Saturday, October 11, 2008

A Trade on INFY

Dear fellow options traders :

Noted that Infosys Technologies Ltd (ticker : INFY), an IT company providing information technology enabled business solutions, would be reporting earnings on 9 Oct 08, after-market-close.

I believed a lot of you have witnessed how the global stock markets were hammered hard by the tumultuous financial turmoil recently. This financial crisis, which stemmed from the bad sub-prime mortgages created a few years ago, was so bad that even the gigantic US$700 billion bailout package and the global efforts to cut interest rates, couldn't stop the continuous plummeting of the stock markets in these 2 weeks.

By the way, I've checked that the industry sector where Infosys Technologies Ltd (ticker : INFY) belonged to, ie. Technical System Software, did not perform too well either. I've also read from research analysts' comments in that most firms would cut their IT budgets in such a drastic economic environment.

Thus, I put up a limit order to buy a near-the-money Oct 30 Put option at $190.00 on Friday, 3 Oct 2008 when INFY was trading around $31.00.

On Monday, 6 Oct 2008, the US stock market plunged severely in the opening trading hours. When I saw the share price INFY plunged beyond -$2.00 around 10.00am EST, I quickly put up a limit order to sell my position at $440.00, which was executed pretty fast because the stock price plunged quickly beyond -$3.00 near 10.30am EST.

In such a volatile & depressing stock market environment, that was an opportunity where profit could be earned without me taking the risks to hold on to the position till earnings announcement on 9 Oct 2008.

Anyway, on 10 Oct 08 before-market-open, Infosys Technologies Ltd (ticker : INFY) reported Q2 earnings of $0.56, $0.01 better than the consensus of $0.55; revenues rose 19.0% year/year to $1.22 bln vs the $1.21 bln consensus. However, INFY reset its FY09 revenue growth rate guidance at 13%-15%, down from 19%-21%. On 10 Oct 08, INFY gapped down -$2.00 to $23.25 & closed at $23.91.

Yours Truly,

Tony Chai


PW said...

Welcome back! Glad to see your still trading in the market. I figured you must have been making a killing in the market b/c you hadn't posted in awhile. My old mentor used to say that he always heard from his students until they became wealthy and then they dropped off the face of the earth.

Tony Chai said...

Hi PW :

Thanks for dropping by.

It's indeed the most turbulent market to trade. Swings of several hundred points of the DOW have become the norm these past few months & one just couldn't hold on to a trade too long, unless you have put up bearish positions during the past 2 weeks.

I'm not that good in my trading skills yet, PW. I'm still learning and most importantly, keeping the psychological & money management aspect of my trading strong. This mostly translates to taking up a position without fear if the indicators are strong & also provides good risk/reward ratio. It also means cutting losses when trades don't go according to plan & not entering into another trade recklessly just to recover a recent loss. Easier said than done but am strengthening this aspect of trading.

Actually if I am that good with trading I would really like to provide mentor-ship to others so that they would avoid the agony of losing money recklessly which led to them giving up too early. I've been through that helpless stage and it's the passion & persistence which keeps me going till today.

I've read with interest your blog entry regarding having God guiding you in your trading. I do have such encounters at times. I remembered there was a time when it was market opening hour. I was trying to sell a position urgently but the trading platform jammed and I had to spend about 5 mins to restart my laptop. You could imagine I was cursing at that moment when the computer restarted, and it would always be dead slow when I wanted the trading platform to come up real fast :) But I was pleasantly surprised that because of the 10 mins(!!!) delay, I was able to sold my position at a better price when the stock price moved fiercely towards my desired direction in that short time. I also discovered that market makers like to "trick" you to buy & sell at "ridiculous" price during the first few minutes when the market opened, or am I the only one not knowing this :)


Tony Chai

PW said...

Thanks for your insights, and yes I have noticed what the market makers do. I didn't notice this until last week after I got caught in their game. Woe is me! I'm still learning though and it actually feels good to be humble and realize that I'm not there yet.

To Your Success, PW

kristel. said...

Tony Chai,

TraderPlanet would be a great place for you to establish yourself, and a great place to meet even more people seeking your mentor-ship (myself included)! Consider joining the community, this blog is exactly the type of content that would be great in a TraderPlanet blog!

Now there's a way to reach two trader audiences at once, with your blog posts as usual. Simply visit, create a profile, and follow these simple steps to set up a dual blogging process (this will make your posts display automatically on your TraderPlanet blog as you post them here). It's a one time set up process that would increase your visibility and expert establishment.

Dual Blogging Steps for Trader Planet:

Go to My Planet --> My Blog

Click "Create Blog"

Choose a name and title for the blog

Go to My Planet --> My Blog

Click "Edit"

Click "Plugin"

Click "Activate" to Activate FeedWordPress

Click on "Syndication"

Under "Add a new syndicated site:"
For Blogger and WordPress put in your blog URL

If your using another blogging system you will need the URI of your
RSS feed. This can usually be found on the front page of your blog (as a link) or by using an RSS reader such as Google Reader or Firefox.
Put this address in the field.

Click "use this feed." If there are more than one option, use the
first feed.

Under the syndication tab, there is an "options" tab. Click this.

