The Great Crash

Here is a comparison (for entertainment only) between the crash of 1929 and 2008. Note how the first leg down so far in 08 bear similarity to 29' in that both crashed about 50% from its high at this point in the calendar year.



In 29' the weekly chart shown climbed back up to the 50% fib level b4 failing again in Apr. of 1930.












The 50% retrace level for modern day dow chart to the right would be about 10800, right at one of the weekly resistant points.

I am also recommending The Great Crash, by John Kenneth Galbraith.
If you are lazy like me, look for the audio version of the book.

A tale of a S**tibank employee

Saw this posted in a chat room
--------------------------------------

The youthful and enthusiastic Chuck moved to Texas and bought a donkey from a farmer for $100. The farmer agreed to deliver the donkey the next day. The next day the farmer drove up and said, Sorry son, but I have some bad news: "the donkey died".

Chuck replied, Well, then just give me my money back. The farmer then said, Can't do that; I have spent it already. Chuck added, Ok, then just bring me the dead donkey. The farmer then asked, What ya gonna do with him? Chuck replied, I'm going to raffle him off. The farmer said, You can't raffle off a dead donkey! Chuck countered, Sure I can. Watch me. I just won't tell anybody he's dead.

A month later, the farmer met up with Chuck and asked, What happened with that dead donkey? Chuck said - I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $998 while recovering my initial investment of $100.

The farmer asked, Didn't anyone complain? Chuck replied, Just the guy who won. So I gave him his two dollars back.

Chuck went on to work for S**tibank's investment banking unit where he designed and sold packaged product investments including S&P triple-A rated collateralized mortgage obligations, CDOs and CMBSs. They were easy to sell to Morgan Stanley and especially easy to dump at Wachovia and Lehman Brothers. It was all a huge success while it lasted.

IV behavior observation

Text book implied volatility behavior states:

Stock down, IV up.
Stock up, IV down.

From personal experience, this behavior is more fitting for broad mkt indices
and does not necessarily apply to individual stock options.

Here is an example, RIMM post earnings (earnings out 6/25).
News out, stock gapped down and continued down, yet IV going down.


I see this behavior quite often after any kind of news out on stock options. Even tho stock is down or tanking, the uncertainty and interest in them options fade quickly. Astute traders may be able to pickup some back month vol if this fade is overdone towards buy levels, for a quick vega play.

Is this happening at your workplace?

The Giant Pool of Money

This from one of my favorite radio shows. This is THE BEST show describing what the hell the current Credit Crisis is about. (1 hour audio podcast) Enjoy!!

http://www.thislife.org/Radio_Episode.aspx?sched=1242

Don't freak out over assignment

18:54 chatter: I have a dumb question when do you have to sell options? Is the second to last thursday of the month?
18:54 junky: you can sell options at any time.
18:55 chatter: I meant by when do you have to?
18:55 junky: u mean by expiration,
18:56 chatter: Yes
18:56 junky: even at expiration there are no requirements that you HAVE TO sell an option.
18:56 chatter: wont it expire if I dont?
18:56 junky: if its in the money at expiration and you do nothing you will just receive long or short stock come monday morning.
18:57 junky: if its out of the money, they will expire worthless. and no further action required.
18:57 chatter: ok but for this month experation I have till this thursday?
18:58 junky: what stock?
18:58 chatter: pot
18:59 junky: you had till Friday close.
18:59 junky: how much in the money (ITM) was it.
18:59 chatter: so since it was in the money then I jusr recieved the money so to speak?
19:00 junky: was it calls?
19:00 chatter: yes
19:00 junky: and did it finish ITM?
19:00 junky: what strike was it.
19:01 junky: holder of calls, have the right to buy stock at the strike price.
19:01 chatter: 190 or 195
19:01 junky: so at expiration, if the holder of itm calls do nothing, u are basically indicating that you would like to have stock delivered at the strike price.
19:02 junky: so come monday morning x number of long stock will appear in your account.
19:02 chatter: so now what do i do?
19:02 junky: how many calls
19:02 chatter: 5 contracts
19:02 junky: so 500 shares of pot.
19:03 chatter: yes
19:03 junky: you have 98k in acct to hold the stock?
19:03 chatter: no
19:03 junky: then just sell it after mkt opens.
19:03 junky: so you dont have to meet margin call.
19:04 chatter: ok so then everything is ok?
19:04 junky: you may want to contact the trade desk b4 the mkt opens, and I emphisize B4.
19:04 junky: bec. your acct will say something to the effect of insufficient funds come monday morning.
19:04 junky: dont freak out.
19:04 junky: just work with the desk.
19:05 chatter: ok it already does
19:05 junky: oh ok.
19:05 chatter: thats what freaked me out
19:07 chatter: I wont lose any money on this will I?
19:07 junky: depends.
19:07 junky: your stock cost basis is the strike price + whatever u paid for the calls.
19:07 junky: so it depends on where the stock opens monday morning.
19:08 chatter: got it. So I may loose a little depending on where it opens
19:08 junky: right.
19:08 chatter: got it thanks for the help.

