China Fibre Tech

[AlphaQuant]

Do you all think it is more appropriate way to value/treat such stock to be more like an option instead?

I think you need to ask yourself whether you are playing for fun or to make money.

If you just want fun, then go ahead and put some money that you can afford to lose and then go away and do some real work to make money. Or you can play toto or 4D.

If you want to make money on such bets, then a poker player will advise you to scale your capital correctly, play many hands and hopefully your edge puts you in the black over many runs over the long run (and hopefully your capital scaling enables you to stay in the game long enough before a bad run takes you out).

Unfortunately, the obvious thing abt such an approach is that the distribution of frauds amongst counters having such features (i.e. price trading below cash and comes from China) is distinctly not a normal distribution.

In a way this is akin to what happened during the GFC - quants priced the CDS using the copula approach, assuming that loans from the subprime can be normally distributed so given enough loans in a tranche, more will pay up than not. However when dirt hits the fan, correlation approaches 1 and everything failed. Similarly, a basket of china firms listed on the sgx where price<cash cannot be treated as a diversified basket of bets - since similarly correlation approaches 1 when investigations start.