Foray into CBA Warrants

A broker from my past called me. He’d changed brokerages with the closure of Barton Capital and asked me if I had a full-service broker. I said I’d give him a go.

Full service brokers can be useful in the following areas:
1) Trading out of market hours;
2) Accessing research;
3) Short selling and derivatives;
4) Margin facilities are easier to set up;
5) Learning something about the markets or getting a perspective from other markets;
6) Potential access to lucrative IPO’s and capital raisings (don’t hold your breath).
7) Easier execution of orders.

Now these benefits come at a cost:
1) 1.1% brokerage rates are up to 10 times what I pay;
2) He wants to sell me stuff;
3) The risk I may start thinking he knows something.

Anyway, in July he casually mentions writing a covered call over margined CBA as it goes ex-dividend. I’m told CBA normally runs into the dividend. Could give a 20% return.

Hey I know the theory but never tried it. I’m in!

Sadly it all got too hard to do in the time available. But the research I’d done exposed me to CBAIMG. Similar outcome, and a chance to play with instalment warrants as well. Why not?

I get in on 12 July at $5.56.

The roller coaster takes off. It’s up 10%, it’s down heaps. The dividend covers most of the down-side. So I set my stop-loss at 10% below ex-dividend.

It doesn’t perform as expected. Am I really surprised? No and that was ok as I didn’t mind holding CBA longer term if required.

Anyway it comes back over the last little while. I start crunching numbers and realise that I could get out for a net 3% gain on a 2 month holding. That’s fine in my book.

Today CBA runs like crazy. By the afternoon, Dow futures are down 74 points. I’m expecting the All Ords to get caned tomorrow if the Dow bleeds.

Time to POP the chute – out at 3:55pm at $5.35. Add in $0.82 fully franked dividend and I’m up 8.8% after brokerage before tax and interest. Not bad for two months and a deal that didn’t go as planned.

Lucky first foray?

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1 Comment

  1. CBA moves UP!

    For what it’s worth CBAIMG hit a high of $5.86 today. It’s been trading high for the last 7 days. My full service broker called me to tell me he’d made a mistake in his call on the market.

    The early exit means I’ve left about $1,700 on the table. Still “nobody ever went broke taking a profit”.

    So I need to compare the traders philosophy (small profits along the way) with the value approach (big profits over the eons).

    I’m finding less time to trade, so buying a value portfolio may be the way to go.

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