Friday, July 31, 2009

Fast Money

Do you guys ever watch Fast Money? I noticed Macke was gone for an extended period of time. I figured he got an offer to do his own show on another network or that he was just on vacation. So I did a search and found out what happened. Did you guys know about his bizarre behavior getting him canned? To be honest he made my laugh and he had some great insight, but his arrogance drove me nuts and I found it hard to enjoy the show on the days he was acting like a turd.

While I'm on the subject, I can't stand Joe Terranova. He's frequently wrong, won't ever acknowledge it, and he's a kiss ass. He's constantly saying "and you said this last night Pete and you were right on." I can tell you today what he's going to say on Monday. He'll give his reason for why oil moved, no matter how much or what direction, he'll assume he knows why. Then he'll praise each person on the show. I have made money with advice from Adame and Finerman. And lots of their plays that I tracked but didn't play with real money were winners. Fineman has been mum for a while now and not saying what her firm is in to, she's just dispensing her thoughts on subjects but not taking positions or giving ideas like Adame. I wonder if her customers are upset that she's telling the world what her firm is doing. Usually hedge funds are very secretive and don't tell you anything until they are out of a position, and even then you have to wonder if it's disinformation.

Thursday, July 30, 2009


I said a few days ago that the closer we got to S&P 1000 the more I would be inclined to lighten up or liquidate my Jan 11 MET and JPM spreads. I closed out 5 of the 20 on MET. I think every few bucks I have to close out some more. Next target will be $40 for JPM and $35 for MET. That would put both $5 above the naked call, so would be time to lighten up. Although here is the paradox, the higher above the naked strike they get, the more room I have to fall and still reap 100% of the possible gain. I've played with the number and I really need these to be about $10 above the naked strike to get about 80% of the max possible gain. If we got that high I would sacrifice the other 20% for getting out 18 months early.


I used the bounce today to close out the Sep $5 covered call on F. I left .07 of $1.10 on the table, but taking in 93% of the possible gain in 50% of the contract time works for me as of today for some reason. Yesterday leaving .08 on the table was out of the question, so I'm neurotic. I had 20 contracts so a profit of roughly $2000 on a $7800 investment, a 25% return in two months. If only they were all happy endings.


Mark, Dominic and I were talking about getting the three of us together to hang out one night. Are you still in HB on the weekends? Let's exchange schedules to see if we can make it happen. I'm in town for the next four weekends so let me know what works for you two.

I heard the Bulls are back in town...

There has been one hell of a tug a war this week after the big run up for the past few weeks. The futures are indicating a positive open and to be honest I think there is so much momentum on the upside right now that the Bears are going to have to go back into hibernation for a bit. Lets see if the Bulls can get us to 1000 on the S&P.

Wednesday, July 29, 2009

Nothing going on today... just sitting back and watching

Nothing really to do today...

My LVS calls went from almost 100% gain to basically flat over the past 2 days. Volume seems to have picked up but OBV has not dropped much doesn't indicate that there is a complete reversal to distribution. Also the whole sector is moving in the same pattern and may be in the beginning stage of forming a bull flag. I may have to hold through earnings. LVS reports earnings after the close... a little scared to hold after the MCD nightmare.

The market looks like its pausing and money is clearly rotating into the laggard financial stocks like C & BAC and the healthcare sector. If C can break above $5 I will be unloading my 1200 shares.

Also I'm sure Dominic is aware (T3's Marc's report) of the airliners being up today like CAL & UAUA.

Hopefully the bulls have enough strength to keep the market afloat for a few days until the next positive catalytic event if there are truly any on the horizon.

I'm a big fan of PIMCO' Mohamed El-Erian and his insight and thought that his commentary on CNBC this morning was realistic:

Tuesday, July 28, 2009


The financials haven't really participated in this baby step rally. Saw this setup with the SPDR inching up as well closer to the 200 SMA. This stock lbroke up after a volatility squeeze and could pop toward and through the 200 SMA. Because the market is still choppy and indecisive I choose to take a small position (8 $13 Sep calls) at .48¢ each.

