China announced new lending rules for China's P2P (peer to peer) industry, which is the main business for $YRD (Yirendai stock). The new regulations provided a severe negative headline for momentum longs to dump $YRD stock as the stock ran up from $6 to $42 in the past 6 months.
After doing some due diligence reading $YRD's F-1 filing, we found out that the average loan size $YRD provides its customers was well below the RMB200,000 max limit amount, as well as the amount investors were willing to lend out to customers (which we tweeted about yesterday). And today's follow-up news stories provided us more clarity into how the new P2P lending rules would affect the main players in China like $YRD. Most have commented that they would actually benefit from the restrictions as many already comply with the new requirements and the chop shops which don't/can't would go under. In summary, the news was just a negative headline but something that shouldn't affect $YRD materially.
We loaded up on $YRD stock once again after the opening bell weakness and added to the position once we felt a buyer(s) was working an order to accumulate shares. Shares went down -20% yesterday and another -10% within 30 minutes from the open today all on the unwarranted negative reaction to the P2P regulation we talked about above. The initial plan was to swing the long position on oversold conditions but we had to sell once it made an upside para-like move when the stock turned green on the day. Unfortunately in hindsight, it turns out we got shaken out as the stock rose another three dollars within an hour from our exit!
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Net Profit: +$7,505