Our Plan for Next Week

An Option Strategy Example 3: QQQQ

Another dithering day! At the end, we backed to square one.

From the table, we should feel how volatile the option trading is. From $41.30 to $41.50, the price changed $0.20 or 0.48%; but our option holding changed from $400 to $510 at 27.5%!

Next week is the crucial week; we need to close our position at least in half; we can hold the rest half for a possible better price.

Most likely on Monday or Tuesday, the QQQQ will reach $41.90. Once QQQQDP reached $1.00, we should sell 4 of the 6 contract. You can set up a limit order ASAP. Regardless how optimistic you will be, you should cash your gain and get your principle back.

The market will be at a relatively high level soon. We should pay close attention on the possible turn back. Therefore, protect your investment is more important than pursuing a higher return.

Is Sun Rising? --- SUNW

The option trader will love it. SUNW (Sun Microsystems Inc.)

If you look its chart, you would notice that its price is always shift between high and low (someone call it “Box”). In the volatile market, you should collect some when it is at low.

My suggestion: Hold (6)

Hi, the price is down!

An Option Strategy Example 2: QQQQ

During your investment, there are always some time that the market seems go to the undesired direction. When it is happening, what should you do?

You might ask yourself questions such as:
1. Is there any news?
2. Is it caused by the whole market change?
3. Is there any known factor has changed?
4. Is there any factor was missed in you initial analysis?
5. What is your initial investment goal?
6. What is your bottom line for lost?
7. How confident are you for this investment decision?
…

I can list a lot of questions that each question can be a single topic for discussion. Today, I am going to focus only on the trading related issue.

Like I said in my article “Ready to Surf?”, during whole week the market will be “crazy”. So QQQQ’s behavior for today is not wild at all. Its price range is from $40.82 to $41.22, just $0.40 or 0.97%. Comparing to yesterday, the closing price is down $0.11 or 0.29% to $41.09.

While, the option is completely another story. The two calls that I mentioned yesterday have price range change 35% and 18.75%. At closing, each of them is down 12.5%. Our holding at closing is worth $350, which is down $50 or 12.5%.

That is why people say the option trading is risky!

“A stock’s going up or down after you buy it only tells you that there was somebody who was willing to pay more—or less—for the identical merchandise.”
----<<One Up On Wall Street>> by Peter Lynch

This level of price change for option is normal. An option player should be psychologically strong to overcome any panic for the price change.

Technically, in today’s situation, you should buy little more at the lower price. If your timing is good, your portfolio should be even or at a smaller lost. I would not bother to create another sub case. We will keep track our current holding going forward.

I urge my readers taking action to follow this case. You will learn much more by invest real money, especially your own money.

Time to Play Index --- QQQQ

An Option Strategy Example: QQQQ (NASDAQ 100 Trust Shares)

The following chart is QQQQ’s three month comparison with Dow and Nasdaq.



From this chart, we can easily see that the NASDAQ 100 has increased a little when Dow gone up to 4% and Nasdaq gone up to 3%.

It is a principle that whenever there is a gap, there should be a trend to erase the gap. The trend should be: Dow is down and QQQQ is up relatively.

For the past three month, the over all market went up. Because the QQQQ is clearly behind the market, it should catch up a little bit.

The economy seems good as far. I think the first quarter earning should be good for most of companies. The good earning or good earning expectation should lift the QQQQ also.

It seems that we have reasons to believe the QQQQ will be up soon.

How can we get benefit from our conclusion?

My strategy is to buy 8 calls of QQQQ:

6 calls: strike price $42, expiration date 4/22/06 at price $0.40
2 calls: strike price $42, expiration date 5/20/06 at price $0.80

Supposed I bought them today. My total investment is (0.4*6+0.8*2)*100 = $400. (The prices are all based on today’s real market price).

Today, the closing price of QQQQ is $41.21. My first price target is $42. I wish it could happen within March.

From tomorrow, I will report the market price of those calls daily, and show you a whole life cycle of an option trading thought this real example.

Can it stand above $5? --- ANX

ANX (Adventrx Pharmaceuticals Inc.)

ANX is a biopharmaceutical research and development company. The company focuses on new technologies for anticancer and antiviral treatments. It closing price of today is $5.00.

On 3/20, it announced Thiovir, its broad spectrum antiviral drug, active against H5N1 avian influenza chimeric virus strains.

ANX is risky but has big potential. It is for short and middle term investors.

