I don't want to waste any of your time, so if you want to know what delta is all about, look it up at its wikipedia site here.

Delta is important because it measures how much your derivate will move relative to the "mother stock" (underlying asset). 

Based on my not-so-experienced experience, never buy anything that has a delta lower than 0.3.  Means for call options, cannot buy less than 0.3.  For put options cannot buy more than -0.3 (-0.2 is more than -0.3).

There goes my rule #3.  Haha, very short leh 

I think a blog is only as good as the reader that it attracts.  So I think I need to write more about topics that interest more people, especially about managing finances, and a broader picture about economics.

Much has been said about the recent petrol price hike, and certain Trade Unions demanding a minimum wage (see link).  I'm just going to very simply describe the effects of minimum wage from a supply/demand chart.

Let's assume that this is the demand chart for labor in this country for a certain sector, say IC Designers.

Let me explain this chart further.  This chart simply means if the price per IC Designer (let's abbreviate it to ICD from now on) is less, the company is willing to hire more ICDs.  And likewise if they demand a obnoxiously high salary, companies might be less willing to hire them (less demand).

And then there is this supply chart.

Also let me explain this chart, in case none of you took macroeconomics in college.  This chart means if the salary for ICD is high, more people are willing to go through college and toil their behinds off just so that they can come out of college doing nothing but pushing polygons and digging damascene drains (higher supply).  Likewise, if the pay is lower, more people would consider other jobs (lower supply)....... so you get the point.

When markets are free to move and decide (but not subject to too much speculation), a general consensus is reached, and this point is known as the equilibrium.

This equilibrium point is decided by supply and demand, and it is free to move.  When there are less ICDs in the market, industries will offer better compensation packages to lure them, thus pushing the equilibrium price point higher.  When there is too many ICDs in the market, some are willing to take paycuts or lower increment percentages just to join the industry and feed their children (thus pushing the equilibrium price lower).

So.... back to the main point of the story.  What happens when you implement a minimum wage?

When you implement minimum wage this is what will happen.  When demand is low, and the actual equlibrium is low, but since government implement minimum wage, so the company has no choice but to reject applications although people are willing to work for a lower salary (equilibrium).  So as a result, there are more jobseekers than there are jobs available, and the deficit is unemployment !

So, I don't want to unnecessarily scare you, but if government were to implement minimum wage, then we might see and even larger pool of unemployed in this country.  And worse, jobs may move to other countries where minimum wage is not a government policy.

So... be careful what you wish !!

Canada.  Ice hockey, maple syrup, Niagara Falls.  And then there's RIM (Research in Motion).

I was typing this half way when my boss asked me to go for a long meeting.  Which i complied. Anyways,  here is the continuation:

As most of you are probably aware of, RIM makes the ubiquitous Blackberry, which has lost a fair share of 'hot air' to the iPhone 3G of late.  Sure, no serious business user will consider a drastic move to the iPhone 3G.  But the price point is too catchy for any telco to push it aside.  Problem is, AAPL is still restricting it to Cingular/AT&T.  So we may see the Blackberry as still the frontrunner for the time being.  Time being including this previous quarter.

Word of caution, however.  It is overvalued ( i will show  you the calculation later tonight).  Too much hype has been priced into the current valuation.  So many analyst are upgrading it, including the (recently bruised and battered) Lehman Bros.  So consider that it will continue to go up in pricing until next Wednesday (June 25th).  And then what happens is anybody's guess.

But expect it to gain some even tonight, way up until Friday.  The better performing mutual funds are slowly taking profits, while the others keep buying in.

Tonight I'm going to share some technical analysis on RIMM. Stay tuned

I know many of you will disagree with me on this, but nevertheless this is the rule that I stick to.  I never trade on the day before or after a holiday, more so major holidays like Christmas and New Year's Day.  I also never trade on Fridays or Mondays.  My favorites are Wednesdays and Thursdays.

I shall elaborate more when the time comes

Rule #1 : Don't Lose Money

I think it is Warren Buffett, the investment guru who was the one who coined this rule, but I guess it applies to anyone and free for anyone to adopt it.

Many people think that trading stocks is about picking the right stocks.  Well, it is quite true in some sense, but let me just say that it accounts for maybe only 20% of what a makes a successful trade. 

The other 80% is.......

MONEY MANAGEMENT

I know it is going to sound very boring, but this is the fact.  I use a rule i call 20by20 for every position that i go into (i took some cue from Pareto for the naming).  It basically means for every position that i go into, i only use up to MAXIMUM 20% of my total capital, and my cut-loss is at 20%.  Simple as that.  Using this rule, you only lose up to a maximum of 4% of your total capital.  Recouping the 4% you lost is not difficult with your remainder of your portfolio.  (Actually this 4% is derived from the current risk-free interest rate. SO you can adjust accordingly, say maybe if you stay in australia and the RFIR is ~10%)

You can adjust accordingly, but the total still cannot be more than 4% of your capital.  What i mean is if, for example, you like volatility plays, and you know cutting loss at 20% is not realistic with the type of volatility that you are dealing with (and i hope you really know what you are doing :p ),  then you can use 8% of your capital, but you can deal with cut losses of up to 50%.  Still your total risk to your capital is 8% * 50% = 4%.  Coppish ?

Eroding your capital may sound pretty trivial to some people, but if you lose 20% value of your capital, you need to make your remainder perform at 25% just to even out.  For 50% loss, you need to have a portfolio that returns at 100% just to return to your ORIGINAL AMOUNT !

Basically the formula is

(Loss Percentage)/(100% - Loss Percentage). 

If you lose 70% of your risk capital, you need to have a George-Soros-Quantum-Fund like returns of 233% !!!!

Not even the loan shark can get these type of returns !!! Ok, so you get the point.

Since I'm a bit sleepy now and I have to study for my MBA exam next Monday, i think that's all for today,  i have a lot of tips more, but i am no way a guru, so pls do chip in any ideas or inputs you may have, so we all can learn from each other.

Ciao~

P.S.  You need to factor in your trading fees into the 20x20 :)

I am a very kiasi trader, and I like to trade very small positions, and I make sure my overall proceed is around 30% p.a.

Rules That I Abide To

Some of the rules that I abide to are tried and tested, while some are not, I follow them simply because I am a very kiasi fella; after all we all trade to win, not lose.

The following blog entries will tell you more about my rules, and how you can earn money from trading.