Stock Traders Blog

I don’t usually look at my trading cost. As long as I can make profit on my trading why should I care trading cost? But I don’t feel comfortable when I look at my trading cost since I started this blog and compare it to at my gain at the period of same time. I feel I should take some measures to lower my trading cost.

If you look at my May trading records the total commission I paid was $709.29. The gain I made was $3,324.08. The gain is already net the commission amount. So if I don’t need to pay commission I would have made $4,034. The cost percentage wise is 17.6%. I feel it is extremely high. So for every dollar I made I paid almost 20 cents to the broker and I have taken a lot of risk. The broker has no risk whatsoever.

I am pondering is there a way for me to lower my trading cost. I think that should be something I keep in mind next month. I don’t know what normal trading cost for the other traders. I would love to hear from you if you want to share. I feel 10% would be an acceptable amount. I know some of the broker charge less commission but I don’t really want to switch broker. I am so used to TDAmertiade.

Looks like the only way is to increase the profit for every trade. For a trading round trip the cost is $20. To make it 10% of the gain then my gain need to be $200. For 1000 shares of Bank of America at round $11 per share the gain per share need to be 20 cents or more. In my last month’s trading my initial bet on a trading day is around $7,000 on most of the days and I feel that was a bit conservative. I guess that’s why the trading cost was high percentage wise.

I believe I can increase my initial bet to around $1,1000 which is still fall into my trading guidelines. Also try to exit when there is over $200 in profit. It is hard though. We will see how it goes next month end.

Added on June 08, 2009
After I decided that I have to stick to my trading guideline I basically have to forget about trading cost. Don’t let trading cost as a percentage of gain get into your mind of deciding when to close a position. As long as I can make money net of trading cost it is good enough.

Most part of the trading day was boring. It was pretty much like after market except for the opening and the closing. I caught the boring part to trade with. When I said boring I mean the stock prices were not jumping around. They advanced and retreated one cent by one cent very slowly and in a very orderly manner. If you traded Bank of America and many other stocks today I believe you would have the same feeling. I ended up wasting most of the trading time watching and didn’t see the excitement I expected. But I did manage to make some gain thanks to my stock trading guidelines.

I shorted Bank of America at $11.30 and cover at $11.25 in early morning. I only net about $30 on that deal. I shorted Baidu at $264 and covered at $262.5 later. I thought that was it for the day but when I saw BAC got below $11. I entered at $10.98 again. But I sold it too early at $11.12. Total net gain was $278.77

Somehow I didn’t feel I accomplish a lot today and kept thinking “Dame, it is only $278.77”. I remembered last month before I set forth my trading guidelines I frequently net over $1000 a day. No… No…No… No… in fact I am lying to myself. Such cases happened only on a few occasions. However they keep coming to my mind and I keep looking forward to such cases happening again because the excitements on those rare big gains are such a temptation. They just occupied my mind sometimes.

You can see my mind was struggling. I believe without writing this blog my next trading day is definitely going to be a disaster. Potential gain on stock trading is huge given that you can use whatever leverage you can use. However people seldom think about the opposite while they are enjoying a lucky surprise gain. A Trader like me is very easy to be tempt to achieve gain that exceeds the previous record. In order to do that excessive risk and leverage is taken and mistake is frequently made in such cases.

Again I have to remind myself my stock trading guidelines worked and I have exceeded my goal of half a percent today. Forget about the exciting part of the day and I already did very well.

This is last trading day of the month. I have downloaded the spread sheet that has all my trades for the month of May 2009 since I launched the blog. The gain for the month was $3,324. Percentage wise I believe I am better then Warren Buffet in this period of time. But I should forget about this gain and next Monday will be a fresh start.

Account Balance Change: +$278.77

Account Balance Change Month Ended May 2009: +$3,324

It is a wild ride today if you watched Bank of America’s stock price. It was down to $10.57 not long after market opening. Then it went up to $11.17. It went down again to $10.88. Half an hour later it went up to $11.10 and then went down again to $10.93. It was closed at its highest today at $11.30.

I did three trades today. The first was at pre-market. I bought 500 shares of BAC at $10.69 sold it ten minutes later at $10.92. I bought 500 shares of BAC again after opening at $10.65 and sold it again ten minutes later at $10.80. After that I spot PULTE HOMES, INC.(PHM). I bought 500 shares of PHM at $8.48 and sold it ten minutes later at $8.60. I made multiple small trades and made small gains today.