My suggestion: Buy (7.5)

Instruction:
ANX tried to cross $5.00 twice already. Every time it was pushed back by relative big volume. Apparently $5 is its big resistant line. Someone, big holders, wants to cash their holding at $5. Whether the price can stand stable on $5 is a big sign. So tomorrow is an important day.

If the price would push back from $5, I suggest my readers do not take any action yet, you should watch it and check if there will a lower price; If the price would stand above $5 firmly, I suggest buy a portion of it.

To make money on this kind of stock, you need be patient.

Market Order or Limit Order

Trading Tip

Some friends asked me what order type they should choose when input an order. Is market order better or limit order better?

Generally speaking, if your target price is little far from the current price, you must set a limit order. If the price change is fast and you don’t want to miss the deal, or the current price is your target price, you need use market order.

Because most of us are using online broker such as E*Trade, AmeriTrade, TDWaterhouse, or Scottrade etc, the story is changed. I suggest using limit order instead of market order.

I checked online brokers rating at different performance measurements. It seems the popular ones are OK at most of cases. From my experience, I think their key problem is the information delay and their execution quality.

All of them claim that they provide “Real Time” information. The problem is how “Real” it is. In another words, how long the information delay is. Delayed information would impact your investment decision especially for more active and volatile stocks. And it would lead you a worse execution quality.

For example: If you got a quote that the price of stock A is $10.00, at that time, the real price of A is at $10.20; when you put a market order, because of the delay, when it executed, its market price is at $10.40 already. You would certainly feel you are fooled when you look at your execution result.

Sometimes the delay is reasonable and unavoidable. It caused by processing delay, the network etc. Sometimes it is not reasonable. It caused by bad system design and implementation, or purposely “bad” algorithm.

Most of the online brokers have limited trade volume. They would always try to match their clients’ orders within their book first. Only when there is no any possible match available, then they will pass the order to ECNs, or exchanges, or other brokers. In the second case, they have to pay commission to the third party, which is against their own benefit.

I guess an unmatched order will technically stay in an online broker’s book for a short of period, just to wait for another possible incoming match. It would be another source for the “delay”.

When a user input a market order, if there is a possible match, at most case it would be a limit order, resist in their book, the online brokers will execute them as much as possible. When a limit order matching a market order, the market order side is the loser most likely. The reason is simple, if the limit order is at the “real” market order price, it should be get executed and removed from the book.

I have had several unpleasant experiences with market order through my online broker. So I decide to avoid using it. If I really want to make the deal, I would set a limited order and give a small room for the price. I can afford to pay pennies more for a stock, but I don’t want to see a shock result.

My suggestion is to avoid market order when you are using an online broker.

Good News, Bad News?

WMT (Wal-Mart Stores Inc.)

“Wal-Mart Stores Plans to Hire Up to 150,000 Employees in China over Next Five Years”. This news advanced the price of WMT up $1.07 to $47.76 today.

Is it a really good news as the market reacted?

I asked a friend: “If you got rich by selling bikini at Bahamas, could you get rich by selling bikini at North Pole?”—I wonder the upper management of Wal-Mart made their ambitions in a wrong place.

As we all know, Wal-Mart sells cheaper products and its customers are middle class and belong. Majority of its products is imported from China.

If Wal-Mart sells products of well known brands, then I would think they had a good decision. Today, the middle and up class of Chinese really enjoy the high quality, new fashions and famous brands. The market for it is huge.

The Wal-Mart’s business model is buy at cheap and sell at cheaper(at relatively good quality). It probably can be success anywhere, but China.

Unless Wal-Mart wants to change their way to do business, Because of the high productivity in China, because of the different shopping habits, because of the different culture, I just cannot figure out how Wal-Mart could compete with the local competitors at even cheaper market.

I have no doubt Wal-Mart can survive there, but I wonder how much profit it can make there, and how can it get big return from its investment.

I do not think Wal-Mart’s plan is good news to its investors. The bigger the plan is, the worse it will get.

My suggestion to the holders of WMT: Reduce your holding within a year.

Stock Pick of Today: CNTF

CNTF (China Techfaith Wireless Communication Technology Ltd.)

CNTF is an international mobile handset design services provider. Its close price is $12.10 as of March 17, 2006

This is a good choice for middle term stock investor.

My suggestion: Buy (7)
The near price target: $16

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My Current Stock and Option Holdings

I have not gotten chance to introduce the stocks in my portfolio. An important reason is that most of them have raised a lot, so their potentials maybe limited. Giving my readers suggestion on bigger potentials with less risk has been my first concern.

