A Short Flight
by, 11th-March-2009 at 12:03 PM (14702 Views)
Flight Centre - FLT
Entry: Short $4.74 on 25/2/09Exit: Buy to close $4.17 on 26/2/09 for 40% of holding, $3.73 on 11/3/09 for remainderReturn: $0.834 per share, less 9c dividend paid
On 24 Feb, FLT announced a poor interim result and dividends were slashed to just 9c (from 37.5c). The SP promptly dropped 9% to close at $5.35. The overall market at the time has no appetite for any bad results and will punish a stock for days on end after such news come out. Shorting after the news was a higher probability play rather than trying to catch a falling knief.
It seemed to me that a short trade is supported by the chart, overall market sentiment and the fundamental of the business outlook. The travel and airline industries are under significant pressure due to falling consumer demand and business travels, and FLT has a loss making division in US that it is unlikely to turn around in the current climate. FLT earnings also include a lot of investment returns (thanks to its large cashflow) which will reduce due to market volatility and lower interest rate.
FLT fell 25% soon after open on 25 Feb, then went up slightly providing a better short entry. My initial stoploss was $5.15, roughly the last place where there was some small support to the fall.
As it turns out, FLT continued its rapid decend for the next 10 days, reaching a low of $3.39 on 10 Mar.
When the SP dropped another 50c in the first 20mins on 26 Feb, I decided to take some profit and exited 40%. The partial exit was a wise move on hindsight: The price rebounded to $4.55 by lunch time, and there would have been a good chance that I would close the position trying to protect my profit.
I set the remainder a price target of ~$3.5, based on a notional dividend yield of ~6%. When it reached there on 10 Mar, I set a stop loss at $3.65, roughly where the last support was.
FLT opened sharply higher on 11 Mar at $3.74, following a strong night from the US. I was stopped out at $3.73.
- When all the planets line up, a trade can be taken with more confidence
- Taking partial profit seems to suit my style
- On hindsight entry was too late, but it was difficult to know exactly how angry the market will get.
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