Tuesday, March 20, 2007

TOS platform secret doors


In your TOS desktop platform, within any of the tabs:
  • Find the TOS logo with those 8 red splashes

  • Click on the long ones-from the top and counter clockwise to open secret door # 1.

  • Click on the second longest ones, again counter clockwise, to open secrete door # 2.

Sunday, March 18, 2007

Smart $ bet on sure things

When Shanghai and Hong Kong nose-dived a few weeks ago, they pulled American markets down with them. Instantly the media and press turned away from Britney's bizarre behavior and began blabbering breathlessly about the hot new topic du jour, "risk." Here's one of the best metaphors:

"We view financial risk much like popcorn popping in a microwave.
Until the first....... Read More

Saturday, March 17, 2007

I need to be right


This was an actual conversation.
----------------------------------------------------------------------------
Jody says: hi
optionsjunky says: hey
Jody says: how are you?
optionsjunky says: good and yourself?
Jody says: ok
optionsjunky says: setup trades for apr?
Jody says: I'm in puts on ANN now. It's going bad on me.
optionsjunky says: as long as u didn’t bet the farm, and u have your stop loss planned out, its not a problem, right?
Jody says: well, I lost most of what I put into it. I got 10 contracts of the 40 put. (ANN now at 38.60).
Jody says: I don’t have a stop loss.
optionsjunky says: the apr 40 put is still worth 2.1
Jody says: yeah it is. but I paid about 3 times that.
optionsjunky says: if the original reason for entering the trade is no longer valid, salvage what u can and move on to better looking trades.
optionsjunky says: you are a trader, no need to go into the ground with anything, u are smart and agile.
Jody says: I can't get out now. It will be a big loss for me.
optionsjunky says: so u would be willing to lose another 2.1 then ?
Jody says: I don't want to lose any more.
Jody says: I want the stock to go down. I'm hoping it will.
optionsjunky says: the chart looks like news related, did you play the news?
Jody says: no, I got in last week when it was going down.
optionsjunky says: well, anything can happen I suppose, u got 32 days to find out.
Jody says: I'm sick of losing money in the stock market!
optionsjunky says: if you are still bearish, u should load up on the 35puts, they are on fire sale right now!!!!
Jody says: 35 is OTM. We're not supposed to buy those.
optionsjunky says: whopping 35 cents a piece!!!
optionsjunky says: u are not supposed to let a losing position go this far against you either.
optionsjunky says: u are only down 4 grand right now , what’s another $350 for the otm puts? besides, u are fully willing to lose another 2100.
optionsjunky says: double down with $350, I say.
Jody says: ok
Jody says: do you think the stock will go down?
optionsjunky says: what does your guru say about stock gapping up like that?
Jody says: I don’t know
optionsjunky says: what I think about the stock direction, has no relevance in this case, what’s important here, is u are willing to lose another 2.1, yet unwilling to spend another .35 to swing for the fence. Now, u tell me if that makes any sense???
Jody says: I'm not willing to lose another 2.1
optionsjunky says: the stock will do what it will do in the coming days, no amount of mulling over, prediction, or crystal ball will change that fact, it is what it is.
optionsjunky says: a trader that is not willing to take ANY losses.
Jody says: yeah
optionsjunky says: u should stay in bank CDs
optionsjunky says: here is what I will predict for you, the rest of the weekend, you will
Jody says: I’ll never make money on those.
optionsjunky says: seek out an opinion that is bearish to make you feel better, until u find that opinion, u will think everyone else is crazy.
optionsjunky says: don’t forget to stop by ANN yahoo message board
Jody says: What's on there?
optionsjunky says: bulls and bears for ANN
optionsjunky says: u will find bulls hi fiving each other there on the gap up, and the bitter bears touting all the reasons why the stock should go down.
xxxx says: just a beginner here, but what if Jody change and buy calls now ?
optionsjunky says: any adjustment here will take on some degrees of additional risk.
optionsjunky says: if she wanted to turn bullish she can spread it by selling the apr 45 put.
xxxx says: yes but stock is bullish now, look at the chart is bullish
optionsjunky says: that’s not Jody's problem, Jody's core problem, is she is not going to lose no matter what, and may end up losing the whole thing.
optionsjunky says: Jody is always right.
Jody says: I hate being wrong.
optionsjunky says: I don’t believe I have mis-spoke.
optionsjunky says: your problem is you, not the trading system, or your picks.
optionsjunky says: the need to be right, is your downfall.
optionsjunky says: the moment u choose to ignore the stop loss rule that you bot with the $2000 seminar, You are basically saying u are bigger than the market, no matter what.
Jody says: OK, I'll get rid of the put on Monday.
optionsjunky says: the more educated the person, the more they have to be right.
optionsjunky says: bec. they have been successful with that method in society, and think the market can be worked the same way.
optionsjunky says: if I have mis-spoke in anyway, Jody, feel free to call me on it.
Jody says: I think you're right.
Jody says: you've talked me into getting rid of the put.
optionsjunky says: NO I didn’t. u just want me to go away.
optionsjunky says: its not about right or wrong and who is what. Its pure trader psychology.
optionsjunky says: I don’t care if I am right, I am not the one 4 grand in the hole.
optionsjunky says: even if this stock end s up tanking next week, and u end up making $$ on it, deep down in your heart, u know this is not the way to last long, how long can u stay this lucky?
Jody says: not very long
optionsjunky says: Casinos build their hotels resorts on these kind of gamblers.
optionsjunky says: The gamblers that love the action, yet are unwilling to cut their losses. The perfect target demographic.
optionsjunky says: I have to run will be back later.
Jody says: ok
Jody says: thanks

