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  3. Sam Chen

    Using Limit Orders

    Just want to share a bad practice of mine. I set a GTC calendar order according to LULU discussion thread (no trade alert). I re-center this GTC order everyday but I forgot to pay attention to the earning day. It got filled one day after earning and the price dropped very fast because of IV drop (that's also the reason why my order got filled). When I found out, it already had 40% loss. Fortunately it was half position. However, if you only follow trade alert, you should be fine. You are supposed to remove your GTC order when the closing alert is sent.
  4. Kim

    Using Limit Orders

    We are trying to find the best setups at the best possible prices. Overpaying 5-7% on each trade will make a huge difference in the long term. In short term trading, it is even more important. Yes, if we knew that all trades will work and make 20-30%, then overpaying 5-7% makes no difference. But this is not the case. There are losers as well. And some winners are pretty small. Overpaying 5-7% means small winners turn into small losers, and moderate losers turn into bigger losers.
  5. Manish71

    Using Limit Orders

    Hi Kim, There are lot of discussions about not over paying for a trade, setting limit orders etc. But I have had this question for a long time ? * How does it matter even if you chase a price for a trade and pay 2% to 5% more ? For example instead of $1.00 lets say you chase and get filled at $1.05. Now if the trade works in your favour you will still make a profit although a tad bit less. And if the trade goes against you, you will make a tad bit higher loss. It is the 5% more profit or loss, thats it. And you never know even if you had not chased and had been patient and gotten filled at $1.00, are you able to exit at the ideal price ? There are so many variables in the overall profit/loss for so many trades you will take that, don't you think identifying the trade setup is more important ?. Once you are convinced, you can actually chase the price to get filled atleast till 5% to 7% higher ? It should not make a difference in the long run. Getting more winning trades with good R:R is more important and not the filled price which might be 5% or 7% higher even if you chase. Because if you strictly follow the rule of not chasing at all, you will actually miss out on good trades which will actually make more of a difference in your overall P/L and not the 5% to 7% higher price you will have paid for the trades by chasing ? Can you please explain ? Thanks.
  6. Yesterday
  7. Drew Hilleshiem

