target.

update:

it made it, watch for volume for confirmation, then jump, very nice,

update2:
time to jump, swing target 1.3, stop 0.99

ESV is about to break out

making new high and breaking out together will be sweet to generate momentum.

keep watching, my June 60c is doing great.
update:
nice break out, previous all time high 59.39 is history now
see 60 next week.

Yet another HCL momentum

RAIL good for swing

Bought some BRNC

@15.83 testing water

HERO also looks good.
add EPEX

update:
when you see those tickers, you will notice the whole oil/energy sector is doing great today, my old pick ESV is also very nice.

Today's Bottom Momentum

on my watch list is ENT,

I am yet to find the cause

update:

the cause is the whole sector is strong, and those HCL will enjoy high percentage DT opportunity. I should have loaded ENT @5.48 when I saw it, my BRNC is doing ok, not as good as ENT

update2:
also check JDO, I played multiple times, a very nice DT target, however don't hold

update3:
whatever, I jumped @5.7, trail stopped out @5.72, not as good as I thought

Another thing I don't do is

IPO, today's CSUN is a great example, so hot, however I am going to watch it and trade it when I see the inital wave fades and new wave are generated and also get myself familiar with its trading range. nice one to watch and learn for today

Why? same as ER, I have no control of my downside risk, no matter how tempting it seems, not my money.

update:
being watching this one for a while, the impression is it is going to be very hot in short time period, waiting for the first major pull back to mid to high 12 and load.

Quick comparison of OVTI and CRM

as I am typing
OVTI $14.48
CRM $42.63

You would expect CRM to be much more profitable than OVTI and have much better business future, as the pps suggested, should be a triple. however the truth is:

for OVTI
ER date Apr-06 Jul-06 Oct-06 Jan-07
EPS 0.39 0.39 0.28 0.20

for CRM
ER date Apr-06 Jul-06 Oct-06 Jan-07 Apr-07
EPS 0.04 0.06 0.06 0.07 0.01

and both expect the next earning to be about break even.

Sure you can argue that OVTI is in earning downtrend, however the company officially declared the turning around in current quarter, let along the new products such as truefocus in the pipeline for the future. I am still not seeing the rosey future CRM CEO painted, given the fact MSFT and ORCL are coming to eat its market.

Cash position:
OVTI has about $6.5 cash and short term investment per share, which is almost half of the pps, and virtually no debt.
CRM has about $2.5 cash per share, which is barely enough for working capital.

Anyway you already know that I long OVTI and short CRM

Great fishing time for HNR today

OTM calls
september/december 10c 12.5c if you can get seller selling it at the bid price to you, that will be awesome.

update:
no seller is selling me such calls, even the pps is tanking, :(

URGI found support

@12, which has been verified three times already.

nice rebounce, however the point is it is not the time for loading retail, the whole sector looks weak.

update:

it did better than I thought, I missed the news about institional holding, they have strong interest in this underknown retail, looks good from here

update2:
I am looking at its day graph for the past 6 month, the key(actually obvious) insight is it was trading in a range roughly from 12-15, so buy at 12 and sell at 15 have been working nicely so far, but I am actually expecting the next leg up will break that range, since summer comes, usually their sale will be strong in the coming months, waiting for ER and next month same store sales news to check it out.

Check CRM now

you will see why you don't need to bet ER beforehand, just follow the post-ER momentum, short/put at open, you will do great without taking the risk.

update:
From my observation, no hurry to cover your short position, hold it thru weekend, if will drop further. anyway just my personal opinion, YMYD