Thursday, March 15, 2007

Priorities

I went to drop off my kid at school today. One of the regular Dad's there, dressed in basketball shorts and T-shirt (obviously not going to work today) said to me smiling, saying "so, what do you say to the next 2 most important days of the year?"

The first thing that came to my mind was "yep, its options expiration, I got my spx positions to roll, RUT looking good, SET tomorrow morning, yep, the most important 2 days of the year indeed!!!".

Then it dawned on me he was talking about NCAA Championships.
He was taking the day off just to watch all the games.

The Good, the Bad, & the Ugly

This from Michael Catolico from TheOptionClub Yahoo group.

--------------------------------------------------------------------------
The assumption is that any strategy followed over and over
again will end up with zero profit. and yes, I believe that adjustments
are the key to profitability - or rather, skillful adjustments are what
separate the winners from the losers.

if I can digress for an indulgent bit, let me suggest that there are
really only three types of folks that actually win at options trading
(sort of my version of the "good, bad & ugly"):
1 - the lucky
2 - the fortune tellers
3 - the skilled

Every new trader should test to see if she or he is actually lucky
before ever wasting a moment trying to learn about the market. The way
to do this is simply to take say $5,000 buy some short term options
randomly or "on a hunch". Then, whatever happens to that trade, take the
proceeds and plow the entire amount back into a similar guess-type trade
the next month. Do this until you either lose the whole $5k or turn it
into $4-$5M. at which point remove your money and never make another
trade again. I would put the odds of actually being this "good" are
really about 100 million to one but oddly I have personally known two
people that fit this category. The first mistakenly took his success as
a sign of skill and proceed to give it all back and then some. The
second was smart enough to know it was a fluke and took the proceeds and
started another business (which he is actually good at) and turned that
nest egg into a lot more golden geese.

The "bad" in my little metaphor is the catch-all category of "fortune
tellers". Most people know these types by the more familiar terms as
technical analysts and fundamental analysts. As you probably know I am a
believer in "weak" efficiency for the market. This is mainly because I
have never been able to predict either price or volatility direction
with anything better than 50/50 success. Not that I haven't spent a lot
of years trying both sides including a decade or more of immersion in TA
and spending time and money to get an mba in finance/accounting and a
cpa to boot.

