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.

Wisdom from Rogers and Livermore

So far the two most insightful quotes about investing and trading I have seen:

"I just wait until there is money lying on the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime." --- Jim Rogers

After I claimed that what Rogers said is the key to the success in the market, I got a lot of doubts: How can you know it is sure money? There is no sure money, everything has a probability. If there are, other people already picked it up long before your do? Market is efficient. Why do you think you have an edge, blah blah. Sounds reasonable, however they only discovered one side of the market, they only see the chaos, the unpredictibility, the change and move on the surface, what they fail to see is the the other side of the market perfectly described in Jesse Livermore's word:

"Wall street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes" -- Jesse Livermore

Human nature never changes, that is the sure thing, that is the ultimate source of sure money Rogers talked about, and it happens every minute every day in the market. The only difference is someone can see more of them, at the earlier stage than the other market participants. When the majority see it, sure money turns into crap shot, since starting from that moment market debut on the stage to shows its overrated, overclaimed efficiency.

我和疯猫(MCZ)间不得不说的故事

第一次听说MCZ是二月来自法师(zzpt@mitbbs)的站内邮件，他告诉我他读了报表，看了forum,了解到CEO开始谈论profit bonus，那时analyst预计亏损，开始谈profit bonus是个不寻常的现象，当时pps=0.61, 他估计自己0.62还是0.63买的，我等到ER当天，0.64买的，这个是完全基于对法师FA能力的信任，他自己很少喊赌ER,所以他喊你一定要听。

最后结果很好，eps=+0.07,最重要的是margin大涨，这里有关于那次ER和疯猫基本面的简单讨论。

最近学习TA,这个0.62-0.64的买点刚好能用trendline做出来，所以是个旁证,为什么我说FA,TA本是一家，为什么要分彼此.

之后MCZ沉寂了一段，我一直有利润，慢慢捂，最近的突然拉升是Halo3 news driven,这个你如果没跟上，也无所谓，我在MCZ快到1的时候喊了到$1搏傻。

各位TA高手如果熟悉Jesse Livermore,一定知道他的整百追高法，其实这个$1也是一样，是一个非常重要的心理关口.

但是我误算了一步，就是第一下冲过$1后有回来再确认的需求，所以致使一位忠实读者被stop out, my mistake, 今天再上$1，开始奔就是很明显的事情了，这个先回调一下再break out的道理就是TA教科书上说的"cup and handle"一个道理，虽然这个cup,handle形状都不标准，但是这个炒家心理是一样的，触类旁通而已，所以这个$1搏傻基本上是一个心理搏傻。

至于今天的1.12 buy on dip,就是纯TA了， 50% retracement,没什么好说的。MCZ trendline清晰可见，还是很好做的。

一句话，炒股不要钻牛角尖，各种方法都是相互贯通的。正所谓华山气剑二宗都是一个祖师爷传下来的，何苦非要分个彼此喃，充分发挥自己的长处也不要忽视了各种方法背后相通的道理，我写过的君子不器和处长胜人可以给这个疯猫故事做个注脚

谁会是成功者，谁会最成功

这个市场上有两类可能成功player，

一种是做功课的人(FA派)
一种是会看图的人(TA派)

第三类又不看图又不做功课的人还是别来炒股的好，菜板上的肉而已

会做功课的牛人能从其他各种信息渠道了解分析出自己应该干什么获利可能大，他们的行为反应在股市买卖中就是看图派的最初的input.

会看图的牛人能从图上看出市场主流在想干什么（其实想干什么都太复杂，就是二元选择，涨还是跌)，看图派的行动常常是一个自刺激的feedback control system，因为它们本身参与市场博弈的过程也是改变市场态势的核心力量

会看图而不精的弱人，正确率不高，看不清主流，容易迷失在各种指标中，输多赢少

做功课但是听信谣言，抓不住重点的弱人，很容易buy-and-hope,最后死抱垃圾水下争扎

所以真正最赚钱的是在大多数做功课的FA派place了他们的bet, 大多数看图的TA派开始步调一致自刺激的早中期发现这个态势，ride the trend，怎么找到这样的pick和timing就是成功的核心关键，大道理就这点。实际有效的操作方法远远不止一种。我都说到这个地步了，我想你应该能有所悟了。

最后归根到底就是一个sure money in front of you. 你要能看到，怎么捡就是小问题了

Interesting Forbes Article

12-buyout-target

Today I just pumped two names out of 12 in the list above: RAIL and OVTI

The truth is when you see value, other people see it too, when you see value stock getting cheaper, other people see it as well, eventually those value-cheap-losers will be in a lot of ppl's watchlist and become highly controversial losers, our main target in this blog. Once the trend reversed either natually (value driven like PLXS) or suddenly (news driven like MCZ), you have great opportunities to play.

