The Big Greeks

It’s been a while I last updated my blog.

Today, I would like to introduce my trading brother, the Greeksman, and his blog, The Big Greeks. A link to his blog is also added to the sidebar.

Greeksman is a highly advanced trader who has far more technical and analytical prowess then I can amass. He is also very dedicated to the art and science of options trading.

He has a few specialties and nice systems working but I’ll let him do the talking himself. Careful though, it can get mind-bloggering, if you don’t know your Greeks. :o)

So without further ado, I give you…


The Big Greeks.



Cheers!
Mike

LTB

LTB – Laughter’s The Best medicine


What’s better than starting off the week and beating away the Monday blues with an educational and light-hearted article?

The following explains how the stock market works… it’s a classic…


It was autumn, and the Red Indians on the remote reservation asked their New Chief if the winter was going to be cold or mild. Since he was a Red Indian chief in a modern society, he couldn't tell what the weather was going to be.

Nevertheless, to be on the safe side, he replied to his tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared.

But also being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked, "Is the coming winter going to be cold?" "It looks like this winter is going to be quite cold indeed," the meteorologist at the weather service responded.

So the Chief went back to his people and told them to collect even more wood.

A week later, he called the National Weather Service again. "Is it going to be a very cold winter?" "Yes," the man at National Weather Service again replied, "It's definitely going to be a very cold winter."

The Chief again went back to his people and ordered them to collect every scrap of wood they could find.

Two weeks later, he called the National Weather Service again. "Are you absolutely sure that the winter is going to be very cold?" "Absolutely," The Man replied. "It's going to be one of the coldest winters ever." "How can you be so sure?" the Chief asked. The weatherman replied, "The Red Indians are collecting wood like crazy."

And that my friends, is how the stock market works!


Have a happy and fruitful week in the market!


Cheers!
Mike

Have you ever wondered?

Have you ever asked yourself why you are trading?

Have you ever asked yourself why you are losing (money trading)? Or why are you still not profitable after so long?

Have you ever asked yourself why aren’t you making as much money as you have set out to achieve initially. Or why you aren’t satisfied with your results thus far.

Have you ever questioned why your systems are not working (that is, if you have one to begin with)? Or why those indicators fail more then they work?

Is it because the market is too volatile? Very unpredictable perhaps? Or maybe the market is going no where?

Is it because you have not learnt enough technical analysis and indicators? Need to know more killer indicators? Are you waiting for the latest systems? Maybe the killer app or system is still out there waiting for you to discover it.

Maybe your charting skills need improvement? Maybe you need to stick to your Entry & Exit rules more diligently. Or should you be exercising a little more discretion and personal judgment to a rigid system?

Could it be that your account is not large enough for you to trade profitably? Or maybe you think you’ve not spent enough time in the market?

So what is it?

Have you ever wondered and ask yourself these questions?

Do you have any answers?


Cheers!
Mike

Random thoughts on a random walk

On the market…
It’s been a (long) while since my last log. The market had been see-sawing during that period, generating a lot of volatility and anxiety for traders until the last 2 sessions.

The market was up one day, down the next, up again, down again. Then when Katrina left the Gulf Coast, with the dust finally settling and oil production in the region resumes, the market suddenly found a direction and the bulls took over.


On my conspiracy theory…
In my previous post, I’ve mentioned that we are currently in the bullish 20-week cycle and maintain that 2005 will end with a bullish finale.

Maybe in the grand scheme of things, oil will subside, the FEDs will take a breather from hiking rates, allowing the traditional year end bull to make its rounds. That is my grand conspiracy theory and way of attempting to rationalize and explain market cycles. :o)


On my trading style…
That is why I prefer to adopt a longer term perspective when it comes to trading. We may not be able to time our entry with smart-bomb precision and accurately predicting price and time targets, but we can adapt our strategies to slow down our trades by incorporating longer terms options and financing them with nearer term, faster theta-decaying options.

I also try to structure them with very wide breakevens to allow for the option to play shorter term swing moves within the longer term trades, always mindful of volatility and how it affects the entire position.

I hope to be able to rely less and less on technical analysis when I've perfected some advanced strategies I'm currently researching. I'm also interested in collars and modified collars that I learnt at Optionetics' Advanced Course.