The jokes are on us

I frequently see folks talk about TV personalities mention that they are long xyz stock or own ABC options, as part of a fair disclosure.

Lets take a deeper look at the so called fair disclosure.

If the screen caption flashes that he owns ABC options, what does that mean?
Does it mean he is long calls? (bullish)
Does it mean he is long puts? (bearish)
Does it mean he is long both? (neutual, expeting big move either way or long IV)
Does it mean he is short options naked? (calls or puts, cant tell the sentiment)
Does it mean he owns options of some kind, can be long or short, against the underlying? (could be any kind of sentiment)
Do you see the endless possibilities of that singular disclosure now?

Alright, lets pick on the caption flashing he owns xyz stock presumably long:
Does it mean he owns no options against the stock? Bec. if he is also long puts then he synthetically have long calls on xyz, not long stock. Alright, maybe he has collared the stock with long puts and short calls against the stock, now he is not as bullish as the caption says, is it.
Or,
Maybe the long xyz is part of a pairs trade against another correlated stock, or another basket of stocks. Or do they short a sector ETF hedging against the long stock? Do they also have index futures hedging against the pairs basket? Is the long stock simply a tiny position of a larger agenda, with a complete different goal than relying on xyz to go "up" to profit?




We don't know do we.......

The jokes are on us retail viewers, try not to get sucked into it.

Do you love trading?

We all know the type.

The super analytical economist/political commentator that can explain ANYTHING with the happenings of the market.
The ones that have tried multitudes of advisories/gurus/seminars.
The ones that have used most data packages that you can name in one sitting. The ones that you see in your local meetings year in and year out.

But when you get down to the nitty gritty……Da guy hasn’t made a trade on his own for years……

How about this type:

The same type that frequents the political rooms, the one that can reason economic policy and geopolitics with perfection. The same guys that shorted the mkt all the way up, and finally went long near the top, and holds all the way down. The need to be right far outweigh the need to make money for these types. They are too smart to admit they are wrong. In their mind, they are bigger than the market.

WTF!!!!

How can such talented individuals, with all that “experience” not be
“banking it”? Surely, anyone can figure out the marketplace in 2-5yrs time, or can they……

Trading is a tough business!!!!!!!! If all it took was talent and access to readily available tools, your much smarter neighbor/co-workers/relatives would be rich by now. But such is not the case. Ask yourself why that is?

To the type 1 guys I named above: look dude, I know you have “invested” a lot of dough and time into this thing, and you know just about anything and everything there is to know with options strategies/psychology/$mgmt bla bla. But you dread losing, you dread stepping up to the plate, you dread making independent decisions, you hate even more when u do have a winning trade bec. u know u will painfully give it back next week. You even cringe when other people make winning trades. Have you ever considered maybe trading is not for you after all? Or perhaps u just need to be a bit more organized and focus on 1 thing and not spread out too thin? I know at times I fail to see the forest from the trees until a fellow trader points out the obvious. Or finally, get off your high horse and try something else (strategy wise), bec. what you have been dwelling on surely hadn’t been workin’!!!! If this is not what you love doing, whether winning or losing, it will be painful and costly sticking it out in the long haul. Remember what your high school counselor preached? Find a field that you may be interested in for a career. Why did the counselor say that? BECAUSE ITS EASIER IF YOU LOVE WHAT YOU DO IN THE LONGGGGGG HAULLLLLL!!!

To the 2^nd type of geniuses I named above: man you are doing a great job fueling the trend by providing liquidity on the way up and holding the bag on the way down. Please keep doing what you are doing because u obviously are not here to take dough from the mkt, and you have an endless supply of money to contribute. Bravo.

Subprime

Its My Turn Now

From the hit Disney movie Jumpin comes the hit song performed
by Keke Palmer. You may know Keke from Akeelah and the Bee (2006).

Check out the lyrics on this youtube clip. Every bit as inspiring for the traders
that are ready to take on the adventure.