    How To Start: Options Basics

    In short, options trading and investing has come to the masses; and at times it causes mass confusion. Before you jump in, you should have a strong grasp on the basics. This article is obviously geared towards new options traders but if you’re already swimming, a refresher from time-to-time can be quite useful. WHAT ARE OPTIONS? Equity options are contracts whose value is derived from the value of a specific (called underlying) stock trading in the market. These contracts can be used to profit, leverage, and hedge your position in its underlying stock, based on your belief in the direction of the market and/or how market volatility will behave. An option establishes a right to buy or sell the underlying property. A standard equity option establishes the right to buy or sell 100 shares of the underlying stock at a fixed price before a specific date in the future, known as the expiration date. The expiration date for an option usually occurs in three, six, or nine months. In the United States, options are traded on the Chicago Board Options Exchange, over-the-counter, and on several other exchanges. Don’t worry about using a specific exchange, your broker will take care of that for you. Now that you have a basic definition of what an options contract is, the rest of this article will focus on the difference between calls vs. puts; buying and holding vs. selling and writing; pricing and premiums; type, class, and series of options; opening and closing positions; and, European versus American-style options. Wow, that was a mouthful! THE BASICS OF OPTIONS Calls vs. Puts The right to buy the underlying stock at a fixed price (strike price)before expiration is a call option; the right to sell the underlying stock is a put option. Call options only make financial sense to exercise (i.e., exercise the call buyer's right to purchase the shares) when the price of the stock goes above the strike price of the call while the put options would only be exercised if the price of the stock goes below the strike price. Buying and Holding vs. Selling and Writing The purchaser of an option contract is known as the holder. The holder pays the seller (writer) of the option a premium (at the time of the options trade), which isalso the price for the option. The price, like stock, is what is reported by the exchange as the last price and will vary throughout the day and remaining life of the contract. The buyer, (holder) exercises the option by informing broker, who then informs the writer that she wishes to buy (for a call option) or sell (for a put option) shares of the underlying security at a specified price (strike or exercise price). Options are always described from the standpoint of the holder. The holder has a right to exercise the option while the writer has an obligation to deliver the underlying stock at the specified price, or strike price. A call holder would have a bullish outlook for the market or shares upon which the option was purchased, believing prices are generally going to rise. A put holder has a bearish or contrary outlook of the market. The seller, or writer, of the contract (should) have the opposite view. Pricing and Premiums The exercise price is the set price at which the 100 shares of stock trade will be executed. Exercise (strike) prices are determined by the exchange(s) where the options trade. These strike prices are set at certain standard increments depending on the current price of the underlying stock. Often beginning options traders get confused with the strike price. It’s important to note that the strike prices are not arbitrary and are set for the life of the contract. If the underlying stock is trading at less than $200 per share, the strike prices on the options contract will be set at 5-point intervals. For example, if the stock for FB (Facebook, Inc.) has been trading around $140 to $160/share, there will be puts and calls set at strike price intervals of 140, 145, 150, 155, 160, etc. If the underlying stock is trading over $200 per share, the strike prices of the options contracts will generally be set at 10-point (dollar) intervals. For example, if GOOGL (Alphabet Inc, the parent company of Google) stock has been trading in a range from $1,300 to $1,000 over the past few months, there will be puts and calls on GOOGL at 1030, 1040, 1050, and so on and so forth. The premium is the price buyers pay and sellers receive for the options contracts. Premiums are determined, largely, by supply and demand in an auction market (on the respective exchange) in the same way a stock’s price will fluctuate based on supply and demand in the market.The relationship between the strike price of the option and the market price of the underlying stock is a major one. If the market price is above the strike price, calls at that strike price will have a greater premium than puts at that strike price (this is because the call is considered in-the-money while the put would be out-the-money). Type, Class, and Series of