Cheers!
Mike

Of fortune tellers, feng shui, astrology, and such.

Gamblers, oops, I mean traders, are more susceptible to believe and rely on the occult to give them a (supposedly) added edge when gambling, oops, I mean trading.

Some believe that there are certain times of the day when they will perform at their best and as such, will only make trading decisions based on this information.

Some have their office/home office furniture re-arranged and water-features placed at strategic locations to give better feng shui, for better trading results.

Some will wear nothing else but the one color that gives them luck, or jade rings on their fingers, or carry crystals, charms and other charmed ornaments that surround them with positive energy and good auras.

Some would even resort to wearing red underwear when they gamble, or trade.

No, don’t get me wrong - I don’t believe or practice all of the above, especially the red underwear thingy. However, I do consult the planets and stars and see how they are aligned against each other to make trading decisions. Hmm… I see the year 2013 a very bullish year.

OK, that was another joke. But have a read at the following 3 articles written by Jay Kaeppel. Or pick up Larry William’s book, The Right Stock at the Right Time. Take these articles with a pinch of salt:

On all the factors that add up to a bullish 2005: Mark Your Calendar

I’ve first read about what funny things the last digit of the year can do to the stock market in Larry William’s book. Here’s what the digit 5 means: If the Year is 5, the Bull is Alive

I first heard of the 40-weeks cycle from Tom Gentile at Optionetics’ OASIS 2005: What a Difference 140 Days Make

Incidentally, the start of the bullish 20-weeks cycle starts this coming Monday. My take is that chances of the Dow breaking the 11,000 barrier convincingly by year end is very high, barring any further rise in price of crude oil and unexpected 9/11-type terrorist events. But before we prepare for the bullish finale, we are now into the traditionally volatile September – October period.

So go on, take your bullish positions but you know the drill – always ask yourself what if you’re wrong. Make sure you stay hedged always.

Oh, in case you’re wondering, yes, I do use those information I just shared to aid me in my trading plans, in a big-picture kind of way. Are you bullish? Or you think its all bullshit? Comments appreciated.


Cheers!
Mike

The Way of the Butterfly – part II

OK, you now know how my childhood/formative years and education/profession has molded me into the kind of trader I now am. Next, let’s look at the set-ups and entry signals I look for when initiating trades.

But before I continue, I have to remind you that since I’m a… *adjusts bowtie*… derivatives trader, *smirks* I don’t buy/sell the underlying but rather its (Call and Put) options. That means I need to do analysis on the options, on top of analyzing the price actions/fundamentals of the underlying itself. Yeah, nobody said its easy work for a derivatives trader.

The world of option analysis is huge. There are a myriad of schools of thoughts. Contrasting and confusing (for some) trading styles and systems. There are many different kinds of option pricing models, and any one of them is equally capable to confuse even the mathematician in you. And a Nobel price has even been won for coming up with an option pricing model – the renowned Black-Scholes Model, that is.

There are very safe (and boring) option strategies. There are highly risky strategies. There are strategies with limited profit potential and then there are strategies with unlimited profit potential. There are strategies that allow you to receive a monthly “income”. There are strategies that require your constant monitoring – blink and you are toast. Then there are the vacation trades – trades that are put on and you can forget about them, while you snorkel away in the Maldives, and they are one of my favorite strategies.

There are strategies that will make money when the underlying moves in the anticipated direction. There are strategies that make money when the underlying moves in either direction. Strategies that make money when the stock doesn’t move. Startegies that make money no matter whether the stock stays put or moves in either direction! Yes, its true, these strategies do exist.

And that is the reason why I’m hooked on options – it gives me the added dimension and to be creative in structuring my trades. I like to solve complex problems. I like the idea of placing “traps”, if you may, one at a time, in reaction to market movements, and finally cornering the stock so that no matter where it moves to, I’ll still make money. Like playing chess, the one who can plan and see further ahead will ultimately win. I hope to be able to achieve the status of grandmaster one day.

It’s a long and unwinding road ahead. However, I feel that it is not the reaching of our goal, but the journey and how we are transformed and grow as we walk towards our goal that make our lives meaningful and worth every moment of it.

