Finance - Short Selling Strategy

After studying finance knowledge for about a year, there is few things that I found quite interesting. And one of them is the strategy of "short selling".

Usually we assume that when we purchase and hold an asset, we will make profit when price increase and we sell it. But actually we do able to make profit even there is a price decrease of the asset value, and more interesting, the profit large possibly more higher than simple buy low sell high (also known as "long" as inverse to "short")strategy.

Well, the theory is like this, assume we borrow an asset worth RM500, and we sold it to another party at RM500 too. And after that, the asset value dropped till RM200, and we purchase back the asset at RM200 and return it to our lender, thus, the remaining RM300, absolutely is our net profit (and more important, the above trading activities can execute without origin cost!).

It seems interesting if compared to long strategy, but, of course there are few issues that a short seller have to bear in mind when running this strategy. First, a short seller only can make profit if only the price movement is as expected. Second, even though making profit without using initial cost ( high leverage) seems interesting, but when it is in adverse way, the same effect occur that the short seller have to lost a huge margin of money too.

Therefore, a successful short seller must have the ability to predict future asset price movement precisely in order to run a successful short strategy, so it is advise that people who are not damn good in acquire or predict the first hand asset market information better not to touch this~:P, this post just a knowledge to share but not to recommend people to adopt this strategy~^^.

Next post I try to share some famous people who are good in this strategy and how they work it.

TNB shares at 3-month low on talk of no tariffs hike

PETALING JAYA: Tenaga Nasional Bhd (TNB) shares slipped to their lowest in three months yesterday, fuelled by talk that there would be no increase in tariffs this month.

“It was that as well as a little bit of the gradual increase of natural gas and coal prices due to the cold weather factor,” said Chris Eng, head of research at OSK Investment Bank.

Natural gas and coal are the main sources for TNB’s power generation.

Shares in the national power producer shed up to 3.2% in early trade yesterday but closed 1.8% down at RM8.20.

It is understood that the subject of an increase in tariffs was not brought up at the Cabinet’s most recent meeting as widely anticipated.

A Bloomberg report yesterday quoted Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui as saying that the Government had not decided whether to raise power prices.

“Investors could have been disappointed that it (a decision on a hike) is taking longer than expected and sold off,” Eng said. “But we’re still hopeful for a hike soon.”

The market has been anticipating an increase in electricity prices this month following TNB’s higher independent power producer capacity payments to its newly-commissioned Jimah plant in Port Dickson.

The expectations of a tariff hike are also premised on the Government’s move to reduce subsidies to keep its budget deficit in check.

A tariff hike may help the Government reduce subsidy expenses but it can also lead to inflationary concerns.

TNB is now paying a subsidised gas price of RM10.70 per million British thermal units (mmbtu), which is lower than the market price of about RM12 per mmbtu.

It is learnt that TNB would only adjust the electricity tariffs based on the gas price factor, and not add on any other variables.

Electricity tariffs in Peninsular Malaysia were last adjusted on March 1 last year, reduced by an average of 3.7% following the 24% hike in July 2008.

The 3.7% tariff reduction was accompanied by a 25.2% reduction in gas prices from RM14.31 per mmbtu effective July 2008 to RM10.70 per mmbtu effective March last year.

A fund manager said yesterday’s sellers included some foreign funds. A total of 17 million shares changed hands, at least double the volume traded a day earlier.

source:
http://biz.thestar.com.my/news/story.asp?file=/2010/1/8/business/5432444&sec=business

Travel KL for Term Paper

This is not the first time, my badge have used to experienced this in our first year degree study. Know why? Because our lecturer want to do their thesis, and we, of course, the best free resources to help them finish their survey and save lots of their works~Thats why I always assume that if they are more suitable in taking economic subject, as they are damn good in economic basic phrase: getting the most from limited resources with unlimited wants and needs.

This time our far distance survey is under the financial derivatives subject, we need to do survey on fund management company registered under securities commission. The survey is based on the using of hedging strategy of those companies, whether they use it or not, why and why not, the impact and else.

As those company mostly based in KL, therefore we have to spend on transportation cost by our own~>.<~Big sacrifice huh? My group had chosen a company based in KL, located at Jalan Ismail, luckily there is a good friend living near there (Titiwangsa) can provide me accommodation.

Anyway, for me it is interesting, at least it is better than my last time  far distance survey, which me and my group mates have to travel far inside the rural areas in Pahang, which is a terrible experience by almost consuming our whole day time on riding bus to reach the destination~

This survey will be taken during the last week in this month, hopefully everything will be go smoothly, cheero~!

Finance - Financial Derivatives

The last finance major subject in USM is a difficult subject, as me myself consider this young born financial instruments as the top level knowledge in finance field with lots of complicated calculation. (even though the greatest investor Warren Buffett named it as finance destruction weapon.) Below is what we learn in coming days through this last semester.

1) Derivatives: Introduction and Overview

2) Malaysian Derivative Markets and Trading

3) Forward and Futures Markets: Pricing and Analysis

4) Stock Index Futures Contracts: Analysis and Applications

5) Interest Rate Futures: The 3-month KLOBOR Futures Contract

6) Introduction to Options

7) Option Contracts: Specification and Trading

8) Option Strategies and Payoffs

9) Option Pricing

10) Replication, Synthetics and Arbitrage

11) Options in Corporate Finance and Real Options

12) Interest Rate Swaps, FRAs and Credit Derivatives

13) Derivative Instruments and Islamic Finance

Major focus will be on futures and option, which is the 2 most common instruments in present.

My 2010

 
It is the end of a decade, 2010 a special year bringing great means to me...

2010, the year I graduate from my degree study.

2010, also represents the end of my student life.

2010, I gonna enter and start working in my desired finance professional field. 

2010, I will have my 1st real investment with my own budget.

2010, the 1st time I will live and work in KL.

2010, the 1st working experience in investment bank (hopefully, will work hard to realize it).

2010, a key year to decide whether to pursue CFA program.

Most important, 2010, no doubt, a difficult year, driving by both degree study and starting of finance world working life. However, wishing everybody a successful and prosperity 2010.

2010, Cheero~!