Taking advantage of the market ... !!

With all the brouhaha about P-Notes dominating proceedings at Dalal Street last week, the Bears were finally running all over the Bulls. The correction took the markets all the way from 19,100 to around 17,800. A good 2K correction.

But with the classification of P-Notes as FII being the cynosure of all eyes, SEBI was always going to sooth the sentiment. Afterall, it has been the FIIs that have been the primary factor in taking the markets to its dizzy heights. So a decision was made by SEBI that it will make a formal announcement on the P-Note issue on Thursday, October 25, 2007. But SEBI was also going to hold a informal discussion on Monday, October 22, 2007 with some key FIIs like Goldman Sachs, JP Morgan Chase and Kotak. On the same day, The UPA and the Left were going to discuss about the N-Deal.

From the onset, it was clear that both the discussions would be positive. The UPA didnt have any intention to go to the polls hence they were not going to force the Left to budge. SEBI's P-Note statements had set the cat amongst the pigeons a week ago and they were going to be more lenient this time around. So it was great opportunity to BUY ... with B, U and Y in capital. My intention was to buy some stocks on Friday and Monday and sell them on October 26, 2007, thats today.

On Friday, October 19, 2007 I bought 10 shares of ACC at 1031. It had fallen by 13% the previous day as Vikash might know. On Monday, I bought 10 shares of Reliance at 2403, 10 shares of Reliance Energy at 1348, 100 shares of Idea aty 136.70 and 100 shares of Reliance Petroleum at 168. The total investment was around 70K (approx).

On Monday evening, as expected, both discussions went well and it reflected on the markets on Tuesday as it registered a 800 point gain. The next 2 days saw smart gains too. Now SEBI was going to make an official announcement on Thursday evening. I got scared and didnt know how the markets would react since SEBI was also going to speak about Hedge funds. I thought I would play safe and sold everything on Thursday.

Reliance at 2656, Reliance Petroleum at 196, Idea at 148, ACC at 1085 and Reliance Energy at 1709. I gained 2500 in Reliance, 2700 in RPL, 1000 in Idea, 500 in ACC and a whopping 3500 in Reliance Energy. The total gain for the week stood at 10,200. Staggering. I lost out on some more profit coz SEBI's announcement about Hedge funds was also positive and markets gained another 500 points today. But I will live with it. Just to console myself, Idea lost 9% since yesterday but all others gained.

Im attaching the contract notes in ascending order of transactions.











Cheers ... !!

Make hay while the sun doesnt shine ... !!

Yesterday was a turbulent day at the markets with SEBI enforcing kind of a ban on the P-Notes trading. I was in the gym when the markets opened 1400 points in the Red. While it was a relief to see the markets correct, it was a huge opportunity to Day trade. But to my horror, when I reached office, the market was locked in Lower Circuit and trading was suspended for an hour. The FM came out and consoled the sentiment by stating that P Notes can invest as FII's. Phew ...!! The market was always going to recover after that.

When the market reopened at 10:55 am, I bought 10 shares of Reliance Energy at 1598. It had plunged by 18%. This happened at around 11 am. I kept a sell order for Rs. 1700 and it was executed in less than 15 minutes (See the contract note for the timing). The market had recovered by around 700 points now. It fell again and was now down by 1100 points. I bought 10 shares of Bharti Airtel at 1009 and kept a sell order at Rs. 1050. It got executed an hour later. The markets had recovered almost 1000 points from the day's lows.



But think of it. Reliance Energy closed at more than Rs. 1750 and Bharti closed at more than Rs. 1080. Bur profit made is good enough even though I could have made more money.

Cheers ... !!

Some common perks ... !!

Investing money in the stock market leads to the investor questioning .."Its OK if I make some money but what if I lose money. So it is better I keep my money in a bank, some policy or some FD. At least I wont loose money and I will get interest". Quite TRUE. But there are some perks associated with the stock market too.

For all perks, I will keep the base example of you having 100 shares of Infosys with you. Face Value of Infosys is Rs. 5.

Let me start by first explaining a must-know term.

FACE VALUE
It is actually known as the actual value of a share of a company. The market price of a company's share is inclusive of the face value plus a premium. You never get the shares of a company at its face value unless you are an employee of the company. Generally, the face values are either Rs.10, 5, 2 or 1 of any company.