Options There are two types of options; puts are one type and calls are the other type. All calls are one type of option, and all puts are another type. By adding the underlying stock to the type, we get the class of options. All IBM calls are one class; all IBM puts constitute another options class. Once the expiration month added to the class then this establishes the maturity class of an option. All GM JAN(January) calls are one maturity class; all GM JAN puts are another maturity class. Adding the strike (exercise) price to the maturity class gives the series of an option. All XOM (Exxon Mobil Corporation) JAN 75 calls are one series; all XOM JAN75 puts are another series. Once the series is defined, this is the final level of granularity in defining the contract to be traded. Opening and Closing Positions Every beginning options contract position begins with an opening transaction. Whether you write (sell) or hold (buy) the option, you are executing a corresponding ‘opening’. Ex. Buy 1 JAN IBM 120 Call @4.00 = opening buy ($400 + commission paid = total transaction cost) Sell 5 APR MSFT 100 Puts @4.25 = opening sale ($2,125 - commission paid = net proceeds received) A closing transaction takes place when you purchase the same contract at or near expiration to close out your position before an exercise occurs. Ex. Buy 1 JAN IBM 120 Call @ 4.00 = opening buy; Sell 1 JAN IBM 120 Call @8.00 = closing sale Sell 5 APR MSFT 100 Puts @4.25 = opening sale; Buy 5 NOV MSFT 125 Puts @2.00 = closing buy How Many Options Contracts Are There? Unlike stock, the company does not “issue” its options contracts as it would its shares. Rather, the exchange standardizes the classes of options available and the market creates the supply. How, you might ask? The exchange standardizes the series of options available for each class. A new contract is created when a seller initiates an opening transaction. Did you notice that I used the term “write” synonymously with “sell” above? When a contract is “Sold to Open” it creates a contract that can be bought on the exchange. Once the buyer and seller make the deal (via the efficiency of the exchange) a new contract is born and the “Open Interest” of the series will increment by 1 contract. Open interest shows how many contracts are still “active” in the market. Remember, the seller (who has the obligation of the contract) must hold up the terms of the contract or execute a closing transaction to cancel out their obligation. Why bring this up again? Let’s take our initial example and say the series only has an open interest of only 1. In this case, the seller could only close the position if the buyer would sell the contract back. The series is said to be very illiquid in this case. The seller would likely be forced to maintain the obligation throughout the contracts life. On the contrary, if the series had 10,000 open interest then the seller would easily be able to find another seller in order to purchase the closing order and exit the trade. European versus American-style Options Most exchange-listed options in the United States are classified as American-style options, meaning that the contracts may be exercised at any time up to their expiration date. This differs from European-style options, which may only be exercised at expiration. Certain ETFs and index options trade European-style despite being listed on American Exchanges. Understand that the style is very important, especially when writing options contracts. In general, American-style options tend to have higher premiums than European-style because there is more flexibility to exercise the rights of the contract (for the holder) and more risk to be exercised against (for the seller). Remember, it is the seller’s obligation to either deliver 100 shares at the strike price or buy 100 shares from the holder at the strike price depending on the contract type. Have I said this enough times? It’s a very important point. BASIC OPTIONS TRADING SETUPS** or ‘STRATEGIES’ The most basic options strategies involve buying and selling single contracts. For some, this is fine way to trade options. Buying and selling calls and selling puts meets the basic requirements when looking to take advantage of movements in the market. Buying calls or selling puts are a position taken when your outlook is bullish on the market. In the other hand, selling a call or buying a put creates a bearish position. Establishing these positions as a holder gives you a right to purchase the stock at a price lower than what it is currently trading. Writing calls and puts provides premium as income, however, it also inherits an obligation (risk) to deliver (or buy) the stock at a price that is reserved by the holder (repeated once again!). Buying and selling a single contract is the most basic ‘options strategy’ and far from ideal in many circumstances. Most of the trades we use are known as “spreads”, or combinations of puts and calls within the same class. Spreads allow us to control our trading risk and be more