Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Revisiting a Losing Market-Neutral Trade

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In a post here in December ("Market Neutral Investing in China's Fast Food Industry"), I mentioned a market neutral trade I had entered going long Yum! Brands, Inc. (YUM), the largest fast food operator in China, and shorting Country Style Cooking Restaurant Chain, Ltd. (CCSC), a start-up fast food chain in China. I figured the bigger potential there was on the short side.

Reasons I shorted CCSC as part of this trade

  • + Its chart looked weak, with the stock trending down since its IPO last fall
  • + Its valuation looked pricey relative to its earnings, even after adjusting for growth estimates.
  • + Anticipated selling pressure when the 6 month IPO lockup period expired for insiders.

Getting Stopped out for a Loss

I used double digit trailing stops on this trade, and got stopped out of CCSC at $25.38, for a loss of 11.3% on the short side on Jan 4, so I sold out of YUM as well, at $48.21, for a loss of 4.8% on the long side. Total loss of 8% on this market neutral trade. Below is a chart of both stocks from when I entered the trade, on December 2nd, 2010, until when I exited, on January 4th, 2011. 



Hindsight is 20/20

Had I used wider stops, I might have stayed in the trade long enough to profit from it. Below is a chart of both stocks from when I entered the trade, on December 2nd, 2010, until Monday, May 9th, 2011. Note the selloff at the beginning of March: the company released earnings on March 2nd, missing analysts' estimates.


This wouldn't have applied in the case of CCSC, since it doesn't have options traded on it, but a suggestion that has come up recently from a couple of Portfolio Armor users is extending its algorithm to find optimal calls for hedging short positions.

Recall that with Portfolio Armor (available as a web app, and an iOS app) you just enter the symbol of the stock or ETF you’re looking to hedge, the number of shares you own, and the maximum decline you’re willing to risk, (your threshold). Then the app uses an algorithm developed by a finance Ph.D. candidate to sort through and analyze all of the available puts for your position, scanning for the optimal ones to get you the level of protection you want at the lowest cost.

Adding the ability to hedge short positions with optimal calls is something I'm considering adding, if enough users request it. If we do add that functionality, we'll probably raise the price, to offset the development cost, but those who subscribed to the web app beforehand would be grandfathered in at the current cost. I don't know if we'd add the functionality to the iOS app too, but there again, if we do, current users would get the upgrade without paying more.

Final Slopefest Update (Market Sniper)

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Well, folks, the time draws near for our get together! I do have some disappointing news, however. Our gracious host and the cause of all of this, Mr. Tim Knight, will not be joining us, sadly. Family obligations have cropped up beyond his control. As we know, family ALWAYS comes first.

He will be with us in spirit if not in corporeal form. He has made a rather nice gesture in apology. There will be autographed copies of his book for the lucky slopers who show up before the stack of books runs out! Tim wishes to express his regrets for this last minute change and made me promise not to hunt him down like a wounded goat! 

I will be arriving late Thursday afternoon, early evening. Be glad to meet with anyone at The Deuces Lounge on Thursday evening. here is a link to The Deuces Lounge.

Here is a map of the places, times and activities we have planned.

Thank you, vittorio (who has already caught a freight car to Vegas as we speak) for your work on that!

We should also be looking forward to meeting the mysterious Mr. K who helped me put this together. He has done almost all of the leg work! Thank you, Mr. K!

We should have Mr. Butch Headding and his lovely wife Phyllis from John Person's organization with us as well! And, if time permits, Mr. John Person himself!

I look forward to seeing all of you there and I can guarantee you, one and all, we will have a great time!

Yours in the pursuit of that trading edge (and edges in casinos as well!), Market Sniper