Posts Tagged ‘stay’

When to HOLD?

March 26th, 2010

CASE 2:

TICKER: MSFT (Microsoft Corp.)
DATE: 080207 (February 7th, 2008)
TIME: 14:15 (14 hours, 15 minutes)
PRICE: 30.07 (american dollars)
WINDOW: <1 H (1 hour or less)
PROB (+Y): 0.0518 (5% probability)
+YIELD: > 1.00 (Positive Target Yield Area)
PROB (-Y): 0.032 (3% probability)
-YIELD: < -1.00 (Negative Target Yield Area)
PROB (~Y): 0.9170 (92% probability)
~YIELD: 1.00/-1.00 (Inter Target Yield Area)

EST_YIELD: 0.02 (0.02% Opportunity Expected Yield)

Fact: MSFT ticker, on February 7th 2008, at 14:15 hours, is quoting at $30.07 price.

Opportunity: In less than 1 hour, has a 5% probability of over performing 1% yield, a 3% probability of under performing -1% yield, and a 92% probability of performing between 1% and -1% yield. The overall expected yield is 0.02%.

Recommended Action: HOLD.

A “SELL/STAY” example

March 26th, 2010
If an opportunity arrives at 11:30 with a 75% probablitiy of targeting better than 1% yield, AND a 15% probablity of targeting less than -4% yield, AND a 10% probability of targeting between 1% to -4%, all in less that 1 day time frame, then SELL /STAY OUT the security. Cause the expected gain of the opportunity is -0.10. (0.75 X 1 + 0.10 X -2.5 + 0.15 X -4).