strategic; this is why the various spread type is often referred to as the ‘Options Strategy’. I have to note. I’ve never liked the term ‘Options Strategy’ to refer to a spread. A spread can be used strategically, but purchase or sale of a spread does not constitute an options strategy in my book. A strategy must holistically evaluate multiple criteria and be rule-based for entry and exit…but I digress…. For sake of simplicity, and to get your feet wet. Let’s take a closer look at these three ‘strategies’: Example 1: Buy 1 AAPL JAN 170 CALL (Market Price of AAPL $165) @ about $5 In this example, you are bullish on AAPL stock and believe that the market price is going to rise well above the strike price of $170. Currently, the market price of AAPL is $165, meaning that the call is considered out-of-the-money (OTM)by $5. If you were to exercise the option, you would be able to buy the stock for $170 per share. So this trade will only become profitable for you if AAPL rises in prices to above $175/share.At this price the option is now in-the-money(ITM). Why $175/share, you might ask? Above we discussed that it makes financial sense to exercise the call option if the stock is above the strike price? The reason for this, is that you also need to recoup the cost of the premium you paid to the option writer. Here’s an example: Exercise the call at the strike price (170): $170 × 100 = $17,000 Sell the stock in the market at its current price (let’s assume AAPL appreciates to $176 per share prior to January expiration): $176 × 100 = $17,600Difference: $17,600 - $17,000 = $600 Net Profit/Loss (based on $500 in premiums paid): $600 - $500 = $100 Note: You don’t actually need to exercise the stock to profit $100. One of the beautiful features of options is that you would stand to profit about the same if you simply sold the call to someone else. This closes your position and allows you to book your profits. Example 2: Sell 1 AAPL JAN 170 CALL (Market Price of AAPL is $165) @ 5.00 This time, instead of a bullish outlook for AAPL, you feel that the market price is going to drop. You decide that you want to collect premium income by selling a call when the market price is below the strike price. If the market price stays below $170 by January expiration, the call will expire worthless and you as the writer will pocket the $500 in premiums collected. Should the price of the stock go up, you have a $5 cushion to breakeven (exercise price + premium = breakeven) before you lose in this strategy. Notice this is the opposite risk profile of the buyer. Except in this case, your obligation is unlimited. The buyer can only lose the premium paid. The seller is on the hook for much more. Therefore, it’s very important to note that, in theory, AAPL could continue to increase in value endlessly within the expiration period, therefore, this type of trade is not suitable for beginner options traders. In fact, most brokers will not give you permission to execute this type of trade without demonstrating that you have adequate experience and capital. Example 3: Sell 1 AAPL 160 PUT (Market Price of AAPL is $165) @$4.25 Another basic position to take is to sell a put. Where selling a call is bearish, writing puts are considered a bullish strategy as well. If the price remains above the exercise price (165), you will pocket the $425 in premiums received. In a falling market, the holder will ‘put’ the stock to you at $165 as prices fall; your breakeven in this position is the exercise price less the premium you received ($165 - $4.25 = $160.75 breakeven). Other more intermediate/advanced options strategies include covered call writing, vertical spreads, and calendar (time) spreads. This is where we really get to harness the power of options trading. WRAPPING UP Options trading involves risks. You must take on risk to make a profit. However, after reading this article, I hope you have less risk tied to “beginner mistakes” in your initial trading. A sound understand of the mechanics and basics will help you avoid a sticky situation. Your next step is to understand the effects of implied and historical volatility on options pricing before getting your feet wet with very small, risk-defined trades. Happy to answer any questions you have in the comment section below. Drew Hilleshiem is the Co-Founder and CEO of OptionAutomator, an options trading technology startup offering a free options screener that leverages Multi-Criteria Decision Making (MCDM) algorithms to force-rank relevancy of daily options opportunities against user’s individual trading criteria. He is passionate to help close the gap between Wall Street and Main Street with both technology and blogging. You can follow Drew via @OptionAutomator on Twitter. Related articles: Understanding Option Trading Options Strategies: An Introduction Top 10 Options Trading Strategies 10 Basic Facts About Options Trading Beginner's Guide To Options Trading The Life Of An Options Contract 10 Tips: Trade Options Like a Pro and Keep Your Day Job
  8. Kim