Now come the actual perks

BONUS
This comes in the form of a ratio like x:y (x and y can be any number). It means that for y share(s) that you hold, you get x shares for free. If Infosys gives a bonus of 1:2, then you will get 50 shares for free. But the price reduces in the same ratio. Over here, the price will become (y/(x+y))*current price. So if the current price of Infosys is 1800, it will become around 1200. So your total worth is the same but you have more shares now. Bonus is generally given once every 3 years on an average by the company. Face value is not affected by a Bonus.

DIVIDEND
This is the distribution of profit by the company (assuming the company is making a profit). Dividend is always per share on the Face Value and in terms of percentage. For example if Infosys gives a dividend on 80%, it means 80% of Rs.5 = Rs.4 per share. So you will get a cheque of 4*100 = Rs. 400. Good companies generally give a dividend twice a year.

SPLIT
This is similar to a Bonus with the exception of the impact on the Face Value. If a company splits in the ratio of x:y (here x is guaranteed to be less than y), the Face Value becomes ((x/y)*current Face Value). So if Infosys splits in the ratio of 2:5, then its Face Value will become Rs. 2. Now all dividends will be a percentage of Rs.2 per share. Splits also happen with the same frequency of a Bonus, though both generally do not happen at the same time. NIIT gave a Bonus and Split together last month. But such instances are quite rare.

IPO
This is the initial public offer of any company. The company fixes a price band and then the people apply for the shares. The company fixes a certain no of shares to be offered. But the applications may be more than the available shares. This is called Over subscription. In such a case the company gets listed at a price higher than its offer price. You also get less no of shares as compared to the no of shares you applied for. Under subscription is the exact opposite. The IPO price comprises of the Face Value + a premium. So if a company's price band is say Rs. 300- Rs. 350 and Face Value is Rs. 10, it means that the premium is Rs. 290-Rs.340

RIGHTS ISSUE
This will be useful only if you already hold the shares of the company giving the Rights Issue. This also comes with the ratio flavour x:y, It means that for every y shares of the company that you hold, you will get x shares at a discounted price (the discount is relative to the current market price). So if Infosys gives a Rights issue of 1:2 at Rs. 1400, it means that you will be granted 50 more shares at Rs.1400. You can choose to select or ignore the offer.

These are some of the most common perks. I will keep posting about other more complex terms later.

Cheers ... !!

Minimize your day trading risk ... !!

Another example I wish to present is about how to minimize the risk of day trading. Though this post is limited to the normal Buy and Sell strategy (and not Short Sell), it can be quite handy.

Once you have made up your mind that you will buy a really beaten down stock on a given day (coz you feel it has fallen quite a bit and will recover around 2-5% during the day), then it is safer to avoid Margin Trading (or Day trading technically). You can instead perform a Normal Buy. This wont force you to sell on the same day if you run into a loss. Instead, you can avoid selling on the same day (only if you feel that you will end up with a loss). Mostly, stocks that fall badly on a given day recover at least 5% on the next day. You will be charged the normal brokerage of 0.5% if you sell on the next day but the jump in price compensates for the additional brokerage by a long way. In fact, you will end up with more profit as compared to selling on the same day.



As an example, I'm posting the contract note of a transaction carried out yesterday. Subex Azure is a quality top notch stock. It was down by around 18%. I bought 10 shares at 419. Remember, I didn't Margin trade. I just made a normal buy transaction. I kept an order of selling 5 shares at 430 and another 5 at 440. Both got executed. Seems like good profit right?

Well, Yes and No. Yes because earning Rs. 100 in a day without breaking a sweat seems fun. No because Subex rebounded very well today. It had gone up to 471 at one point. So if I had waited for another day, I could have earned 10*51 = Rs. 510. If you count the brokerage, I would have ended up with a gain of around Rs. 450.

On the other hand, if Subex would have gone down yesterday after I bought it, I wouldn't have been a soup. Because I didn't day trade. It was up to me when to sell it.

Cheers ... !!

Risk involved in Short Selling ... !!

I was trying to get hold of an example that displays the risk involved in Short Selling (or day trading for that matter) because so far all the examples posted by Vikash and myself present a very rosy picture. I'm glad I finally hit upon bad luck while Short Selling, though the loss incurred is not too substantial.

