Hang Seng Call Warrants

Consider risk reward before entering trade :

Today i traded the hang seng call warrants (CW) because
the risk reward looked good…..hang seng has fallen almost 1000 points in one day while one of the cheaper CW has fallen from 30c to 4.5 within few days. So i decided to enter the trade at 4.5c as the risk reward looked good. If i am right and hang seng index rebounds, i stand to gain up to 5c or more. But if i am wrong, i was prepared to lose 1 to 2 cents only. With that in mind, i longed CW at 4.5c but unfortunately the early rebound was not sustainable and hang seng index fell 1500 points after lunch today…..so i decided to cut loss at 4c and live to fight another day. Also i do not wish to keep this CW since it will be expiring end of january 08……with time decay setting in soon the price may not move up at all since it is far below the strike price. Personally, I would suggest that one DO NOT keep warrants for more than two days especially if you are already in a losing position, should cut loss even faster.

With volatile markets like now, cutting loss is the most important thing i would say. Many stocks technical indicators have deteriorated lately and if one does not have cut loss trigger, then you are likely to end up owning many stocks for a much longer time frame than you initially thought. My usual cut loss trigger is 4 bids below buying price, on closing basis unless market is extremely bearish. Some of my friends would set 6 bids or use 8% as cut loss trigger. What ever you use, you must have your own cut loss trigger, especially if you are a trader……not like warren buffet who says that he prefers to keep stocks forever

cheers

rooney yong (email : contact@mojostock.com)

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