2012年3月19日 星期一

Trading Idea Review - 60% Returns in 4 Days!

Last Tuesday,
Anon Xia issued the following trading idea:
- Put Youku (YOKU) and Tudou (TUDO)
- Call Sohu (SOHU)

As of last Tuesday close,
Tudou (TUDO) is trading at 42.65;
Youku (YOKU) is trading at 31.37;
Sohu (SOHU) is trading at 53.64;

As of today close,
Tudou (TUDO) is trading at 34.55, down ~19% in 4 trading days;
Youku (YOKU) is trading at 26.09, down ~17% in 4 trading days;
Sohu (SOHU) is trading at 53.58, almost unchanged in 4 trading days;

If you follow my trading idea and purchase options with about 5x leverage,
the put on Tudou (TUDO) will yield roughly 95% return in 4 days;
the put on Youku (YOKU) will yield roughly 80% return in 4 days;
the call on Sohu (SOHU) will yield roughly 0% return in 4 days;

If you allocate money equally into the three options according to my trading idea,
this partially hedged trade will give about 60% return in 4 days !!!!!

Anon Xia believes that it will be good to unload part of the positions soon to realize the short-term gain,  although I do think the trade should work for the long term, especially after earnings announcements a year from now. Sohu will continue to perform solid due to it mature business model while Tudou and Youku will likely struggle to meet investor expectations built in the stock price. But obviously there will be increasing risks from holding options long term and there will be a decrease in option value with time.

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