Darn. I was supposed to talk about technical analysis, set-ups and my entry rules. Guess you guys will have to wait till my next post.


Cheers!
Mike

The (General) Theory of Relativity.

My buddy Huat talked about time frames over at his fantastic blog and that had me thinking about it in greater depths. Oh no, don’t worry, I’m not going to hit you with dense stuff you can’t handle… remember the bite-size thingy I’ve always advocate? ;-)

So the theory goes like this:

Einstein made important contributions to the quantum theory, but increasingly he sought to extend the special theory of relativity to phenomena involving acceleration. The key to an elaboration emerged in 1907 with the principle of equivalence, in which gravitational acceleration was held a priori indistinguishable from acceleration caused by mechanical forces; gravitational mass was therefore identical with inertial mass. He elevated this identity, which is implicit in the work of Isaac Newton, to a guiding principle in his attempts to explain both electromagnetic and gravitational acceleration according to one set of physical laws. In 1907 he proposed that if mass were equivalent to energy, then the principle of equivalence required that gravitational mass would interact with the apparent mass of electromagnetic radiation, which includes light.

Oops! OK, I’ve caught you off-guard ya? Well, anyway, back to time frames in trading.

Time frames are relative. Positions held over-night or over the weekend is an eternity for the day trader but for those aiming to increase their retirement account, 10 to 20 years holding period is the order of the day (dividend-yield anyone?). Your mid term can be my long term and my short term can be your long term. It’s all relative and it boils down to your trading perspectives, objectives, targets and goals.

My mid term can be 2-6 months. My long term can be 1-3 years. How long I stay in the trade will depend on how the stock performs. I love to use LEAPS options for my longer term trades. However, they are not without their own woes – liquidity and bid/ask spreads, just to name a couple.

Nevertheless, I like to do longer term trades because:

1. I want to give myself enough time to be right and for the trade to develop and do what it is suppose to do.
2. I can morph my trade according to how the underlying performs.
3. By morphing, I mean locking in profits (and reduce risk) when the stock is going my way and receiving credits by selling something in the near months.
4. I don’t want to spent time stuck in front of my trading screens every trading day, from open to close.
5. I need time to think through my strategies, plan my moves and react to market movements.

I believe in slow and steady wins the race. Another Optionetics’ general theory of relativity I like best and always subscribe to is this:

You just have to be more creative then the person next to you to start making money.

Words of wisdom. Timeless advice.

What do you think?



Cheers!
Mike

The Way of the Butterfly – part I

I’m a mid- to long-term trader. I’m a trend follower. I look at weekly charts. I’m not bothered with day-to-day fluctuations too much but will use indicators on daily charts for entries. I wait patiently, sometimes weeks on ends, for the right moment to enter and after I’m in, I stay patiently to ride the trend to profitsville. I subscribe to the notion of “slow and steady wins the race”.

I do not need to use trading profits to support me and my family (just yet) so I don’t mind doing long and boring stuff and then plow back my gains. I still have a day job that though stressful, keeps the stomachs at home filled and satisfied. When I feel the need for a little excitement and zest in my usually boring and uneventful life, I seek it through other avenues – the (options) market is the last place you would want excitement from! My goal is to make trading as boring as possible. Haven’t really reached there yet though.

My longer-term (6 – 24 months) approach to trading has its roots in my childhood, upbringing and education. From young, I was taught to be frugal, to delay gratification, and to plan for the future, forcing me to adopt a longer perceptive of everything in life.

Educated and trained as a practicing accountant, I learnt how to read financial statements and appreciate the value in investing in good companies with simple and sound business, strong financials and long term growth potential. Incidentally, Warren Buffett became my idol. He still is. The stress and requirements of my private practice prohibited me to day-trade or do contra trading. It didn’t really stop me from doing just that but it didn’t take long for me to learn that I could lose more than I’ve invested!

My trading personality was further reinforced and shaped by my early successes in investing. A $1,600 invested when I was still under-aged and had to use my father’s account to hold the shares, turned into more than $11,000 today. That’s not counting all the dividends I faithfully received every year for all these years.

