Wanting to take advantage of the recent pull back in share prices, I went shopping on the stock market today. After looking at a number of stocks which have come back from their highs a few weeks ago, I decided to invest in Hutchison Whampoa (13). Hutchison is one of Hong Kong's largest diversified conglomerates with substantial interests in (among other things) retail and ports. With the shares trading at around $48.10 when the market opened this morning, the stock was yielding a respectable if unspectacular 3.6%. I have seen brokers' valuations or price targets of between HK$57 and HK$65.
Rather than simply buying the shares, I elected to put a small amount of money into some long dated call warrants. Details of the warrants purchased are:
Stock code: 17394
Purchase price: HK$0.073
Maturity: 19 July 2011
Strike Price: $58.88
Conversion ratio: 0.01
In effect, if Hutchison gets close to the broker's valuation in the near term, I will earn a very high return on my investment. If Hutchison fails to rise materially at some point between now and 19 July 2011, I may lose 100% of my investment. The latter is the reason why the amount invested is relatively small.