According to CNBC, Wachovia has announced the terms of its anticipated capital infusion. The company will issue $3 billion in common stock at $24 and $3 billion in a convertible with a 7.5% coupon and 30% conversion premium. Since I can't post a link to the TV, I will wait until a respectable news outfit reports the news before posting a link. Wachovia also announced that it will cut jobs and slash its dividend by 41%. Furthermore, if all of that news that wasn't thrilling enough, it is reporting a loss of $350 million in the first quarter, due to $2 billion in asset write-downs.
Wachovia's stock closed at $27.81 on friday so the common stock issuance was theoretically supposed to be offered at a 12% discount. Great deal right? Maybe Wachovia was hoping for the rally Lehman's stock received on the news of its 7.25% convertible, which everyone and their mother wanted in on? The stock is currently trading at around $24.85 before the open, so possibly investors are beginning to realize that a hugely dilutive stock offering isn't incredibly bullish.
Monday, April 14, 2008
Subscribe to:
Post Comments (Atom)
8 comments:
K-10, I thoroughly enjoy your insight on your blog. They are always succinct but informative.
Do you have any advice for an individual interesting in doing some futures/options trading on his own without about $100K starting capital (i.e. brokers, overall strategy, reference books/sites)?
Thanks,
Dave
Hi Dave,
Thanks for posting a comment. Trading futures and options is very risky so before you begin, make sure you are using money that you are not afraid to lose. Furthermore, I would avoid futures entirely because you cannot limit your losses and can easily lose all of your capital very quickly.
A good strategy to begin with in trading options is selling covered calls against stock you already own. Otherwise, if you just want to speculate by buying calls and puts outright, stay conservative. It is difficult to do because it is very hard to get the timing right and premiums can erode your profits. I would recommend looking at options express as a possible broker. Transaction costs are competitive and they have a pretty good website. I can't think of any book off of the top of my head as I learned about options from trading on the floor, but I'd guarantee that a good broker like options express has plenty of educational information on its website. Good luck!
Thanks for answering my question. I appreciate your insights. It's nice to speak to someone who's been a real trader b/c I find alot of literature out there to be very infomercial-esque.
I have one additional comment regarding futures. From your actual trader perspective, do you think the high downside risk in futures can be effectively mitigated by sound risk management (i.e. stops based on volatility, position sizing commensurate to risk, etc.)?
I'm a bit turned off of options because of the whole time decay issue and I don't know how the hell I could time that effectively to avoid giving away all my $$ in premium and transactions costs.
Futures are not unilaterally inappropriate, but you have to make sure you don't overlever. Consider reserving a good chunk of your investable dollars for margin contingencies if you want to stay solvent. Every coin has two sides; with buying options, you can never lose more than your premium dollars, which is nice.
Thanks!
Dave,
While you can mitigate some of the risks of blowing out in futures, it can still happen despite your best efforts at putting stops in place. Earlier this year, wheat futures opened limit up three or four days in a row. When futures open limit up or limit down, there is no trading. So here is a situation where if you were short wheat futures, you could've lost significantly more than you had planned (and actually I believe some grain elevators who have been in business for years nearly went bankrupt or actually did go bankrupt) because the futures contract blew through your stop-loss without ever trading. In that situation, your broker would liquidate your account and you would have no control over what price your broker paid to close you out. This is one of the ways you can get wiped out trading futures.
Have you considered trying to trade etfs instead? Same volatility without the leverage, so you can limit your downside. I don't know what kind of futures you are interested in trading, but there are etfs on commodities, currencies, bonds, as well as indexes. GLD is the etf for gold, SLV for silver. Also, you can trade crazy things like SKF which is an etf that returns 2x the inverse of the dow jones financial index. It's a great way to be really short the financials without paying options premium or having to have permission to be short in your brokerage account. I am certain that there are all sorts of other efts that I haven't even heard of that allow you to express views without taking the kind of risk you would be taking if you were trading options or futures. I'm not trying to talk you out of it necessarily, just trying to get you to see the worst case scenario. Again, I wish you luck!
K10
k10,
Thanks again for the insight. Let me say I welcome criticism. The most successful (and wealthiest) person I know told me one key to his success is to divorce criticism from ego.
I'm attracted to futures but your lock limit up point is extremely valid. I'm particularly interested in currencies but I don't trust the fx spot market (poor regulation, questionable brokers).
I haven't thought much about the ETFs but you make a valid point. I guess my leaning towards futures is the advantage of gearing up potential gains but it only takes one lock limit up (or down) to wipe all of that out.
Still musing...
(This has been some of the best blog dialogue I've had by the way. Thanks)
One another thing...an advantage (and perhaps disadvantage) of trading currencies is they have no lock limit up or down which helps to neutralize the lock limit risk...
Post a Comment