PTR Conundrum

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Recent Performance

Let me tell you a joke, I forgot how to spell "conundrum", I went to Yahoo, typed Greenspan and the letter "co", the Conundrum jumped out. Nice trick, isn't it?

I don't think Greenspan invented this word, but he definitely popularized this word among other interesting phrases he "coined". Nowadays in Harvard economic classes they have to use at least 3 times a day.

Well, swimmer has a serious conundrum these days. For instance, Swimmer bought into PTR on September 10th, the day I recommended. I thought it's a good thing, because if I recommend I better buy it myself, just to show the vote of confidence. Disclosure, Swimmer does not buy every one of them on the recommendation list, otherwise he could be really rich by now. Anyway, one of the rules Swimmer coined over the years is that if a stock gains 10%, you should cut the position in half. Sounds reasonable, right. But Swimmer bought it in option, PTRLL - $160 call expiration Dec at $6. Now the underline security, which is PTR slowly went up from $142 to $160, Swimmer ignored the rule. Part of the reasons is for option, you are gambling, you spend the money in this case it's $6 per contract (well you have to pay $600 because one contract accounts 100 shares) and you mentally plan to loss this amount completely if the stock does not reach the strike price, at this time is $160. So you don't want to be too greedy, which means you just pick up a few contracts to gamble (the other way to explain is you don't want to put your whole portfolio into it, but if you do if you gamble is wrong, your portfolio will be "zero"). Now, I only had a few contracts, just reached strike price of $160 (just in the money), I am not going to sell it. Now the "trouble" started yesterday!

In the morning, I turned on the CNBC, I saw a few stocks I recommended appeared in green on the bottom of the screen. If you are a frequent trader you should be very happen that means a lot buying interests in pre-market. I almost fell of my chair when I saw PTR jumped $15, then I muttered the words "what I gonna do?, what gonna do?......"

You see, the jump up is okay, but my target price is $200. I was thinking, who is buying this right now, what's wrong with you guys, where were you just a few days ago? Warren Buffett sold PTR three times recently, and he failed to put a damp on your optimism?

As you can see on the chart, PTR gaped up three times in a row. My statistical model says, every gap up should be sold. If I did, I would loss money, a lot of money! If you are a frequent visitor of my blog, you would know I sold short on PTR before Warren Buffett did and made some money. Then stock went as low as $126, I became bullish on PTR and recommended it when it was $142. Now after a few weeks, it went to $160s, that's 20% gain. On temporary basis it's over-bought. But yesterday's action represents another 10% gain in a single day. But on the option side, I bought it for $6, now it became $28, that is 350% gain. Now do I want to sell the call contracts?

I still don't know how the market evaluates the stock, before Buffett sold, it was worth $160. After Buffett sold, it was worth - oh, about $125. But if Buffett sell a little more, suddenly it is worth $180. Of course you can cite a few reasons like the Fed cuts rates, oil goes up $80 a barrel, etc. But you can not say PTR fundamentals have changed, nothing has changed. I googled and found the following article, it's interesting to read:

http://stocktube.blogspot.com/2007/09/petrochina-is-charging-not-even-buffett.html

To sum up, Swimmer put big bets on Fed cutting rates and on China stocks. Both of them worked pretty well. If you want more of my picks and interesting commentary, please come back often. I need to update the performance table. New picks will follow.

Market is a little overbought here, but my short term Smart Money indicators are still positive in the short term. If there is any change, I will let you know.

Any suggestions on what I should do with my contracts? Please leave your comments.

Happy trading,

Swimmer