Stock Traders Blog

I mentioned in my previous post that Baidu’s September option pain was $300. I checked it again and the option pain was higher a little bit at $310 at the moment. What would be your guess if you predict Baidu’s price movement without looking at the option pain a couple weeks ago when Baidu was about $340? I would probably think it would go up instead of retreating. Obviously option pain can really tell something. It can tell how institutional traders see a particular stock. If option volume on an issue is large enough option pain on that issue may be able to tell how institutional traders see the market overall.

I checked INTC and BAC September and October option pain. They are trending downward. They seem to tell the bearish sentiment of the market should be extended into October. However Baidu’s Oct option pain is at $330 which is higher than September’s. I am not sure if you agree or not but I have already convinced that option pain is a very good leading indicator on the underlined issue or even the overall market.

Anyway I didn’t trade for a while. I was busy looking for a new job. I add 200 shares of CSKI at $13.09 and I sold 2 contract of Baidu Sep 290 Put at $3. I was thinking if Oct Baidu option pain is $330 I wouldn’t mind to have it at $290 in the mid of September. There is $20 difference or about 9% difference between $290 and Sep option pain. I thought it could be safe. But again who knows. We will see how it goes.

My Baidu put option went well finally. I collected the $420 option premium. In my previous post I mentioned I sold a contact of Baidu Aug 320 Put. The market took a deep a few days ago. I thought the put would end up in the money and I would be forced to buy Baidu at $320. I didn’t mind if that happen though. But magically on expiration day which was the passed Friday Baidu closed at $344, a price very closed to its option pain. Seems to me the option pain theory has some credibility. It is the second time I sold put and it is the second time I saw stock price closed near option pain on expiration day. Baidu’s September option pain is $300. Does that mean institution traders are bearish on Baidu? I really want to fine out next month.

I believe CSKI is under value and I did some research on the stock to find out what was holding back this company. I found there was a so called professional short seller spreading news that he had reason to believe CSKI management was providing incorrect financial information. He even has a web site to tell his story http://waldomushman.com/. I don’t know whether I should believe this rumor. Maybe the short seller used to be a potential investor on CSKI but got opt out and felt pissed off. That is wild a guess and I hope that is the case. CSKI has to proof to all investor that the short seller is wrong. I feel there is a war between CSKI’s management and the professional short seller. I am still holding CSKI and of course I hope CSKI management will win the war at the end.

It is very hard to find under valued stock nowadays but I came across a stock that I believe under valued based on its financial statements. The company I mentioned was CHINA SKY ONE MEDICL (CSKI). I found its business is simple and its operation and its book are very easy to understand not like those banks you don’t know what is true and what is not. I brought 200 shares of this stock today at $15 something and I am planning to hold it for a while. I sold my Fortress Investment holding at $5 today. I made about $350 on that stock.

As I mentioned I like CSKI because its business is simple and easy to understand. It produces and sells over-the-counter drugs in China. I went to its web site. It has a portfolio of over-the-counter drugs. So its sales are not relying on a single drugs and it has a pretty stable sales trend. More importantly it has a very healthy cash flow. It makes profit for the past four quarters and its trailing 12 month P/E was lower than 8. Forward P/E is a bit more than 6. Price to cash flow is less then 10. Net income grow was more than 30% for the past three years. I don’t think I can find a second company like this. It was under valued by all measure.

If you are reading this post I hope you can take a look at it and post what you think about it. Are you able to find any company comparable to this one? I am thinking about all in again. By the way I bought 500 shares Dry Ship again at $6.45 a couple days ago. Planning to hold it for a while too.