Change "Check for new posts" to "automatically"
Set the update interval to 45 minutes

Under syndicated posts there is an option "Permalinks point to:"
Change this field to toggle how post links will redirect (to trader
planet, or to your original blog).

If you have any questions, I'm here (and on the Planet) to help. Thanks! Have a great day!

Anonymous said...

Mr Chai,
How does it seem that it is your analysis that works when it seems random whether you make or lose money. This trade was good because the mkt came down overall not due to the earnings.
Another one I read from your blog was wrong because contrary to the results the stock went up. Of course it went down later, but the issue isnt whether you were right but when you get it right.
Previous trades in the earlier years were good too, becos the mkt was too bullish?? I am not discrediting your skills but randomness is a fact that cannt be hidden.

yvonne said...

Tony, what do you think of infy this week? thanks

Tony Chai said...

Hi there :

Earnings gapping analysis is a 50/50 chance type of technique. That's why I'm trading less of the earnings gapping analysis technique nowadays unless certain patterns or signals re-appear & point towards a high probability of gapping in a certain direction.

What's important is not to be overly-confident with ANY trading technique and use very strict money management for every trade. This applies to every other trading technique, except I felt that there should be better techniques around which are based on price confirmation and/or pattern confirmation.

I'm now attending Mr Michael Woo's course and would slowly switch to the trading techniques he taught, which to me are more logical & sensible.


Tony Chai

su said...

which website u use to get the industry sector where Infosys Technologies Ltd (ticker : INFY) belonged to, ie. Technical System Software

would u consider a straddle on infy?

su said...

notice this site is quiet even though the market is going through an exciting phase. tried to contribute to make this blog interactive. anyway this will be the last update from another site, fyi:

Stocks surged in lighter volume Monday after the government worked out a rescue plan for Citigroup (C).

The Nasdaq leapt 6.3%. The NYSE composite soared 7.1%, the S&P 500 6.5%, the Dow industrials 4.9%.

Despite the big price gains, volume fell considerably. It sank 17% on the Nasdaq and 19% on the NYSE compared with Friday's levels.

After a tense weekend of negotiations, the government announced a rescue package for embattled bank Citigroup on Sunday. Under the terms of the plan, the Federal Deposit Insurance Corp. will guarantee losses on most of $300 billion in troubled assets.

Also, the Treasury will inject $20 billion into the company's coffers. That's in addition to the $25 billion that's already been made available to Citigroup. In exchange for those capital injections, the government will receive preferred shares.

Citigroup's dealings around the globe are so massive, many considered the firm's survival critical to world financial markets.

The Treasury's intervention follows a revised model in which the government takes equity stakes in troubled financial companies in exchange for financial help — instead of simply buying up bad loans.

Wall Street had kept a close eye on Citigroup all last week, as the bank's stock nose-dived 60%, hitting a low just above 3 a share. That made Citigroup the latest in a string of big banks to see its stock undercut 10, then go into a free fall.

Bank of America (BAC) threatened to do the same on Friday, touching a low of 10.01 a share. But the stock bounced back sharply on Monday, climbing 3.12, or 27%, to 14.59.

A number of other financial stocks also logged big rebounds. JPMorgan Chase (JPM) bounced 21%, Morgan Stanley (MS) 33% and Merrill Lynch (MER) 38%, all in brisk volume.

While the Citigroup news triggered a big relief rally, the session's big price gains did come in curiously lighter volume. In a normal market, with gains that big, you'd be sorely disappointed to see lower volume.

Then again, this isn't a normal market. Despite two straight big gains for the major indexes, the market still finds itself in a correction. Stocks have rolled up huge losses since the financial crisis came to a head in September with a series of dramatic events in the financial sector.

On the other hand, markets have started to rebound in initially mild volume in the past, just as we've seen markets find a bottom under stressful circumstances before.

Meanwhile, leading stocks had a decent but unspectacular session, considering the broad market's massive advance.

About two dozen stocks with superior price performance and fundamental strength notched significant gains. That's unimpressive in a normal market.

Leaders did improve as the day went on, though. In recent weeks the market has notched big price swings, in both directions, in the final hour of trading.

On Monday that late movement showed up as the market gave back some of its gains.

HMS Holdings (HMSY) rallied 1.02 to a seven-month high of 27.97 in rapid volume. The provider of revenue recovery services ranks No. 12 this week.

Dollar Tree Stores (DLTR) climbed 3 to 38.28 on volume 67% above average, rebounding above its 50-day moving average. The discount retailer is slated to report quarterly earnings results Tuesday morning. Analysts expect profit of 44 cents a share, up 16%.

On the downside, soup giant Campbell Soup (CPB) slid 2.75, or 8%, to 33.52 on more than twice its typical turnover, slashing through its 50-day moving average. The company said a stronger U.S. dollar will hurt its annual profit. About 25% to 30% of its sales come from abroad.

Elsewhere, a number of medical-related groups rallied on M&A activity. Johnson & Johnson (JNJ) agreed to buy Omrix Biopharmaceuticals (OMRI) for $438 million in cash as it strives to expand its surgical products business. Omrix shares surged 17%, J&J rose 1%.

Energy stocks also fared well, thanks to a big jump in oil prices. January crude rose $4.57 to settle at $54.50 a barrel.