Nowadays, I don’t really do the buy-and-hope routine, oops, I mean, buy-and-hold strategy that much. I don’t really rely on or place a lot of emphasis on financials/fundamentals that much either. I know its pretty ironic coming from a preparer and assurer of financial reports, but hey, can anyone ever forget WorldCom and Enron? Not when accounting irregularities are being uncovered every day! And increasing SEC/government intervention and Sarbanes-Oxley Act are not going to help a lot. And who can I blame for ever-increasing premium for professional indemnity?

OK, that’s it folks! Time’s up! Stay tuned for the second instalment of The Way of the Butterfly, where I’ll reveal my shocking set-ups and indicators for entries.


Cheers!
Mike

My style

Finally, I’m going to spill the beans and reveal myself. No wait, not that kind of revelation. Don’t think anyone would be interested in my revealing pics, unless of course, you have a fetish for fat old men :). I’m talking about my trading style.

First things first. You’ll never find stock commentaries, buy/sell recommendations, or market updates/outlooks on my blog. No, its not because I’m worried that I’m wrong. Nor is it because I’m not good enough, though I feel that “good enough” is more co-related to “how much you make” rather than “how accurate your analysis is”. (I can be wrong all the time and yet still make money).

If you want market/stock analysis, you can find them all over the Net and for free. They are prepared and published by highly-paid, well-trained, experienced and resourceful professionals who do nothing but yes, you guessed it, prepare and publish these reports.

I believe no matter how highly-paid or well-trained these professionals are, they can never be impartial. Their views are still biased. Well, at least that’s my biased view on analysts. And it doesn’t really matter whether they hold the stocks, short them or have no positions in them. And if professionals are biased, how objective do you think we small fries swimming among the sharks can be? Do you think if you are long a stock, you can curse and swear and comment about how fundamentally or technically good it is to be short the stock?

OK, let’s all pretend the professional analysts’ views are not biased. No, just p-r-e-t-e-n-d for a moment. Now, what makes you think that the actions you take based on those unbiased views/recommendations are not already taken by “insiders” and the rest of the more privileged who somehow always get those information before you do? Please don’t become the last one to hop onto the bandwagon or the last one to jump ship. And as the Cantonese saying goes: “Losers and those who react slow, are worst then those who squander the family’s wealth”. Strong words uh?

I believe every investor/trader worth their weight in gold must have their own views and should not be easily swayed by others. Welcome others’ views with an open heart and mind, yes, but do no be swayed and lose your objectivity. It takes years of experience in the battlefield, hours of study, paper-trading and back-testing to attain a level of competence. Nothing can substitute your education, experience and hardwork.

Hmm... I think I’ll talk about my trading style/method in another post. This post is getting too long and I like my posts to be bite-size, so that it can be taken in a mouthful without slippage, oops... i mean spillage. =)

So till then, happy learning and trading!


Cheers!
Mike

What’s your style?

Some like to trade intra day and will never be caught dead holding a position overnight. Some are less extreme but still maintain their position for a few days. Some prefer to hold forever, Warren Buffett style. Some are the go-betweens mid-term traders.

Some uses fundamental analysis. Others use technical analysis. Yet, there some who are hybrid traders, using a combination of fundamental and technical analysis. Oh, what about sentimental analysis?

Some are trend followers, like the turtles. Some are contrarian. Some make soup out of turtles trading false breakouts and reversals.

Some look for patterns in charts – head and shoulder, triangles, etc. Some swear by Elliott Waves and Fibonacci. There are those who trade events (like earnings, court decisions, FDA approvals/announcements), either before or after the events have happened. Some sniff the market and scan for insider trading and piggy-back on them.

There are millions of ways to trade and make (and lose) money. There’s no sure-win 100% method or style. There are very successful traders in each category. So what’s the difference and where is the difference?

I guess the difference is in the trader. If you have a day job and are too busy to keep track of daily movement in the price of your stock, you’re better off trading mid- to longer term. Trade/invest in companies exhibiting strong fundamentals with future growth potential but in the meantime, seems to be undervalued because of market sentiments. Margin of safety anyone?

If you are impulsive and need to see periodic cash (in)flows, buy-and-hold or longer-term trend-following will not be for you. At least not if you put all your money in these types of trades.

Know yourself. Then know your enemies.

Cheers!
Mike

Do you set trading targets for yourself?

I do.