Just because I could never figure out how to predict the future doesn't
mean that there aren't some who do. But here's why I call this category
of winners "bad": almost every guru and market "expert" is out there
peddling a system or method essentially premised on "finding winning
trades," and following this line of thinking ultimately busts out most
traders. Most novices and in fact most retail traders believe that
predicting the future is the key to winning the market and sometimes
cautiously, often gullibly, latch on to the system sellers and
prognosticators. They spend very little time learning much about how
options work and, in truth, if they are actually very good at picking
winners, don't need to know much more than that options help them
leverage those predictions. I’d say that no more than 1 in 100 actually
have the ability to consistently pick winners at better than even odds.

The way to find out if you are a fortune teller is fairly complex but
testable. Get yourself reams of historical price and fundamental data.
divide the data sample in half. on the first half, find 30-40 assets
that beat or failed to match the market by +/-20% or more in a three
month period. Use all your perception, reasoning and intuitive powers to
find some common denominator in that group of anomalies. then take that
finding and screen the other half of your sample. if you find that you
can spot similar outlier/big movers in the test sample with your method,
you may have struck the mother lode and are probably a bona fide fortune
teller. [needless to say, but obviously anyone touting a system or
method publicly has either tapped out on a formerly successful system or
is just a scam artist - the only way to discover a winning method of
this sort is to create your own.] trade this discovery/knowledge
carefully and as you build up a continual track record grow your wealth
to the millions or more mark. again i would caution that if you ever
reach the "richer than you need to be" stage, bow out and never trade
again. but in this instance you can then sell your secret method for
additional untold millions.

the final type of winner is what i would term an "ugly" trader. this is
the kind of person that somehow manages to always and consistently find
a way to make money. regardless of market direction, regardless of
volatility, regardless of liquidity, etc. they are usually huge students
of this game, can erect and dissect a position as though it were second
nature, are obsessed with risk (both in protecting against disaster and
embracing certain types of extremes) and can trade instinctively. this
category is the one that i believe most folks should either aspire to or
eventually wind up pursuing after failing at the first two categories.
unfortunately i would say only 1 in 20 or so ever achieve any kind of
success as skilled/ugly traders.

if you'll notice, when you add up the odds, i'm suggesting only around
6% or so of traders ever wind up being big or long term winners. but
that is the grim reality of trading. and when you realize that options
hold negative odds similar to casino games like blackjack, you'll know
why i tend to preach cautiously when i respond to discussion threads on
these boards.

Michael

Monday, March 12, 2007

Saturday, March 10, 2007

AGIX interesting trade for April

AGIX news pending, currently trading around $9 a share.

Here is the risk profile of this interesting trade
translated into plain English:

This trade has the potential of making at least $1550 if AGIX stays anywhere above $3.5 a share by April expiration. That's roughly a 25% return relative to the amount of money tied up ($6000 required). I estimate around $70 in entry commissions, and potentially no exit commissions.

This trade also has the max potential of making $4000 if AGIX landed around $5.0 a share by Apr expiration. The probability of this happening is obviously lower than the $1550.

No trade would be complete without discussing the risks. Losses will occur if stock plunged below $2.25. The max risk is around $3500 IF the stock went to $0 (and u did nothing whatsoever).

The implied volatility (uncertainty premium, due to news pending) for the options are absolutely fat. Here are the exact details for the trade:

Sell to open qty 25 of the April 5 strike put options
Buy to open qty 10 of the April 7.5 strike put options

Not too bad is it? Lets break down the above two transactions another way:

step 1. Sell to open qty 10 of the April 5 strike puts
step 2. Buy to open qty 10 of the April 7.5 strike puts
(step 1 and 2 basically make up plain jane vertical spreads)
step 3. Sell to open an additional 15 of the April 5 strike puts.

Now, what I just described with all the above, can be summarized with the risk graph below.

Would you do this trade? (click picture to see larger version)



Here is another variation. Here we have a potential of 170% return.
Total capital required to do this trade is only a whopping $450 (to make $800!!!)
The only difference here is to add qty 15 of the April 2.5 strike puts to cap the max risk on the downside.

Would you do this trade?

Trading options may involve significant risk of capital. Trades posted here should be considered for informational or entertainment purposes only and not actual trading advise. Please consult your licensed broker or advisor b4 placing any trades.