The original non-lyric video can be viewed here

The fever will break

This excerpt clip from CBS 60 Minutes on Alan Greenspan aired on 9-16-07 , on economic future. More clips from that show are out there on CBS.com or by clicking on the MENU button on the bottom right of the video.

Perfect conditions

I live about 30 min from the coast. Being here in Northern California the beaches are not exactly inviting at all times. During summer months the water temp persists in the 50s with frequent fog lingering along the coast. That means 50s-60s at the beach not counting any wind chill.

So to ensure pleasant experience for my family, we head to the beach with the little ones only when:

Its scorching where I am, in the 90s.

and

Its at least 70s at the coast, overcast ok.

and

Wind less than 10mph at the coast

and

At least 2 hours of day light to accommodate for possible traffic

Optional filters

• Weekday a plus, no crowds (best visits turn out to be weekday visits)
• Low tide a bonus
• Small to calm wave action a bonus

If the conditions don’t pan out but it’s scorching, plan B is always head for one of the inland lakes. Its about an hour out but it’s an alternative.

Today was such a day for the beach. Had a great time at the beach with family, no crowds, no wind, low tide, calm waters. There were plenty of mole crabs (a.k.a. flea crabs) as you dig thru the sand. They don’t bite and kids loved them.

I wait for the perfect condition b4 making a trek to the beach.

Another way to think about this is I wait for the conditions to COME TO ME or I do something else.

Do you have your criteria for the perfect trade setup?

Do you absolutely DEMAND for the right conditions b4 entering a trade?

Do you wait for the market to come to YOU or you don’t trade?

Among other trades, I have been stalking a particular ONXX ratio back spread for a few days.
I am firm on my limit entry price or I am willing to let it go. Its getting too close to options expiration for the sept spreads.

Amazing AMZN

AMZN daily chart.

What are the chances for AMZN to stay in-between 65.24 to 70.73 by June expiration, in 18 days?

How about this one........

What are the chances for AMZN to close below 65.24 or above 70.73 in 18 days?


I pondered on the 2nd question and executed the following trade on 5/25 just moments b4 the close. (click on image to enlarge)


As long as AMZN is outside of 65.24 to 70.73 I can't lose.

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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 before placing any trades.
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6-11 trade update

At 10:11 am EST today I bot back 5x of the jun 72.5p for 1.35 each (originally sold for 4.75 each). Taking some $$ off the table and most importantly, reduced my max risk considerably.
Cumulated P/L shown below.


6/12

Towards the close sell to close 5x jun 67.5p for .25 a piece to reduce decay against me.

6/13
exited 2x 72.5/67.5p spread for 1.94 ea at around 10:15am EST. Upper wing is done all with profit. Entering a limit sell order for .15 10x 67.5/65p to exit the lower wing. Any recoup from the lower wing at this point I consider a bonus.

Exited 10x 67.5/65p spread for .15 a piece on that dip intraday. Limit order executed at 1:09 EST. I am all out with +$460 for 20% return (max margin was $2250).

Candlestick chart?

Online brokerage scam

Unidentified thieves hacked into dozens of accounts at seven leading online brokerage firms, sold the customers' assets and used the money to buy penny stocks the thieves had previously purchased in an attempt to run up their prices, the Securities and Exchange Commission alleges in a.... Read More

Additional links for related story.

Official word from the SEC on how you may protect yourself from scam.

Totally off topic: The Landlord

But hey, at least its money related......

Movie recommendation for traders

Go get this movie!!!!!!!!!!!

I just saw for the first time the 1998 movie Rounders , Starring Matt Damon and Edward Norton.

I looked up the term "rounder" from Wikipedia:

A rounder is a card shark who makes his/her living entirely at playing cards.

The term rounder carries a certain respect amongst card players, as they know anyone with that title knows their way around a table and is a person to be taken seriously. The term sometimes also implies a player making a living by "hustling" less experienced players.

--------------------------------------------------------------------------------------

I enjoyed the movie immensely. Without giving too much of the story away for those of you that have not had the pleasure, there were two things that stood out for me in the movie:

1. In the beginning of the movie Mike (Matt Damon) described working a "grind" playing poker.

2. When Mike accused Joey Knish (played by John Turturro) for not having the stones to play
the big bets.

I highly, highly recommend this movie for all traders. I imagine the newer traders will see one side of the card playing, where as the more experienced trader will pick up on #1 and #2 mentioned above as being the absolute parallel in consistent trading. I will comment more on #1 and #2 at a later post.

Oh here is another website related to the movie.

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.
  

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

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