Friday, July 03, 2009

Put option purchased

Yesterday I purchased some put warrants (stock code: 64184) on Tencent (stock code: 700), paying HK$0.23 per warrant.

I made this trade as a partial hedge of the rest of the Hong Kong shares in the portfolio. The put warrants on Tencent do not expire until 19 January 2010. The second is that the company is selling on a trailing PE ratio of about 51 which I regard as expensive even if the growth expectations eventuate.

In effect I need this stock to drop materially between now and 19 January in order to make a profit. If this does not happen I may lose up to 100% of my investment. The prospect of losing 100% of an investment is not attractive which is why the amount of money involved is small - less than one month of savings.

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