My target is to make, by end of 2006…


*drum rolls*


*drum rolls*


*drum rolls*



$600,000!


Is it possible to achieve?

Do you think it’s a lot?

I think it's peanuts.


Cheers!
Mike

~ If you fail to plan, you plan to fail. ~

Zero-Sum Game.

Those who would have you believe that options trading is a zero-sum game is either lying or do not know about the pitfalls and realities of the game. Period.

Have you ever thought of this: Before you can make any money from the market, the market makers have already earned from you what you might conveniently ignored – slippage? Or what about the commissions you dutifully paid your brokers each time you trade? All these add up, don’t they?

The minute you enter the wonderful world of options, you are (knowingly or unknowingly) threading in shark-infested waters. How do you keep afloat without being torn down and eaten alive by hungry roving sharks circling below those thinny-whinny legs of your? Scary isn’t it?

Go on, pick up Dr Alexander Elder’s book, “Trading for a Living” and he’ll tell you trading is a “Negative-Sum Game”.


Cheers!
Mike

What if I’m wrong?

What if I’m wrong?

The single most important question a derivatives trader have to ask every time he/she places a trade. I like the name “derivatives trader” as it adds a certain degree of sophistication to us traders out there. As if we are veiled and shrouded in a cloak of secrecy and elite-ness, if there’s even such a word. OK I digress.

So…

What if we bought a Call and the stock went south? Buy a Put, and the stock skyrockets?

What if we bought a (ATM) calendar spread or butterfly spread and the stock breaks out of its range?

What if we bought a straddle or strangle but the stock stays put?

What if the stock moves in the direction we have anticipated but the move was too slow too late and the option (we bought) loses value?

What if implied volatility crushes on our beautifully constructed combo? Or IV rushes against us?

What if time and IV work against our spreads?

What if… what if… what if…

What if you can address all these questions?

What will you get? A fully hedged position?

What if your position is so fully hedged, you not only won’t lose money, but most importantly, you won’t make money out of it either?

So many questions, so little time.


Cheers!
Mike

BBQ chicken wings and the art of trading.

Besides being one the favorite snack here, what has barbequed chicken wings got to do with trading?

The following analogy was drawn by Roger, my mentor who helped and guided me during my formative months as an option trader trading strategies that were used by professionals and few others…

A new options trader is like a piece of raw chicken wing. Before it can be placed over the charcoal-fire, it has to be marinated. Education is the marinating process, without which, the chicken wing will not taste nice.

Next, the chicken wing is grilled under the fire, much like how the newbie would take the first leap into the world of options. If the fire is too big, the chicken wing will be burnt before its inside is cooked. The newbie trading too many contracts and placing too much money into the market will rsik having his/her capital wiped out before the much needed trading experience is gained. If the fire is too low, the chicken wing will not be cooked, or may take a very long time to cook.

Controlling the fire and heat is like money management. You need to be able to get all the winning AND losing experience you need without wiping out your account.

Remember, control the fire and don’t burn your chicken wings! The end product, splashed with calamansi lime and dipped in chili sauce is oh so yummy!













OK, now I’m really hungry…


Cheers!
Mike

Metamorphosis!

OK, a butterfly is a butterfly but what is a butterfly!?

A Butterfly is an option spread trade. From the glossary of Optionetics.com’s trading education website, a Butterfly Spread is:

“The sale (purchase) of two identical options, together with the purchase (sale) of one option with an immediately higher strike, and one option with an immediately lower strike. All options must be the same type, have the same underlying and have the same expiration date.”



All of my trading comes from strategies learnt at Optionetics.com. Co-founder George Fontanills, my teacher, is the options guru and the biggest butterfly trader.

Like a magician who constantly surprises and amazes his audience by keeping mum about his art, this blog will not attempt to explain or disclose advanced Optionetics strategies but document my journey towards achieving trading nirvana using them.

Join me as I morph and transform into a successful trader.


Cheers!
Mike

Welcome to my trading room.

Finally, I’m online! After much procrastination.

I’ve always wanted to put in writing my ideas and thoughts of options trading and see how my thought process changes over time, how my ideas evolve and grow as I learn and get more experienced trading advanced options strategies.

So come on in and let me take you for the ride of my life.


Cheers!
Mike