    Using Limit Orders

    I don't, but you can definitely try. Looks like an interesting option.
  9. Noah Katz

    Using Limit Orders

    Fair enough, thanks
  10. vasis

    Using Limit Orders

    Hi Kim, What do you think about snap to mid orders available by IB? Do you use them?
  11. Kim

    Using Limit Orders

    Because I see members sharing their fills on the forum. I also try many times to fill few extra contracts after the alert just to check and 90% of the time I'm filled. Also on trades posted by @Yowster I'm in the same shoes as other members. Sometimes I'm filled before the alert based on discussion topic. Sometimes after. And yes in some cases you might have to wait a day or two. Just look at current FB trade as a good example. Some members chased it as high as 1.17, and the next day it was available below 1.10.
  12. Noah Katz

    Using Limit Orders

    How do you know that orders would have actually been filled at whatever paper prices you used for reference? I've many times (though not recently) had orders sit for days and never get filled.
  13. Kim

    Using Limit Orders

    I'm often asked: if the price changed after the trade alert, what should I do? Should I enter at higher price or be patient and use limit orders? I decided to do a little exercise and check our latest trades. Out of 10 current open trades (some are half allocation), ALL of them could be entered at prices lower than the official alert price. Same is true for previous 10 closed trades. NO EXCEPTIONS. Sometimes it took few hours, sometimes you needed to wait for the next day. But eventually a limit order at price equal or lower than the official price would get filled. I think you get the answer. ALWAYS use limit orders. Never chase the price. If in some rare cases the stock moves and you are not filled, so be it. Better to miss a trade than overpay. Also debunks a myth that our performance cannot be replicated. Patience always pays off. And if not always, then 90% of the time.. On a related note, it is usually also possible to enter the trade before the official alert comes out, based on the information in the discussion topic.
  14. Last week
  15. In fact, almost every major publication on investing from Business Insider to Forbes to the Wall Street Journal has written pieces on the topic of “people don’t need to pay someone to manage their investments.” (Business Insider, Aug. 12, 2016). The only problem with that is it is bad advice. What is this chart? It’s a study done by Dalbar, Inc., in conjunction with JP Morgan, studying thousands of self-managed investment accounts, as compared to other asset classes from 1998-2017. Notice the worst performing class? The average investor. This is also only the average – meaning that there are substantial numbers of self-managed investors that do much, much, worse. This same study identifies three primary reasons for investor failure: Notice something? Advisory fees are not on there. The single biggest factor is psychological. This can be from risk aversion, which leads to panic selling; narrow framing which results from making investment decisions without looking at the effect on an entire portfolio; anchoring, which is focusing on the recent past; lack of diversification, or not understanding what diversification really is and how market moves effect all of your assets; herding, following what everyone else is doing which often leads to buying high and selling low; regret, which causes individuals to not perform actions necessary due to past failures (or the “make up that loss mentality”); optimism, which leads to making decisions not based in reality; and a host of other factors. As shown above, other things also impact investor performance. For instance, an investor might need a new car, so sells off some of his investments. But did he think about how that would impact his portfolio or returns? Did he make an educated decision in liquidation order? Did he consider taxation or the current market? In short, investors, as a class, are wholly incapable of making regular positive investment decisions for their own benefit. The common response to the above is, “well most advisors rarely beat the indexes, so why pay one?” First, as shown above, the average investor not only doesn’t beat the indexes, they lag substantially behind. But let’s break this down even further. It is almost impossible for most advisors to beat the indexes in any one year. Not because they make poor investment decisions, don’t know what they are doing, or have the same issues as the average investor. Rather it’s because index returns don’t count the following: Taxes – even if it is just from reinvesting dividends in a long term portfolio, taxes will still be a drag on any portfolio that is not reflected in the index an investor may be tracking. If an investor just owned SDY, which has a yield of about 2.5%, and re-invests those dividends, that will act (depending on your tax bracket) as a drag of about 0.5% on your portfolio returns; Transactional Fees – even with the rise in low transaction costs, most accounts still have fees to buy and sell investments. Assume you’re funding your IRA monthly with $458/month so as to max it out by the end of the year. The average transaction cost right now is about $5, meaning you’ll have another 0.1% drag per year, based on transaction costs (and that’s if you can re-invest dividends for free, if you can’t that amount may double); Fund/ETF Costs – ETFs have gotten quite cheap in the last ten years, but it’s rare to find one that is truly free. SPY’s expense ratio is only 0.0945% -- but that is still another ten basis points on which an investor will lag the index. The above three factors alone means any “index” investor will lag the indexes by at least 0.7% per year. Measuring performance against indexes, while helpful, needs to be done with an understanding of the above. So should most people use an advisor? Of course they should. (Note, I did not say all, but rather “most”). Even Vanguard, the king of low cost index investing, is a proponent of advisors. In a study and review of advisors, Vanguard has concluded that a good advisor adds three percent (3.0%) of alpha to the average investor. Notice the biggest value comes from behavioral coaching – which is in line with what Dalbar and JP Morgan found. Conclusion? Don’t believe everything you hear, you can find value in surprising places. Related articles: Why Retail Investors Lose Money In The Stock Market Why Simple Isn’t Easy Thinking In Terms Of Decades Investor Discipline Is The Key To Success Buy High, Sell Low: Why Investors Fail
  16. CXMelga

    RIC (or short butterfly) and IC together

    Thanks very much for the replies Yowster and SBatch As I have very recently started learning I get these crazy ideas pop into my head as I learn about the different strategies (at the end of the day all a combination of puts or call) I will have to be careful otherwise I will turn into a gun gunslinger with a ten gallon hat, and that is a shore fire way to lose money (unless you consistently an extremely luck person, and unfortunate I am not) Thanks all on my quest for knowledge CXMelga
  17. SBatch

    RIC (or short butterfly) and IC together

    Swapping the IC with a calendar and combo with the RIC may work in certain names.
  18. Yowster

    RIC (or short butterfly) and IC together

    I can see what you are shooting for with this, but I see one potential problem. With your RIC being close to ATM, the risk/reward setup for it will not be good - it winds up costing a lot as a percentage of the wing width, 3.50-4.00 for a 5-wide RIC when using ATM strikes. When paying that much for the RIC, the gains will grow slower as the stock price moves and there is only so much the price can increase. So .... if you get a big stock price move your IC losses could easily equal or exceed RIC gain. if the stock doesn't move then IC gains and RIC losses would counteract each other to a large degree so your max gain% would likely be pretty low. you can potentially move your RIC strikes out, but then you have a situation where a lot of the gains in one trade are counteracted by losses in the other. Also, you now have an 8-leg trade with more chance for slippage and more commissions. I
  19. CXMelga