The market indexes also fluctuated between lost and gain multiple times. I made the trades early in the trading day and remained on the sideline watching most of the day. The thing I didn’t expect was both BAC and the indexes were closing higher than yesterday. Frankly none of the data released yesterday and today were good.

I felt good because I made some gain today. I felt not so good because the DOW was up 1.2% and my account was up less then 1%. I am glad that I remained calm and abided by my guidelines today. Many times I wanted to enter into BAC and PHM at a higher price but I didn’t because I have thought about the probability of a better entry point. I wanted to take the short side to do more trades when I saw the DOW was up 80 points toward closing and my gain was only $250. I didn’t because I should be happy if my gain was over $150.

The market went though a wild day but my mind didn’t

Account Balance Change: +$250.53

PPIP is Evil:
The government thinks the solution to end the recession is the PPIP program (Public Private Investment Program). I hardly know the details of the program until I read the following article from thestreet.com. More Leverage Won’t Solve Bank Mess. The more I understand the program the more upset I get. Look at the following details it is basically a program to shift the risk of the banks holding the toxic asset to taxpayers. It is indeed

“An example of banks trying to profit through financial engineering at taxpayer expense, because the government would subsidize the asset purchases.”

PPIP Details:

• Banks will remove troubled assets from their balance sheets and receive a value determined by a bid/ask negotiation process with investors bidding and the banks asking.
• The negotiated price will be paid from the following sources: 7.5% private investor, 7.5% government (taxpayer) funds, and 85% loan from the FDIC.
• The FDIC loan is non-recourse. If the assets ultimately prove to be worth less than 85% of purchase price, the 15% of investor funds are wiped out and the FDIC will own the assets.
• The FDIC, a government sponsored enterprise (GSE), will be bailed out by the government (taxpayer), if necessary.

The PPIP program should not be implemented without taxpayer’s approval because you can see that FDIC will become the trash can holding the toxic asset eventually and the government have to use taxpayer’s money to bail it out. I emphasize it needs taxpayer’s approval. I am hard working taxpayer for the pass 11 years and I still didn’t get the dame right to vote. That really makes me angry.

The logic behind the government’s PPIP program is that the banks will become more willing to lend once the toxic asset is removed from their books. Does that mean the government through the PPIP program encourages the banks to do the 100% finance based on stated income for home buyers again? Does it mean the government encourages people to buy 3 or 4 houses while in fact they only need one? Suppose the PPIP works and housing price is pushed upward over the next two years gradually to 2006 price level. The current toxic asset become very liquid and can be traded and change from one hand to another. Then what? Another mortgage crisis? Another trillions of new toxic asset created? It doesn’t need an MBA degree to know it doesn’t make sense

The Solutions:
Frankly I think the US economic cycle is a cycle of bubble creation. We have the housing bubble. Before that we have the internet bubble and before that we have the saving and loan bubble. We simply need to create the bubble somewhere else to draw people’s attention to it, to make them believe into it and make them act on it. Creating bubble in the same place is just not going to work because the memory of the public is longer then an economic cycle.

Where is the best place to create the bubble? I guess it could be green energy or it could be some innovating technology like the invention of television and telephone many years ago. The smart grid could be one. What if we can’t find a place to create a big enough bubble to expand the economy long enough? Well I think inflate the currency is the only solution. Warren Buffet said Well Fargo could earn its way through the recession. Why it can? Because Wells Fargo can borrow money at zero percent interest from the Fed and lend it out at 4 or 5 percent to you and me who want to buy a house. That has no difference then the Fed printing money and giving it to the banks. I think the Fed instead of giving money to the banks it should just give very one who want to buy a house the down payment. Why should the bank owners be benefited in the middle when the ultimate purpose is to help the home buyers? It just doesn’t make sense.

I maintained a long position of Bank of America yesterday because it was left out of the rally of the financial sector. I maintained a short position on US Bank Corp yesterday because it ran up 6.5% yesterday. It is not the first time I applied this kind of trading strategy. Long one issue and short another in the same sector. It turned out it was a good move.

The best scenario just happened at market opening. US Bank Corp retreated and Bank of America advanced. I net $260 right after market opening. Thinking back I should’ve double yesterday’s position. The down side with that was potentially low since USB ran up 6.5% in a single day and BAC had been losing ground for a number of days. The chance that they both move against me will be little. After all they are both big banks. If they both move in the same direction then I will end up making money on one issue and losing money on the other and my lost (or gain) is potentially limited. However in the case when they both move in the same direction I can take further measure like take profit on one issue, stop loss on another or increase holding on one of them etc.