There are many good stocks out there, I am not saying HCL is the only way to go, I am saying it might be the most efficient and systematical way to go to find highly profitable picks for trading and investing.

In a nutshell, it combines the momentum(DTer's favorite), sustainability of trends(Swinger's love) the value (Investor's holy grail).

If you come from value investor side, all you need to do is a little bit more patience (which I assume you already have, since without patience, you are not going to perform as a value investor). What to wait for? wait for bargain deals become sweeter, wait for the sign of end of downtrend and start of uptrend.

If you come from the trader side, first of all please drop your assumption of efficient market theory, it is not true. Keep your eyes and mind open, take advantage of amature "value investors" who think they are following Buffett, but they are really not. Buy-and-hope is primarily what they are doing. However they cannot always be wrong, once their hopes are actually realized (the probability is usually fairly low, especially those Buy-out rumors floating around), join their party. Once their hope turned out to be disappointment, beat the dead horse immediately without hesitation, I don't even care about if it is the very horse in investor me's own barn. I short ASPV after ER, I put OVTI after EK conference call, that's trader's best show time.

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

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.

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

Today's ONT

I have many regrets, followed it from penny, first load @1.07
and didn't get all the benefit,

however I do believe in the next 6 months, MCZ will do the same thing.

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

OVTI may pop up

yesterday's doji is a typical trend reverse signal.

and OVTI got strong support at 14-14.2 area.

looks good for today.

Although I don't believe max pain theory, however MMs do have incentive to push it to 15 by the end of tomorrow.

Machine Trading and Market liquidity

Today I found sign of machine trading on JMBAW, as I already mentioned,
JMBAW is warrant of JMBA, and previously it had huge ask/bid spread, the market liquidity of JMBAW was rather poor. However because of the close relationship between JMBA, JMBAW, there are opportunities for arbitragy. It seems now, some hedge funds found this one out and implemented the machine trading strategy to exploit the possible arbitragy.

It is good to us JMBAW holders, since it improved the large spread issue and the lack of market liquidity for JMBAW. I am graduatedly making money on it.

The beauty of underknown/undercovered names

Yesterday I discovered this baby WINN

And you are watching what is happening to it.

Even if you don't take the risk and bet the ER, just ride the post-ER momentum on it, you will do better than 99% day traders out there.

Why? removal of uncertainty on those undercovered names can create very strong momentum, that's one of the foundations my methods are built on.

How Frequently Should I Trade?

I saw a lot of day trading in and out everyday by newbies seeking for quick 1%, 2% gain (or should I say in reality equal chance to get 1%, 2% loss). My take is if your TA is not good, don't do that.

If you followed me since the inception of this blog, you already knew my style, I wait for the best chance to play bigger fool game:

Example of DT/Swing Momentum calls in the past week:

ASPV (link) : 23-->20 in 2 trading sessions.

OVTI (link) : 15.3-->14.29 after EK CC in 2 trading sessions.

SIGA (link) : Pre-CC 4.75-->5.04 DT, Post-CC blood bath until now 4.85-->3.69 in 3 trading sessions.

JRCC (link) : Post ER 9.3-->11.55 in 3 trading sessions

I predicted all the above momentums beforehand, although the direction of post-CC sell-off of SIGA is a bit unexpected to me, however I have no problem understanding and playing with it following the crowd. Since at the end of the day, my methods can only accurately predict the magnitude of incoming momentums (since I understand the magnitude of the human emotion involved), and will not be 100% right on the direction without knowing the actual event outcome beforehand,

You don't even need to rely on those unpredictable events such as MDTL-April-13th, and PTR-May-3rd. If you can spot them in real time, congratulations. If you cannot, don't worry, you have plenty of opportunities you can know before hand. However I do think once you have followed my approach, you have an edge to identify events such as MDTL in its very early stage ahead of most of the players. And in event such as in PTR, you will have an idea of the magnitude of the going-on momentum.