    RIC (or short butterfly) and IC together

    sorry, did not complete the above if you did a RIC (perhaps with very tight strikes/short butterfly SBF) and an IC together on the same stock XYZ if XYZ does not move that much in either direction you win on the IC but loose on the RIC/SBF if XYZ goes outside the short strikes of the RIC (or SBF) but 'not' path the IC short strikes you make on all positions if XYZ goes beyond 'one leg' of the IC, you win on the RIC (or SBF) and lose on 'one' leg of the IC I am just thinking (providing the buyers are there for the relevant strikes) if you have a stock with medium volatility in price action (moves up and down in a reasonable range but not too wild you may be able to get your strikes right to win on both, on one trade. What do you thing ? Thanks CXMekga
  20. After reading another of Kim's excellent posts (Kim, you have a good writing style, explain things nicely) The following came to my mind, and wanted to know what people think (don't worry I have been called an idiot before) If you did
  21. The best time to open a short trade is the Friday before expiration. With only one week to go, there are seven calendar days remaining, but only five trading days. With time decay accelerating rapidly, the typical option loses one-third of remaining time value between Friday and Monday in this crucial week. One trading technique combines several attributes about opening and closing the short trade: Pick a strike at the edges of the trading range. Sell calls when price is at resistance or better yet, when it gaps through resistance. This is the most likely time for reversal, especially if price also moves above the upper Bollinger band. Sell puts when price declines to support or gaps below; again, if price declines lower than the Bollinger lower band, timing to enter is excellent. Pick a strike at or out of the money, but not too far out. Maximum premium will be earned when the proximity of strike to the current underlying price is close. Pick expiration one week away. Friday is the ideal day for opening a trade. Aim for a one-week holding period at the most but be willing to close any time in the coming week. Set a goal. Will you buy to close your short option when half of its value has gone to time decay? Or do you require 1 100% profit, meaning waiting for expiration? Without a goal, you have no idea when to buy to close. Follow your goal. When the option’s value has declined to the level you have identified, get out of the position. Even if you have set the goal for expiration, consider closing on expiration Friday and replacing the position with the following week’s expiration. To this final point: Should you buy to close on expiration Friday? In fact, there often is very little justification for waiting out expiration, even if that was your original goal. If the option is out of the money, it will expire worthless; if in the money, you risk exercise by holding on to the contract. Buying to close on expiration Friday makes sense for many reasons. Even when the position is out of the money, what if the option moves just before close and ends up slightly in the money? It will be exercised. Because it was close to no value, this consequence of waiting makes the risk unacceptable. Closing and taking profits is the rational choice. Another reason to close on expiration Friday is that it frees up your collateral to sell another option, one expiring the following Friday. This assumes that the six points listed above still apply. You must review the current underlying price and strikes, and check proximity of price to the upper or lower Bollinger Bands (or other signals you might prefer to use). Also check momentum. Relative Strength Index (RSI) may be the most consistent and reliable test of coming reversal. Look fort movement into overbought or oversold, which confirm what you see in Bollinger Bands signals. Combine RSI with other signals as well, including volume spikes or strong candlestick reversals (engulfing, three white soldier or three black crows, morning or evening stars, hammer or hanging man, to name a few). The more confirmation you find for reversal signals, the higher your confidence is in the likelihood of reversal. The strong reversal signal is likely to occur on expiration Friday, when option premium tends to peg to the underlying price, meaning it is likely to move to the closest expiration. This is one example of the option market’s influence on stock prices, but it occurs primarily on expiration day. Friday is an excellent opportunity to close a short position and take profits; and to then replace the position with the option expiring the following week. If you do close the current option on Friday and replace it, what is the best timing? Some traders like to make decisions first thing in the morning; others prefer last-minute trading. But regardless of personal preferences, the best time to trade is when conditions favor maximum profit. If your short option is out of the money by mid-morning, get out while you can still get maximum benefit. Things can change rapidly; and on expiration Friday, a slow morning could be following by a volatile afternoon, including reversal of direction. This is where many options traders lose money. In hindsight, they should have bought to close before the lunch hour, but they did not anticipate losing the advantage they had being out of the money. This is a problem that potentially recurs every Friday. Because prices change rapidly on this day, get out when you have profits. Fridays are unpredictable not only because of the option expirations, but also because the weekend can mean big changes. Traders want to close out positions rather than holding them open through the weekend, and this applies to both long and short equity positions, as well as options. The next question is, when should you sell to open the new option? If the morning presented an opportunity to take profits, it could also present an opportunity to open a new short trade with a different strike. Base timing on Bollinger Bands if the underlying is volatile. Once you are out of the original position, you can time a new one any time you want – same morning, later in the day, or just before the close. Timing. It is all a matter of when to take profits or cut losses, and when to replace the original position with another. Michael C. Thomsett is a widely published author with over 80 business and investing books, including the best-selling Getting Started in Options, coming out in its 10th edition later this year. He also wrote the recently released The Mathematics of Options. Thomsett is a frequent speaker at trade shows and blogs on his website at Thomsett Guide as well as on Seeking Alpha, LinkedIn, Twitter and Facebook.
  22. Trend following GE the last 20 years. 12 month absolute momentum signal was end of March, 2017 with GE around $30. Trend following isn't for the price wiggles, but the big trends that go farther than anyone thought possible.
  23. Hielke