Anyhow the situation of Bank of America and another big banks presented yesterday was a rare earning opportunity and I should’ve seized the opportunity and be bold on it. I was looking for more trades after the existing home sales number released and found BAC was trying to play catching up. I took the short side again and make a few more bucks. I wish I keep the short position on BAC till the end of the day. My account balance was up $325.78. It took me 2 days to recoup the lost on May 22th. It is a up day and it feels good not holding anything but cash

Account Balance Change: +$325.78

I was kind of curious when I saw the following comment and wondered what SKF was

SKF turns out to be a ticker for an Exchange Traded fund called UltraShort Financials ProShares. Take a look at its profile on yahoo.

The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Financial’s index. The fund normally invests 80% of assets in financial instruments with economic characteristics that should be inverse to those of the index. It may employ leveraged investment techniques in seeking its investment objective. The fund is non-diversified.

I had a good laugh when I read its profile and thought the fund was some kind of scam. Please don’t be offended if you love the fund. I just don’t see the reason of such fund’s existing. To my surprise its daily volume is huge. Some 40 million shares changed hand today and the price was at $42.94. I am very skeptical about the fund because the strategy it takes is to go against the market for sake of going against it. I mean as an investor I want to buy a fund that can make me money not to going against the market. That is whole point of buying a fund right?

Think it in another way probably the fund is intended to be a hedging tool and its intention is not to grow asset or make money for investors. Still I think there are plenty of hedging vehicles in the market nowadays which can be tailor to suit different hedging needs. Why would people trade this fund which performance will be twice the inverse of the daily performance of the Dow Jones U.S. Financial’s index. Let me know if you see a reason. Take a look at its performance yesterday. It was down 7% versus the DOW’s gain of 2.37%

I post on Yahoo message board yesterday that BAC would advance together with other big banks today. It didn’t happen although other big banks like JP Morgan, Wells Fargo and US Bank Corp were indeed bid up by investors. Their closing price on last trading were proven to be attractive to many investors. They opened higher even before the better than expected consumer sentiment news.

However there was too much selling pressure on Bank of America. I lost patient and unloaded 2000 shares at $11.05 and unloaded another 2000 share at $11.10. In the mid of the day after I sold all my BAC shares its price ever went up above $11.20. I regret I sold but felt I took the right move when I saw how it closed. It seemed to me investors were not buying into the upgrades on Bank of America and they all viewed it as an opportunity to sell. The idea of more than 500 million new shares offered at $10 was not so easy to be digested in a few days. I thought about the scenario that people were going to take profit tomorrow on other big banks following today’s big run and decided not to keep BAC. The chance that Bank of America going further down tomorrow would be big

I did some trades back and forth on US Bank Corp after I sold Bank of America and at the end I maintained 300 shares of short position on USB which I entered at $19.04. I felt a run up of 6.5% was too much and I hope it will retreat a bit when it opens tomorrow morning. At the end of the day my account was up $133.84. It is really not an exciting day.

Added at 3:20PM
I looked at Bank of America’s price and thought it might be a good idea to buy some shares. So I bought 600 share of BAC at $10.94. I am thinking tomorrow if the banking sector tanks I will add some more BAC and take profit on USB. If the banking sector continue to advance I don’t think BAC will be left out again. We will see tomorrow.

Account Balance Change: +$133.84

The other day I post a message on Yahoo stock message board to asked suggestions on what direction I should take going forward with regard to the 4000 thousand shares of Bank of America I bought. The average share price I get in is at $11.25. So it is under water and I didn’t know what will happen on next Tuesday. A few person on the board have suggested that I sell call options while I am waiting for the stock price to bounce back. Frankly I never traded options and I have always considered options were something I should never touch. But the suggestions really interested me. It is not the first time I hear that. As you can see Bob’s on comment on this post Wells Fargo Is Over Valued at $25.70

I’m a long term holder and will own it for the next 5 years or more. I see this as an opportunity to sell options against the stock. I recently sold June 28 calls @ 1.60 and I am willing to risk having some shares called away at 28.

So I have study the options trading procedure in my stock trading account. The minute I finished the study I felt it open up my eyes and I felt I have missed out some big big earning opportunities for the past 10 year when I was a long term holder of some of the stocks. But I really have doubt and I need some help to clearing them out.

