I am starting a position - China Mobile CHL ($46.39)

Recent Libya tensions created a good opportunity to start a position.  This company has very little impact from International unease.  Inflation can cause very little negative effect to this company.  Management has over 10 year's of solid performance.  Dividend is attractive.  70% market share also looks very promising.
All those reasons only shows that this is a good company.  We should not buy into a position solely because this is a good company.  What convinced me buy into it is the valuation.  Current price is below fair market value.

2/23/2011
Bought 2,000 shares at $46.39

2/24/2011
Sold 20 contract ($45 March 19)   -- Premium $1.9
Target 1.1% profit in 24 days.  Or annualized 16% return

3/24/2011
Option executed.  This action is a success

Starting a position for a friend (China Mobile - CHL) - $46.3

China Mobile

• 3.88% dividend, Very likely they will increase dividend later this year. Will push dividend rate to over 4%
• A Chinese company. As USD is going to devalue. It makes this company have currency advantage.
• 10 years revenue and earning growth is amazingly stable. Very solid financial statement.
• Competition wise, this company is also in a solid position. 70% market share
• Low price. Today, it trades at 10.86 PE. Partially cause by China'a major policy change. That punish entire China stocks market. However, government policy will not change how this company make money. People will not stop using their mobile phone because policy change. Even inflation will have very little effect in this company's profitability.

I start accumulate position for a friend. Due to China's policy uncertainty, i play extra safe by sell $45 covered call. If this stock move below $45, i will buy much bigger chunk and will not sell call. This is a very good long term holding.

Another "trading" action MSFT

Background:

I have extra cash that I will need them by 4/15/11. I want those cash to generate some profit for me. I can only afford to expose to minimum risk.

Among all my holding, Microsoft is still selling at bargain price. Downside is minimum. Only draw back is, option premium is low. However, it is important to have minimum risk. So, i am ok with lower profit

Action:

Today, 2/22, i purchased 8,000 shares of Microsoft at 26.72 per share. Paid 8000x$26.72=213,760. I immediately sold April 16 ($25) call for 2.05. Pocketed $16,400 today.

Translation:

If I success, that means by 4/16, MSFT stock close at above $25. My position will be sold at $25 x 8000 = 200,000 Plus the premium i pocked today, that is $200,000 + 16,400 = $216,400

My initial investment 213,760, that means profit of (216400-213760 = $2,640) Also means return of 1.24% profit. The whole duration will be 53 days. That means 8% annualized return.

If I fail, that means by 4/16, MSFT stock close below $25 and I will keep my 8000 shares stock. My unit cost for those stock will be 26.72-2.05 = $24.67

Bottom Line

I am not too worry about success. (I think my chance of success is over 90%) If i fail, unit cost of $24.67 is a great great great bargain. I don't mind to hold it. I can always use other fund to pay for my personal tax. hehehe. I will make profit regardless of the result. The only difference is, success, i will will make set amount of profit within 53 days. If i fail, i will make unknown amount of profit at unknown amount of time.

This is a TRADING action. Not a investment action. Investment is for longer term.

I will update you the result.

4/16/2011  Operation success

Microsoft, a stock that is worth holding and trading

On Jan 12, i had the following action:

Background:

Between now and 4/15 tax due day, i have extra $250k sitting there and doing nothing. Bank yield is less than 0.3%. Almost like nothing. So, i decide to put my free cash into work and earn some profit while expose to minimal risk.

Microsoft is a company that i follow closely. (i am holding big % in my portfolio) It is currently undervalue. Stock price 5 year fair value is over $35. Yesterday, it trade at $28~. So, i am comfortable to hold this company for long term if my cost is anything below $30.

Again, remember my objective? I want minimum risk exposure. I want short term, might need the $ to pay personal tax.

So, in the near term, anything can happen. Even a company thats fair value is over $35 that is trading at $28. It is possible for that company to go below $28, $27 or $26 in the near term. Anything crazy can happen (i never worry if it goes other direction, which is up)

My Action:

Yesterday, i bought 8,000 shares of MSFT for $28.23. Today, i sold covered CALL (2/19/2011 $27) and receive $1.88 per share.

Translation:

Yesterday, I pay $28.23x8000=$225,840 for my Microsoft shares.

The covered call i sold, i received $1.88x8000=15,040. That money is in my pocket today!

By 2/19, if stock price is above strike price of $27, my stock will be taken away from me for $27 per share. Even stock price at that day is $35 or higher, it is none of my business. they still pay me $27 per share.

If So, you do the math, by 2/19, i will receiving:

$27x8,000 = $216,000

I also got to keep the dividend issued on 2/15

$0.16x8000 = $1280

Plus the initial $15,040 that i pocked today. My total will become 216000+1280+15040 = 232,320

That means a profit of $6,480 (minus some brokerage fee) That means 2.87% return on my investment of 225,840 in 40 calender days. That also means 26% annualized return

Conclusion:

Will i success? Time will tell. I believe the chance is very high. Can i fail? absolutely. If i fail, that means stock price by 2/19 is trading below $27. That also means no one will buy it from me for $27/share. So, i got to keep that 8,000 shares. My cost for those shares will be $28.23 - 1.88 -0.16 = 26.19. So, i will be stuck with the stock, which i am happy to pay any price under $30 (fair value over $35) Assume my fair value is correct, the stock that cost me $26.19 will eventually move above that. And my risk is minimal.

I will update you 40 days from today. Will share result with you.

Result:  Success