A few of my friends suggested me to list all my holdings. They think it would help my readers improve their stock picking skills and understand more from someone else. Besides, if those stocks in an adjustment period, my users can get in if they want to. The next week might be a good timing.

I think it is a good idea.

Majority of my holdings is options. I would only list the stock tickers of my option holdings:

1. CIEN
2. CSCO
3. ELN.
4. ET
5. JNPR
6. SUNW

My stock holdings are:

1. ANX
2. NWACQ
3. VTSS

My option list is changed often because the nature of option trading. But my current list is a very good combination. If anyone wants to know more, please email your question to me.

I wish my readers could spend some time and research those stocks. I wish it could help you a little bit.

Thank you!

Weekly Review (3/13/06 – 3/17/06)

Strong Buy or Strong Sell

I would like to set a point system for better describe my suggestion. Going forward, I will use the following number to represent:

0 ----- Strong sell
2 ----- Sell
5 ----- Hold
8 ----- Buy
10 -----Strong Buy

The numbers in between will show the different meanings at different strength. For example: Hold (6) means: you should hold the stock or buy a relevant small amount because the potential price margin might not big, or the risk is bigger at this price range.

Now, let’s review the stocks that I discussed in the past.

1. INTC
During the week, I received a couple of phone calls from friends. They asked me whether they should take position because the INTC was going down. My answer was “Congratulation!” The more down means more margin you will earn in the future.

Here is the P/E ratio for the top 6 company in the Semiconductor industry. All other statistics data of INTC also show that Intel is at above average level or at top level industry wise. The fundamental analysis shows INTC is a good pick.


During the past two days, the price of INTC reached its yearly new low ($19.40). It shows the selling pressure is strong still. Technically it turned the price moving direction back down. If the panic is not over, it seems a new low is on the way.

A good fundamental vs. bad technical, plus next week’s uncertainty make me feel too difficult to give a clear prediction. But I believe the market will realize INTC’s value soon.

My suggestion: Buy (7.5)
During the next week, whenever INTC’s price dropped one level, you should increase your holding.

2. NBR
NBR is another example for good fundamental vs. bad technical. Because of its industry, Oil & Gas Drilling & Exploration, its price is strongly impacted by the oil price.

My suggestion: Buy (7)
You should watch a couple days, make sure its direction and then take a position.

3. SNDA
If you have time, you should keep an eye on it. I believe there are some interesting things going on because I found more evidence to support my doubt. Please refer to "Stock Analysis: SNDA -- Is it “Artificial”? "

Apparently it is too risky for investment at this time. I am going to remove it from my list.

4. CSCO
CSCO had a stable gain this week. Like I said in "Trading Skill with Example: CSCO ", it is above $21 now. I believe it will keep going up.

My suggestion: Hold (6)

5. GOOG
As I predicted in "Invest on the Future -- Hi Google!", the $340 is a big resistant line. At this moment, we have not seen a clear direction change yet.

For long term, I am going to keep the down rating: Sell (2)
For short term, I think there might be a bounce. Its high should be above $360, even reach $370.

Please read my article “Trading Skill: Take Advantage from the Volatility -- Google Again! ”. It is a safe play guide to get benefit from stock such as Google.

6. NYX
Congratulation to who read my articel "Weekly Review (3/6/06-3/10/06) --“Hi, the Market Read Your Blog!”" and took action on NYX! 10% to 20% in a week is a nice margin.

It is too early to say $90 is its ceiling yet. We should watch closely on it next week. My estimation shows $107 is its ceiling, the time frame should be earlier of April. Anyway, I think buy at low and sell at high is a good strategy for it.

My suggestion: hold (6.5)

7. NDAQ
During this week, it had a high level adjustment. There should be a room for its continuously growth.

My suggestion: buy (7)

8. ELN
ELN overcame the pressure and stood above $15. It was so difficult and took too long! I am surprised that so many investors eager to sell this stock. Maybe people still wait for FDA’s final announcement.

When it was at $4, at $6, at $8, at $12, and at $14, I said “Buy” before. Today, it is at $15, I suggest “Buy” again. To reduce the risk, I suggest buy its stock or long time call.

My suggestion: buy (7)
FDA should release it’s finally decision by 3/26. The next week is an important week too. You should pay attention on the stock movement to catch any early sign of the anouncement.

Good luck to you!