In the morning, at around 11 am, Aftek was up by around 16%. It was up by 20% yesterday too. The market was also up by around 200 points. I thought I would short sell on Aftek. So I sold 50 shares at 86 and then kept a buy order for 84. That order was executed and it fetched me a profit of around Rs. 78. Quite handy. Now starts the fun.

During one of my market surveying sessions in the afternoon, I saw Info Edge (also known as Naukri.com) suddenly jump 14% to 1140. I kept a sell order for 10 shares at Rs. 1150. For 25 minutes, I continuously observed the price of this script. It was shuttling between 1135 and 1147 but it was not touching 1150. It was getting on my nerves. Then it slipped to 1128. I got frustrated and modified my order to sell at 1145. It went back to 1145 and 10 shares were sold at 1145. I placed a buy order for 1130 and thought I would relax. The very next Refresh took the script to 1178. A loss of Rs. 350 straightaway !! Call it bad luck, greed, over enthusiasm ... anything.

Losing 350 in a day is quite a bit. I thought I would be brave and sold another 10 shares at 1170 (coz it had now jumped around 18%). This is a quality top class A category stock and you seldom see a jump of more than 15% in such stocks. It started to decline thereafter. I promptly cancelled the previous buy order of 1130 and then kept a fresh buy order of 20 shares at 1155. It got executed just before the deadline of 3 pm.

Brave? Well, you could call it good luck. From a loss of Rs. 350 to a loss of around Rs.7. It feels even better to note that it was at 1164 at around 3 pm. It closed at around 1162. So it was good I didn't wait till end of day.

So a loss of Rs. 7 in Info Edge coupled with a gain of Rs. 78 in Aftek. Overall, I gained for the day. But I just wanted to emphasize that this is no different from gambling. People have lost their homes, their money, their life in gambling. So you have to be extremely cautious while day trading. You will do well to stick to normal trading. I cant express in words how much I was sweating at around 2:30 pm.

In hindsight, if you have around 1 lakh in your trading account and you consistently day trade on stocks that have been +/- 15%, then you will almost surely gain 7 out of 10 times (assuming your analysis is better than average and assuming that you dont gamble 1 lakh on a single transaction ... :))

Go through the contract note when you have time.



Cheers ... !!

Another short selling example ... !!

I carried out a short sell transaction yesterday on KPIT Cummins. This will give you an idea about the risk involved in it. It was up 12% at around 12 noon. I sold 50 shares at 135.50 and I had placed a buy order at 131. But it was not retracing from 135. Finally I got bugged and bought 20 at 134 and 30 at 133. I earned a profit of Rs. 50 but when I saw its closing price, it was 142. This means that if I had waited till end of day, then I would have incurred a loss of 6.50 * 50 = around Rs. 300.



So the point is ... don't be too greedy. If you are making 1 or 2 %, be happy and buy yourself a pint. Happy trading.

Cheers ... !!

First stint with Short Sell

Following Pratik's tips and que yesterday I successfully tried short selling for the first time. I have attached the contract note for the transaction here.



I first sold 20 scrips of Reliance capital at Rs. 1337.20 at 2:45 pm and I learned that this is the last time of day to place a fresh margin trading order. The trading amount was 26740 and for this transaction I had to hold funds of approx 6500 from my account. I am not sure about what is the rule for this. As it was the last time to place a fresh order I also placed a buy order for those 20 shares at 1310.

Also I learned that I could modify the margin orders up to 3 pm. As Reliance capital was on peak in the last trading session and was not coming below 1325 so I decided to modify the buy order to the price of 1320. But I couldn't do that because it was slightly over 3pm that time.

Third rule about margin trading is that If the pending buy/sell orders are not executed till 3pm (as mine was not executed) then the orders will be executed (squared off) by the system after 3pm as against the assumption we had that it will be done at the end of trading session. That is why my buy transaction time is 15:09 (3:09 pm).

Two more things I figured out of this exercise...
1) The Securities Transaction Tax (STT) is only applicable to the sell transaction in day trading /short sell.
2) The brokerage charged to me was a mere 0.055% as against the standard 0.1%.

Well to conclude I carried out the transaction of 26740 without having that much money in my account (but part of it was required), carried out the buy and sell on only 1% margin, and still I made a profit of Rs. 195.

So don't worry about your margins for day trading (thanks to low brokerage and bank support for capital) and happy trading guys.

Cheers!!