    LC Diversified Portfolio

    My wife is telling me for years to invest in gold (the physical)
  24. Common Trading Strategies during normal Volatility When markets are relatively quiet, like in 2017, active traders are normally searching for stocks with either high intra-day volatility or a news catalyst that will put the stock “in-play”. Good traders attempt to exploit this movement and profit from it. Traders in a low-volatility market such as this, would have a tough time trying to trade a market ETF like SPY or QQQ. There just isn’t enough movement for traders to consistently extract meaningful profits. In a low-vol market these instruments are great for position and swing traders that can sit in a trade for weeks while the markets grind out profits. The High-Volatility Market Environment poses Problems When the market volatility regime flips from low-vol to high-vol, many successful active traders find their catalyst-driven strategy does very poorly. Their response is usually one of two things. 1. Keep fighting a losing battle or 2. Step aside and not participate. From my experience, here are the main problems: Lack of experience in the high-vol environment. High volatility doesn’t really happen all that often, so new traders have limited exposure to the environment. That leads to mistakes. It’s like my first winter driving in snow after being a life-long Floridian. It was ugly! Even experienced traders need a while to “get in sync” with the market. Use the Wrong Strategies: Traders are creatures of habit just like everyone else. When we find a strategy that works, we instinctively keep going to that well. Unfortunately the event/ catalyst driven formula that works well in the low-vol market fail in a high-vol market. Why? Because the market volatility “swamps” whatever event volatility may be present. For example: Your favorite stock just had a nice earnings beat and guidance raise, but the market is down 600 points. Who do you think wins that battle? Wrong Position Sizes. When traders, who routinely trade 10 or 20 option contract lots in a low volatility market, try to use the same lot sizes when volatility spikes often get run over and lose a lot of money. When the market is tossing $1.50 5 min bars at you when you’re used to 25 cent bars, things get crazy. In a high-vol environment, traders need to “flip the script” in order to be successful. Try these strategies during high volatility. 8 Strategies for high-volatility markets Times of high-volatility should be times you relish, lick your chops, and get well-paid. Here are a few strategies that have worked for me and other traders I’ve either worked with or observed through the years. Migrate from individual stocks to ETF’s: Hunting for catalysts in individual names is counter-productive; the volatility you seek is operating within the whole market. Focus your efforts on the highly liquid ETFs that all the passive funds hold; SPY / QQQ / IWM / Sector ETFs. When asset managers bail on tech, QQQ and XLK are going down. When the yield curve inverts, good bye XLF. You get the idea. When the algos and funds hit a sector, they take down all the names. These ETFs offer great liquidity and tight option spreads. Perfect instruments for trading. Triple levered ETFs are great trading vehicles if you’re not an options trader. Understand the ETF weightings: Knowing if your instrument is cap weighted or equal weighted is critical. For instance, XRT is an equal weight ETF. Amazon has the same weighting as Macy’s. But if you trade XLY, Amazon has nearly a 25% weighting; big difference. If you’ve chosen a cap-weighted index, watch the top 3 to 5 components to get a read on trends and potential reversal points. Sell something. Option premiums get more expensive as the VIX rises. That means you can get more for an option you sell. I NEVER sell a naked option, but I will sell against a long position to create a spread, or buy a spread to begin with to lower the overall cost of the structure. An added benefit beyond the premium you collect is that spreads insulate your PnL against volatility to a certain degree. A strategy I like to use is the following. I short by buying PUTs at resistance. Assuming price begins to move down, as it gets close to support, I will look to create a spread by selling puts at a lower strike; just beyond support. If price hesitates or bounces, the puts you sold will lose value quickly and protect your gains. You can do the same thing on the call side. Watch for Confirmation: In my experience, its unusual for one index to “run away” from the rest of the indexes. For instance. QQQ and SPY are both approaching Resistance. QQQ makes a “baby breakout” but SPY remains pinned under resistance. You’ll often see QQQ either hesitate and wait for SPY or have a failed breakout if SPY remains below