Bank of America Jun Options Chain

I look at Bank of America’s June 20th call options. See the above picture.The bid pice of Jun 20th call option with stick price at $12 has a premium iof $0.61. My question is If I sell 40 this contracts (40 X 100 share per contact = 4000 shares) I can net 4000 X $0.61 = $2,440 doesn’t matter where BAC stock price is heading next Tuesday. Am I right?

My next question is if some time in the next few weeks before the option expiration day Jun 20th BAC’s price come above $12 then someone who purchased my calls will exercise the calls and pay me $12 per share for my 4,000 share. Am I right? When the buyer exercise the calls I can make 4,000 X ($12-$11.25)=$3,000. So if I decided to hold the $4,000 share potentially I can make $5,440 before Jun 20th but I can make $2,440 for sure. Am I right?

My third question is if I decide to hold past June 20th and I sold 40 contract of this calls. Do I need to do anything to close the option position. If the buyers do exercise the options to buy my shares do I need to do anything?

Thank you very much for help me out.

The following is the reasoning behind Bank of America’s upgrade by Goldman Sachs and Morgan Stanley which is posted in yahoo message board by a person named Perry, screen name tothemoon8. It seems to me it is from a professional analyst’s mind and I found it is quite convincing. Of course I buy into his view because I am holding 4000 shares of BAC. The strange thing I feel is I should’ve read it from news release of Goldman Sachs or Morgan Stanley instead of from Yahoo message board. Anyhow it found it help me firming my mind. I will certainly hold.

BofA, according to Barrons, orchestrated a brilliant stock sale to raise the capital that was mandated by the FEDS. Apparently a tremendous number of mutual funds and hedge funds were interested in the offer which required a minimum of 1 million shares purchased and BofA sold these shares off the market so that it does not disturb the stock price. Next, they rejected the stock issues to any funds that had shorted BofA in the past year (call it a pay back if you will) and last they require the purchasers to hold the stocks for a substantial amount of time.

According to Goldman and Barrons BofA’s stock offerings will conclude and finalize by the end of today. By next week BofA will announce that it has raised over $25 Billion from it’s stock offerings and asset sales which with the earnings that they have ear marked will close the gap to their $35 Billion capital requirments. Here are some interesting facts:

1) When BofA took over Merryl they also inherited 51% of BlackRock Group which manages over $1.3 TRILLION in assets. Imagine the fees collected annually on this amount.

2) BofA could easily say couple of years from today complete an IPO on Merryl again and hold 60% majority stake. This will make BofA and its shareholders an astounding stock price gain.

3) Over ONE THIRD of all daily ACH transactions completed in the U.S. goes through BofA.

4) As of today BofA has a nest egg of $178 BILLION for loan loss provisions and cash. When in the near future the economy turns around, unused loan loss provisions have to be accounted backward and be recognized as earnings… this is the event that will take the stock to $40 level and beyond. Which is why Goldman has now added BofA to their conviction buy list and Morgan Stanely upgraded BofA with a $32 price target.

5) BofA is still tracking a $38 Billion + quarterly revenue for this quarter which will net them between $3.5 to $5 Billion in income again which is massive by any standard. Why? They are borrowing money from the Fed at ZERO percent rate and lending it out at 500% to 600% profit. Also, the mark to market accounting rules all but gone, BofA and other banks get the breathing room to recognize the loss of some assets over the next few years as their earnings and income pick up momentum and off sets those book value losses.

It is from If you are longs check out this facts

My prediction yesterday was right for the indexes but wrong on Bank of America and financial. The indexes are holding higher right now.

Bank of America was trading higher in pre-market. The highest price change hand today was $11.78. I waited till market open and I had the opportunity to sell at $11.65 at market open to net a profit but I was looking for higher. Financial stock were traded lower right now and they lost whatever percentage they should’ve lost yesterday. I lost big too. I sold 1000 share of USB at $18.20 and bought 1000 share more of BAC at $11.05. My BAC shares are all under water. Lost -$1,300 at 8:56AM.

Lesson learned, I have got to treasure selling opportunity. Goldman Sachs’ bump and dump skim on Bank of American couldn’t be more obvious. I should have sold them in pre-market. I could gain $600 but lost $1,300. What a day. Looks like I am going to hold over the Mermorial Day weekend. Hopefully everything goes well over the weekend around the world.

10:16AM:
Just add 1000 share more. Don’t feel good right after that. Now holding 4000 share at $11.25 average. The average offering price is $10.77? Hopefully that is the bottom and going up from today.

1:05PM:
Lost $399.44 at closing price

Account Balance Change: -$399.44