Ok so I have made a decent amount on PetroChina (PTR) and its run-up has led me to think it is now overpriced. Recently the company announced selling some state owned shares in an IPO to the public in the coming weeks/month ish. This sent the stock up this week. My buddy pointed out the Chinese will bid this thing up like crazy, and the WSJ article also agrees its shares will be met with open arms “Despite the slew of huge IPOs and soaring share prices on China’s stock market, PetroChina’s offering will likely garner strong interest because of a scarcity of oil-exploration stocks on the domestic exchange and high global oil prices.” Any thoughts on how I should play this? Wait until the IPO and see if it gets bid up and then cash out? Or get out now? this is an situation I haven’t encountered before http://online.wsj.com/article/SB119068345530938228.html?mod=yahoo_hs&ru=yahoo
Get out or buy put options for insurance.
yeah, I decided to cash out. What intrigued me was the China Construction Bank surge after their offering this week, although they do not have ADR’s. I don’t feel comfortable enough in my understanding of how demand for shares on a home exchange affects ADR’s,as I have seen in the past an up day for the stock on one exchange sometimes leads to a down day here in the US.
If I was you, I would of bought slightly out of the money puts. As you said, you made decent amount on PTR and hence you could absorb put protection and stomach the difference between current price and strike of the put in case shares would drop, but all upside potential would still be available to you. This strategy would work, if you believe PTR may continue going up.
CITIC is the 4th largest brokerage firm by market cap. But Nomura at one time has 18 times of market cap of Merrill Lynch before the Japanese bubble economy blew up.
moral of the story is that cashing out at $180 was a bad idea, haha
Well, it’s already been said, but it sounds like buying puts is the sensible approach. You have potential for upside, but you’re protected on the downside. If you think a crash is imminent, then buy ATM, if you think it’s soon but not immediate, then buy slightly OTM. (if you’re really planning to sell, then ATM puts are probably sensible). Also, if you are expecting a sudden downward crash, the puts are probably underpriced, given that volatility will shoot up. At that point, maybe you want to sell the puts along with your stock rather than exercise them.
CFAdetroit, If I were you, I would hold PTR. I know Buffet has cleared a lot of it on HK market, but still consider it worthwhile. Just some personal reflections: Commodity price is going up due to soft US dollar, including crude oil; oil demand in China is not likely to go down in the coming years; PTR is a good state-owned company, with solid earning and growth. It is not easy to perform fundamental analysis for a Chinese firm, anyways. dali