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SoS Update: Early rollover, Stops, DLF out, Satyam in

The Short Only Strategy has done miserably this month, and I’ve made a few mistakes of not cutting positions earlier (though I did do well cutting HDIL) and not having specific stops in place.

I’m also “virtually” rolling over this month to Jan. This is an early rollover, and in the process I will add a few fundas.

First, I keep the Nifty position the same – a short strategy must have some kind of short on the Index. Implied volatilities on options are attractively low but the time to expiry is still too high (for Jan), so I might do puts in early Jan.

I’m stopping out of DLF. My mental stop was 320, but I should have maintained a trailing stop – after all, the stock was at 190! If I’d done a 20% trailing loss, like I did with HDIL, it would have saved some grief. As a penance of sorts, I’m getting out of DLF, though I continue to be bearish on the real estate sector. I’ll take this short again later when the stock shows weakness.

I’m cutting position sizes on HDFC and Bharti. HDFC hasn’t gone up or down, but a trailing stop would have helped – at this point it’s got to be around 10% – or 1700. For Bharti, since I got in around 650, I’d keep the SL at 740; very close, but I have only one contract on.

I’m adding Satyam. It’s a small position, just one contract. I’m bearish on IT for the short term, and Satyam is by far the weakest in the pack – it is likely to get impacted by any sort of negative US/Europe news, any issues with customers it will face due to the Maytas fiasco, any regulatory action. Positives for it are a buyback news, and any takeover attempt – have to cut losses quickly on this: Stop loss, 190.

Here it is then. It’s done about 10% since inception, nothing dramatic, and unleveraged. The drawdown from the peak (which was +22%) is now nearly 12% – not good, and I must improve on it.


SoS Update: Early rollover, Stops, DLF out, Satyam in

Disclosure: Don’t take this as advice, please. The strategy is not something I expect anyone else to follow. It is only virtual and I have no positions on the above, other than some system-based positions on the Nifty which are both long and short. I am not responsible for any losses if you do follow this – and you shouldn’t be, please do your own research. (There is enormous risk in shorting)

  • Anonymous says:

    >Hi Deepak,
    I was short on DLF at 190/- levels myself. Had to close it. What beats me is 2 things:
    1) The real reason why realty is in bad shape is due to the high prices making it ill affordable for salaried class.That exists. Yeah maybe a 15% cut in prices at some places and so rise in prices, but a 2BHK for 30 lakhs is still silly. I am not sure if Govt of India is understanding this.
    2) Banks lowering rates — what good will it do? Is this nation a bunch of nitwits that will continue borrowing money to buy an asset class that is perenially overpriced? I doubt. Yes car sales will be or rather should be good in short term and likewise for bikes and tractors.

    I don’t think the rate cuts will have any real effect on real estate. At 320/- I think I am shorting DLF again.

    Bhudev

  • Bala Pandian says:

    >Deepak,

    most of your blog contains nice economic information. your SOS stock selection is based on eco info alone? you don’t follow tech analysis? – Bala

  • ramakrishna says:

    >I've gone long satyam (breakeven 165)and hdfcbank (breakeven 920)and L&T (breakeven 728).
    Satyam on a fundamentals basis has 70 cash and 35 eps. Ex-cash, its trading at a pe of 4. No sector growth, but steady cash due to long term contracts. If you use a 12 pe (infy ctsh etc) it should trade upwards of 400. You had deliveries of 30-40% on the nse alone for 6 days as it traded between 170 and 115- that's 25% of the available float on deliveries. BSE …who knows. US who knows- though on-balanc3 vol went 5 mil positive over the 6 trading days in the US. The 6 mil share block sell at 120 by ilfs (probably strategically related to their options activity on which I have no data) was probably a capitulation point in the downward momo. i can see no reason for them to sell at a pe of 2. Where's the logic in staying short? Getting a buyback at 250 or a buyout offer at 400 seems a better bet. Worst case, it floats upward for a year as all the so called bad news prices out of the stock. In the end, the fundamentals matter to value buyers who provide a floor.

  • Deepak Shenoy says:

    >ramakrishna: Nothing wrong with that analysis; yes, the stock could go up. Two big factors – the buy back is a small thing, which has not been able to lift any other stocks sentiments, but the bigger thing will be the ouster of the Rajus from the management.

    On the short side: It’s likely they lose customers through this action, plus there is the recession bit. So the “E” part of P/E is very suspect.

    Second, there are a lot of companies trading below cash, forget having a P/E. So there is no reason that Satyam should trade at a reasonable valution – sentiment is everything. Fundamentals are important, perhaps, but I’m just going with the trend – stop loss coming down now – it’s the breakeven price at 164. Only one contract so not much skin in the game.

  • satrasal says:

    >heydeepak, what are some of these companies trading sub-cash? I’d like to check them out thoroughly. Also, is this SOS port a paper port or real money? Why, if it is real money, would you not move the stop loss down to 125 thereby preserving a 25% gain as ooposed to suffering a breakeven or loss on the rebound? Skin in the game doesn’t explain it- zenwise, a trade is a trade, no?