SGH (ASX) SGH bear is dead and burried

Originally posted by Dr.Who ↑

Mid last year I had a good think about what I wanted to do with SGH investment. I couldn't afford to sit on it indefinitely in a sinking market with increasing risk. Two choices, either sell and exit or come up with a plan B. I had spent an enormous amount of time studying the company and industry and didn't want to throw it away as I have a fundamental belief in the company. So plan B it is.

1. need to be able to maintain a position while protecting from further downside

2. decided to maintain a direct share ownership of 67k shares (specific number for a reason spoke about it before) - mentally locked those shares away not to be touched, at 40c can afford the full risk.

3. decided to sell down to 67k direct share ownership and transfer proceeds into a CFD account

4. CFD account enabled buy direct market access and open a counter-sell OTC trade to protect if from further decline

5. that option protects both ways - if rise then long increases in value sell decreases and vice-versa.

6. prior to AGM, at times had in excess of 300k contract open with varying degrees of sell protection but not perfectly hedged

7. took some profits on sell position as SP declined and re-opened sell to protect

8. prior to AGM removed all protection and exposed to 300k buy contract

9. post AGM could see renewed negative sentiment was likely so re-position down to a holding of 155k (plus 67k direct shares held separately)

10. that maneuvering cost $10k profits down from $28k to $18k

11. opened 155k sell contract to offset 155k buy contract

12. proceed to close and reopen sell contracts earning income plus maintaining perfect hedge as decline in price. Tally proceed from sale in separate account to invest elsewhere but ultimately tally back to this strategy. As take profits going down the spread of perfect hedge widens but take into account gains achieved to offset the widening gap.

13. currently the spread between buy and sell contract average price amounts to $14k

14. if the SP went to zero minimum loss is $14k as the buy contract decreases in value the sell contract increases

15. If SP jumped 120% on open and didn't retract I would lose the benefit of sell contract profit and need to exit as the price increased

16. isn't there holding costs? yes but they are insignificant compared to profit potential

--------------------------------------

a) why not just short it - can't short it no short stock available (that I can access) and wouldn't want to short it anyway as my long term belief is it will come good
motive is to manage risk upside and downside

b) so you are shorting it but you said you didn't short! - it is not a short, short not available - it is offsetting a buy contract with equal or less sell contract of my own underlying stock position

c) why not just sell and buy back lower? that would miss out on downside profits from the sell side

d) isn't that extremely dangerous using leveraged position? yes it is normally but that risk is diminished because it is perfectly hedged all all times - as leverage magnifies the buy contract loss it also magnifies the sell contract gain

e) so you are not really long at all you are neutral! I disagree my investing mindset is long and I'm exposed to 155k buy contracts (plus my 67k direct shares locked away) the 155k sell contracts are just risk management to be removed when the time is right

Ultimately this strategy only succeeds if eventually the stock recovers. Best case scenario is stock plummets to 1c then close the hedged position and use proceeds to buy big at lower price to recoup the long position loss and more on the way back up.

Worst case, apart from going to zero and losing the spread is if it goes nowhere for a year or more - dances on the spot. It needs momentum in either direction but eventually momentum to the upside.

My ultimate goal is to see out this period of volatility earn profits in the process then close all contracts and add to my 67k direct share ownership. When? Depends on how the company reports and how the market reacts.
______________________

As I said very simple and not sophisticated but nevertheless effective. At no time do I have more buy contracts than sell contracts (expect for maybe an hour or three during a day). Therefore perfectly hedged, I know maximum potential loss at any time and that would only occur if went to zero. As the SP declines the spread between buy and sell contract remains constant (up to taking profits buy/reopen sell) but then the profits offset the widening spread.

Needless to say but I will, it is not something I would advise anyone to do. I'm comfortable with the counterparty risk and have evaluated in the context of my personal plans

Before I close to clarify - I am long 222k (67 direct plus 155 contracts) and happy to be. I haven't sold down any stock since a bit immediate post AGM.

That's it, put it to bed, no more from me on the subject.

Expand

Am i the only one that doesn't get this?

Apparently you hold a net long position since you never sold your original 67K shares.

On point 11 if you are long and short 155k contracts you are still long the 67k shares. The 155k net out and you are exposed on 67K. This is not even close to a perfect hedge.

As far as I can tell what you are doing is not hedging at all but merely speculating/trading with a leveraged position on top of your original shares.

How is this not the case?

No.	Vol.	Price($)
3	3072	$50.82

No.

Vol.

Price($)

3072

$50.82

Price($)	Vol.	No.
$51.12	1399	2

Price($)

Vol.

No.

$51.12

1399

No.	Vol.	Price($)
1	300	50.450
2	190	50.100
1	50	50.040
2	1070	50.000
1	445	49.810

No.

Vol.

Price($)

300

50.450

190

50.100

50.040

1070

50.000

445

49.810

Price($)	Vol.	No.
51.950	120	1
52.200	1968	1
52.500	212	1
53.430	150	1
53.500	1167	1

Price($)

Vol.

No.

51.950

120

52.200

1968

52.500

212

53.430

150

53.500

1167

(20min delay)
Last $50.83		Change -1.400(2.68%)		Mkt cap ! $20.68B

Open	High	Low	Value	Volume
$51.91	$51.97	$50.83	$20.09M	393.6K

SGH bear is dead and burried, page-702

Renascor produces graphite concentrate at Siviour, right on time to meet ex-China demand

Rokeby, BHM, more: The 10 hot stocks HotCopper users watchlisted in Week 30

Listen: HotCopper Wire Podcast 019 – Dreaming of the 9,000s

St George banks $5M from placement to ramp up Araxá Rare Earths Project

Astute delivers high-grade lithium hits at Red Mountain

Most investors will get this earnings season wrong. Will you?

What is going on here? Watch out for DroneShield, Pure Hydrogen, and Nel ASA

Firetail scoops up untested land around Excelsior – including juicy mineralisation target

Friday's HotCopper trends: Renascor concentrate, Larvotto raise | July 25

ASX Market Close: Fading miners drag bourse as iron ore price slumps | July 25

Featured News

Buyers (Bids)

Sellers (Offers)

Featured News

SGH bear is dead and burried, page-702

Top Stories

Renascor produces graphite concentrate at Siviour, right on time to meet ex-China demand

Rokeby, BHM, more: The 10 hot stocks HotCopper users watchlisted in Week 30

Listen: HotCopper Wire Podcast 019 – Dreaming of the 9,000s

St George banks $5M from placement to ramp up Araxá Rare Earths Project

Astute delivers high-grade lithium hits at Red Mountain

Most investors will get this earnings season wrong. Will you?

What is going on here? Watch out for DroneShield, Pure Hydrogen, and Nel ASA

Firetail scoops up untested land around Excelsior – including juicy mineralisation target

Friday's HotCopper trends: Renascor concentrate, Larvotto raise | July 25

ASX Market Close: Fading miners drag bourse as iron ore price slumps | July 25

Featured News

Buyers (Bids)

Sellers (Offers)

Featured News