» Taking profits on Ninetowns (Nasdaq: NINE)

Taking profits on Ninetowns (Nasdaq: NINE)

October 10, 2007 on 9:53 am | In Short Term Updates |

Sell NINE near $6.50
Buy QIIJU.xx near $0.35 (quantity equal to 10% of profit from NINE trade)

In the last 2 weeks the enterprise value of Ninetowns has moved from -$30 million to +$120 million. This trade took longer than expected to materialize, but the market finally appears to be recognizing the value of Ninetowns. Normally we would hold onto Ninetowns a little longer as a $120 million enterprise value is still reasonable, but we are increasingly worried about the valuations of all Chinese stocks so we are taking this opportunity to lock in a 65% profit. However, we decided to buy some October $7.50 calls with 10% of the profit from this trade. Just in case Ninetowns doubles again (as has happened with more than few small cap China stocks over the last week) we will still be well positioned. If the Ninetowns run is over then we will still net 55% on the trade.

Ninetowns could still receive a nice move when the Alibaba IPO comes out in early November so it is still on our radar, but for now we think this is a good time to take profits and buy a small number of October calls.

34 Comments »

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I can’t believe I sold this stock at $3 only about a month ago. Win some you lose some. Nice call wmayhem!

Comment by Trader Joe — October 10, 2007 #
Thanks for the trade guys. I like the new strategy as well, I’m in the Oct 7.50s.

Comment by Pligg — October 10, 2007 #
Didn’t I get stopped out at $3.40, per your recommendation? How would I still own this stock to sell at $6.50?

Comment by J Trader — October 10, 2007 #
J Trader, you are correct that we originally recommended a $3.40 stop loss. To be honest we never actually set stop loss trades on our own portfolio because we actively monitor and trade all of our open positions during open market hours. As a result we never sold NINE and we haven’t sold NTDOY either even though it passed our price target. We used to recommend stop loss levels for investors who do not actively monitor their investments, but we were not really sure if anyone followed this advice. We stopped offering stop loss advice a few months ago and we removed the stop loss for NINE at the same time on the website, but we never wrote a new post explaining this action. For consistency, we will book this trade as a loss at the $3.40 level in our performance statistics (when we get around to updating them). Sorry for the confusion. Going forward we will not be posting stop loss levels or price targets anymore, but we will always write a new post whenever we sell our position in a recommended trade. For example, we set a price target on HURC, but we are not necessarily going to sell if HURC reaches the target. However, we will write a new post if and when we sell HURC.

Comment by wallstreetmayhem — October 10, 2007 #
I’m new to the market, but I can’t seem to buy any QIIJU.xx or QIIJU whats the deal? Is that a real stock?

Comment by Ryan — October 20, 2007 #
Ryan, those symbols are for call options. We put the .xx at the end just to signify that they are options and not a stock symbol. These particular options have already expired.

Comment by wallstreetmayhem — October 21, 2007 #
NINE at $3.60 with $3.43 a share in cash & no debt is worth buying again as its now undervalued. Chart 1month by daily giving a BUY signal MACD indicator gettin ready to cross + Upside could be $5 range as its book value is $5.02 a share, Alibaba might very well BUY NINE as it makes sense for them.

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