Monday, March 06, 2006

A lesson on Trading Warrants in the stock market

Yes!!! We have done it! Stock Market closes in new high! 2520 is the next old high from early 2000 during the IT bubble days. With many analysts calling for a correction, it pays to be nimble from now. Infact as I had stated out in the beginning of Febuary, I was looking forward to trim my positions and exposure to risk as we climb higher. Now I'm left with 3 stocks. I am going to be nimble from here.

I remember starting out the year 2006, i wrote a memo to my yahoo group and in that memo, i reminded everyone that warrants are a trading instruments. They should not be used to invest and sit on it. The reason is, in warrants, we have time decay. Every passing day, means that the warrant will be closer to expiry date and the warrant price will depreciate by itself! An example is buying DBS warrant say at 0.20 when the DBS share price is $16.40. After many weeks of sideway trading without the mother share going anywhere, the next time you look at the mother share, it is again at $16.40. But guess what? The warrant price now could be just 0.180 because of the sideway trading eating away precious time! This is time decay for you!

I got into 3 warrants in January. Mistakes i made was, anticipating a rally in the mother share that never came and time decay eats into my warrants. I had to cut the 2 warrants before it decays further as the mother share isn't going anywhere. The 3rd was cut today, about 2 months after I bought it. It's Datacraft warrant. I had 2 chances of taking my profit but i did not because the mother share looks like it was going up! In the end time decay eats away my paper profits as the mother share went side way trading.

So a friendly advice, although warrant is a faster way to accumulate wealth, it is also the fastest way to losing your wealth if you are not careful. Trade with care!

GrowMoney Quickpick!
Decipher's blueline theory - Every 52 weeks high broken with heavy volume will bring us to higher ground. The line of least resistance is almost non existent because there are no overhanging shareholders. It's an easier path to the north.

Stock : Line of least resistance
Celestial : 1.08
China Petro : 0.58
FibreChem : 0.95
SkyPetrol : 0.57
SunRay : 0.515
SembKim : 0.535
ChinaSun : 0.72

DISCLAIMER: This is not an inducement to buy or sell. You should do your own analysis on top of my postings. Copyright © 2006 GrowMoney Blog. All rights reserved.