resistance. Once SPY breaks out, then the both “release ” higher. Seeing this confirmation visually is a great way to increase the probability of a solid entry. Same is true of a breakdown. Today, Friday December 7th, SPY, QQQ, and IWM all closed right on their recent low. That’s not a coincidence. When / if the October lows break, the QQQ for instance won’t go by itself. Wait for confirmation by the other indexes, otherwise you might find your ankle in a bear trap. Take your Time: If you are driving in snow and ice for the first time, don’t be a moron by going 80mph. You’ll end up in a ditch. If you are new to the high volatility environment, take your time. Focus on just one or two ETFs; maybe SPY and QQQ. Paper trade it, watch it, get a feel for the landscape. Don’t worry what other people are doing, focus on yourself. When you feel ready, get behind the wheel and go SLOW. Shrink your trade -time expectations. During high-vol periods, price moves fast. Price can move $2 or more in SPY in just a few 5min bars. In low -vol periods you might wait all day for a $2 move in a stock. Be ready to quickly put on and take off trades to either protect gains or cut losses. Trade level-to -level using Technicals. In high-vol markets, when you hear people say the sell off in a particular stock is “over-done” don’t believe it. High-volatility markets are technically- driven markets; fundamentals don’t matter. It’s about unwinding risk and exposure. The algos know every trend line, every support and resistance level. They see the declining 50ema and know the February low. Focus your pre-market preparation on identifying all the support levels, trend lines, fib levels etc. Create your trade plan on a level -to-level basis using an “If this, then that” approach. I am shorting at this resistance level. If I get stopped out and price breaks above this level, I am flipping long. If price hits this level, I am taking profits, etc. Keep the game plan front and center; then follow it! Reduce position size. When price has shown it can go down 800 Dow points and then reverse up 700 points all in 6 hours you don’t need a jacked-up position size to make great money. During these swings, a simple 38% fib bounce can terrify you if your position size is too big. Ask me how I know. Keep your position size at a level where you’re not sweating over the color of the next bar. Putting it all together Snow and a little bit of ice shouldn’t mean you are sequestered indoors, hiding under your bed in a fetal position. Enter the high-volatility environment slowly, with caution, and with your eyes wide open. With preparation and practice there’s no need to be scared. Take it slow. Trade 10 shares of a 3x ETF or 1 contract on SPY, QQQ, or IWM. You might get bitten a few times but you won’t die. Practice trading from level to level, leaning on the technicals to identify probable reversal points. It will go fine. After you build self-confidence you can broaden your horizons and trade size. If all goes according to Hoyle, after a few high-vol cycles, you’ll be an armed and dangerous killa! Chris Buss is a professional full-time trader and host of www.tradersprofitcompass.com . I have been involved with markets for over 15 years and use technical analysis to seek out and discover objective long and short swing-trading opportunities. I use options to leverage these opportunities while defining risk. The Trader’s Profit Compass website is devoted to enhancing trader performance. There you will find loads of actionable information and strategies you can apply to your own trading program. My aim is to assist you in becoming the consistently-profitable trader you aim to be!
  25. Rogers

    LC Diversified Portfolio

    Ok, I will bite.. Why is that?
  26. I just found out my wife's wedding ring has doubled in value since I got it about a decade ago. I think I'll start checking it's value several times a day now too.
  27. akito

    Brokers and commissions

    FYI, for Firsttrade, I had previously inquired with their support staff about the mobile capabilities of their platform and unless things have changed, their mobile app does NOT support multi-leg option orders. Neither does their mobile web interface. So you would have to either use "desktop" mode on your mobile browser and constantly pan and zoom around or just use their website on a desktop i.e. multi-option orders on mobile is not a good experience. I have not heard of Hrtrader before and while what they offer sounds interesting, I do not see any reviews of them online at all, which seems a little strange...
  28. Kim

    basic question about a butterfly

    Take a look: Butterfly Spread Strategy - The Basics 4 Low Risk Butterfly Trades For Any Market Environment Using Directional Butterfly Spread
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