I am not here to say I can get all the benefit of the maximal length of momentum. That's not the point. The point is, if you can know those huge momentum opportunities beforehand and be under full awareness during the time window, you can profit by following them to capture portion of whole length (I do hope it is the largest possible portion). You don't need to trade frequently. You can trade infrequently say 2-3 times per week, and will still enjoy very nice return. Then you will no longer worry about your day trading limit.

As Jim Rogers Said:

"I just wait until there is money lying on the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.
"

As a Trader: FA , TA, and my edge

Do I know how to do technical analysis (TA) as most traders do? You probably already know the answer. Simple: you can hardly find any graphs here.

Do I know how to do fundamental analysis (FA) as most investors do? Sorry to let you down again. Although my FA ability is better than my TA, I am still no professional with no information edge.

Then what is my edge in trading?

I understand the decision making process of most players on the market on a handful stocks I have researched. Most of them are not well known and not commonly traded (unlike AAPL, and GOOG). Despite the players' information access, smartness or whatever edges they have, their actions are driven by human emotions.

Let me give you a few examples:

Hope or Anticipation (DNDN pre-FDA bet, OVTI pre-ER and buyout-rumor run);

Disappointment(no short-term quick money as previous expected in ASPV/SIGA/OVTI despite excellent conference calls and good developments around the corner);

Exhilaration(better than expected good results, such as TSRA/PLXS post-ER movement, or totally unexpected good news, such as MDTL-April-13th)

Relief (worrying about bad news before, but it turned out to be better than previously expected, JRCC post-ER momentum).

My understanding of those emotion cycles and the possible causes behind those movements is my SOLE edge in trading as a retail trader without being an expert on either TA or FA.

My sole purpose of doing retail FA is to locate the largest emotion and sentiment shift. Once it happens, strong price movement momentum will follow. The intensity of such momentums largely depends on the divergence of the actual result and the expected result beforehand.

DNDN's Post-FDA panel result is a wonderful example. When most of players are bearish on the panel recommendation prior to the event, you know what is going to happen after the panel said positive.

You can tell that I am able to find those momentum beforehand or at its very early stage. That's because I understand who the best friend of a trader is. If I can do all the highly accurate momentum predictions as above, you can do the same.

The No.1 rule for Bigger Fool Trading

The No.1 rule for Bigger Fool Trading:

Be a fool before everyone else,
Be nuts before everyone else,
wake up when other people become fools,
and exit when other people become nuts.


搏傻第一原则

傻在人前，疯在人先
人傻我醒，人疯我逃

今天早上开盘前call JRCC
有感而发

Trader's Best Friend

Who's trader's best friend?

Trader's best friend is other people's hope.

It's simple.

You ride the stock up with those hoping to reap excessive return overnight, like OVTI 's pre-ER, or buyout-rumor run. Then you get out before the judgement time of their hope.

You ride the stock down when those hopes burst, like today's DNDN.

The bigger the hope the better.

"Don't bet on hope" is no longer a trading tip as mundane as "control your loss".

Make it the first principle for your survival in the market.

Before you open any trading/investing position

Before you open any trading/investing position, please ask yourself three questions:

1. Do you have any idea of the downside capital risk of this position?

2. Do you have an exit plan for both profit taking and loss control?

3. Do you have any idea about the company you are buying? While reasoning this trade, do you have minimal hope of excessive return overnight and maximal awareness of any possible downside risk?

If you have 3 firm "yes" to the questions,congratulations, you can open the position.

Otherwise, please wait.

If you have no clue of question 1.

For traders:
you need to do some TA support/trendline/double bottom research.

For investors:
you need to find out how to make an intrinsic value estimation of this business. Double check if you have a good-to-superb margin of safety to that valuation?

For instance, if you estimate that the intrinsic value of this business is $1B, and it is selling for $500M, this is called a good margin of safety. If it is selling for $250M, it is superb (something Buffett would be interested in buying)

If you are both the trader and investor, and have evaluated the downside risk from both aspects, it is even better. My call of HNR @10 is an example.