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Teaching You to Trade Stocks 6: How This ID Withdrew Cash from Wuliangye and Baogang Warrants!

2006/10/24 12:45:16

Lately I've been busy sparring with Old Kong the Second, and the entire blog has been nothing but Old Kong the Second. A couple of days ago I had some fun with that Lu Super Girl to liven up the atmosphere. Today I want to continue with the "Teaching You to Trade Stocks" series. Can't have Old Kong the Second all the time — we must also take care of Brother Square-Hole Kong (the money god). They both share the surname Kong, so let's be fair and even-handed.

In the stock market, there's never a shortage of heroes, and there's certainly never a shortage of dead heroes. The latest heroes are all preaching about "investing" again, but the underwear of "investing" can never cover up the stark naked speculation that is stock trading stripped bare. The Yin Fu (The Hidden Talisman) says: "Heaven's nature is man; man's mind is the mechanism; establishing Heaven's Way to determine man. When Heaven unleashes its killing mechanism, stars shift and constellations move; when Earth unleashes its killing mechanism, dragons and serpents rise from the land; when man unleashes his killing mechanism, heaven and earth are overturned; when Heaven and man release together, the foundation of all transformation is established." Without speculating on this mechanism, how can one seize the creative power of heaven and earth? The stock market is exactly the same.

For this ID, the stock market is like an ATM — when the timing is right, go make a withdrawal; when the timing isn't right, just leave it alone. The market is like a man: if you fuss over him all day, he'll act cheap and bite you. So men can't be messed with too often, and the market is the same — you must patiently wait for his arousal. If he's not aroused, you can't make a move. This ID once wrote a post titled "G-shares are the G-spot — in a big bull market, no need for stop-losses!" If you don't even understand the G-spot, you have no business discussing stocks.

Just as finding a man's G-spot requires thorough understanding of that man, finding the market's G-spot works on the same principle. But just as knowing a man has a G-spot doesn't mean you should mess around carelessly — first you need to know he's clean, he's safe — otherwise the climax hasn't even arrived and you've already kicked the bucket. Wouldn't that be trouble? The market is the same. Not every opportunity or G-spot should be acted upon. The first prerequisite is safety — it should be as safe as withdrawing cash from a bank. Just as only a man who is both clean and has the right G-spot is worth the effort, in the market too, only opportunities that are both safe and hit the G-spot are worth speculating on.

Take this ID's layout in Wuliangye and Baogang call warrants back in April as an example. Why choose them and not others? The logic is simple: because they had both call warrants and put warrants. For a company, unless the market conditions are particularly bad, it won't let the put warrants be exercised, because not exercising is just an empty check, while exercising requires paying out real money. Therefore, for call warrants that exist alongside put warrants, the spread between the put and call exercise prices is the safest floor for the call warrants. For Wuliangye and Baogang call warrants, this floor was 1.02 yuan and 0.43 yuan respectively. And this ID accumulated them at just over 1 yuan and just over 0.4 yuan — isn't that as safe as withdrawing cash from a bank? The only regret is that their float was too small — the small-man type — unable to accommodate too much capital. Small men aren't much fun; small-cap stocks are the same.

Speculation isn't reckless gambling — it's about being crystal clear in what you're doing. To be crystal clear, you need a thorough understanding of the market and its mechanics. This ID once coined a motto that circulated privately: "Trade stocks the way you handle men; do stocks the way you make love." If you don't understand this, you have no business discussing stocks. On this topic, that's enough for today. When there's time and mood, we'll continue.

(To be continued)

Reader supplement, verify independently

Appendix​

Wuliangye​

Baogang​

Call Warrants​

  1. Warrant trading code: 580002; Warrant trading name: Baogang JTB1

  2. Underlying security code: 600010; Before the share reform plan was implemented, the underlying security name: Baogang Shares; After the share reform plan was implemented, the underlying security name: G Baogang

  3. Warrant type: Covered call warrant

  4. Exercise method: European style, exercisable only during the last 5 trading days of the warrant's existence period

  5. Exercise price: 2.00 yuan

  6. Exercise ratio: 1, i.e., 1 call warrant allows the holder to purchase 1 share of Baogang Shares A-share stock from Baogang Group at the exercise price

  7. Settlement method: Securities delivery settlement, i.e., upon exercise of the call warrant, Baogang Group collects cash from the exerciser at the exercise price and delivers shares

  8. Duration: 12 months from the listing date of the call warrant, from March 31, 2006 to March 30, 2007

Put Warrants​

  1. Warrant trading code: 580995; Warrant trading name: Baogang JTP1

  2. Underlying security code: 600010; Before the share reform plan was implemented, the underlying security name: Baogang Shares; After the share reform plan was implemented, the underlying security name: G Baogang

  3. Warrant type: Covered put warrant

  4. Exercise method: European style, exercisable only during the last 5 trading days of the warrant's existence period

  5. Exercise price: 2.45 yuan

  6. Exercise ratio: 1, i.e., 1 put warrant allows the holder to sell 1 share of Baogang Shares A-share stock to Baogang Group at the exercise price

Underlying Stock Movement​

Replies​

缠中说禅 2006/10/24 12:51:13
Consider this a palate cleanser — can't have everything be about "The Analerta." Can't be too "same-same."

缠中说禅 2006/10/24 19:36:57
[Anonymous] 6954k

2006-10-24 17:25:39
Let me ask a "palate cleanser" question — let me have a palate cleanser too:

Where is a man's G-spot?

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You don't have hands? Practice is the sole criterion for testing truth. Go test it yourself!

缠中说禅 2006/10/24 21:14:19
[Anonymous] 数字老怪

2006-10-24 20:32:23
Admirable. Great article. I'm almost too embarrassed to write. You read the Yin Fu better than I do. I'm ashamed.

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You're too modest.

缠中说缠 2006-11-22 10:58:10

Thank you for the guidance, master. I'm that Icefire person. I think I roughly understand what you mean. Suppose Y is the put exercise price and X is the call exercise price, then the company, for its own interests, will try its best to ensure the stock price on the exercise date doesn't fall below Y. So the final price of the call warrant won't be lower than Y-X. Therefore, as long as the call warrant price drops into the range below (Y-X), it's relatively safe. Is that what you mean?

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It doesn't necessarily have to drop into that range — basically it won't drop into that range. You can enter at the high point above it. That's a floor — it basically won't be breached. So you have an almost absolutely safe benchmark. Like the recent Wuhan Steel case, the almost absolutely safe line was at 0.21 yuan, and the bottom appeared at 0.35 yuan. Meaning you use at most 30% risk to bet on 300% profit — of course you can enter under those terms.