Monday, July 27, 2009

Taking a play off the table

Hey guys, I'm taking my covered call on F off the table on Tuesday morning. On May 15 I bought 2000 shares for $5.05 and sold the September $5 for $1.15 taking my cost average down to $3.90. I'm going to be leaving about .04 of the $1.10 on the table to close it out two months early. I put this play on the day after they did a secondary offering at $5 that was oversubscribed. My feeling was that if they were the only one of the Detroit 3 left standing on their own they would steal market share while the other 2 were in BK court. I will be down to 4 long-term call spread positions after this. Two of those are the JPM and MET that I talked about last week and am hoping to close out soon. The other two are SLV and XLE Jan 2010 call spreads that I plan to leave on.

Sunday, July 26, 2009

What do you think means for BIDU?

Yep I'm throwing it out there again China. Barring anything unforseenly catastrophic I don't see any reason why BIDU isn't going to $400 by the end of the year.

Overall Market Read & PALM

The market showed a lot of strength on Friday weathering negative earnings from both Microsoft and Amazon. Barring any weighty heavy negative news between now and then it looks like the uptrend is intact. If I wake up tomorrow, the futures support this thesis and if the market doesn't collapse after the first 15 minutes of trading I will be looking to sell my WFMI puts I bought at .57 and refocus on a few stocks on my radar.

PALM: Looking at this tech name tomorrow as it tagged the 50MDA and showed solid support and in the recent past this has been a proven level of support. May do a quick call options trade depending on how the stock moves after the first 15-20 minutes of trading.

Thursday, July 23, 2009

Pulling the trigger...

This is something that I think that we can all relate to. Here is how the scenario usually plays out, for me at least.

Scenario 1: I identify a good setup and what I consider to be a high probilityof success trade and then I second guess my self and do not put the trade on. I then follow the trade and realized that I just missed out on a lot of money. Usually this happens becuase I may have just had a loosing trade and do not want to loose anymore money so I become to conservative. What I have been learning is you have to have a trading system and you have to be able to pull the trigger everytime it tells you to in order to really make consitent money. Otherwise in the long run the numbers will just not add up.

Scenario 2: This one is even more common for traders, this is not one I struggle with as much as I use to. I have become much more disciplined. So You have a trade idea and identify the high probability setup and come up with a plan as to where to enter, and where to exit the trade if it trades against you or in your favor. You then precede execute on your plan to add the position to your account. The problem comes when it hits your exit price and you do not immediatly get out, resulting in an even bigger loss. Again like I said above you have to get out when your system tells you to get out.

But more importantly you have to make the trades that the your system tells you to make. This is a numbers game and you have to make sure that the probabilities stay in your court. You can't let you last trade effect your decision making in your next trade. Every trade is a new start. It is alwasy ONE GOOD TRADE at a time, and then ONE GOOD TRADE, etc.

So I will be working on visualization exercises to train myself to just pull the trigger. SMB is big on teaching visualization as a skill to improve your trading since there is so much phychology involved in this proffession.

SMB Capital and T3 Capital Join forces

Today Marc Sperling of T3 capital spoke and answered questions for all of the new SMB traders. Today they officially announced that they would be trading on the same floor, it would only be natural for them to share their tools. Marc Sperling consitently makes 7 figures a year. He makes at least 200-300k a month, and he rarely has a down month. I think that this announcment is going to be so benneficial to all the traders of both firms. While fundementally both firms trade with the same skill set, the traders of T3 are at a completly different level. The partners of T3 include Scott Redler a contributer of CNBC, Marc Sperling, Laz, Sean: All who put up 7 figures have been in the business just as long as Mike and Steve of SMB Capital. So this joining of forces will be great for the newer traders, but I also think it is going to help take seasoned traders to the next level.

Marc kept reiterating how important it was to do your homework on the stocks you are going to trade. He suggest doing most of your work at night instead of rushing through it in the morning. Still do research before the open but the meat should be at night. He also stresses consitency and resisting the urge to hit homeruns. He says that you can't focus to much on your numbers, because as you master your skill the numbers will come. You have to start from a solid base and continue to build from that base.

Just last year he started to through in options. When he gets really convicted on a stock he will buy the options because he can stand the pain with the options a lot better than holding the stock. This allows his more macro positions to work out. It was really nice to hear that such a succesful trader can manage trading both intraday and in the options market. His biggest bit of advice is to master one market at a time. Do not try to master it all at once.

I just wanted to share, because this official announcement has brought my level of excitement to a whole other level.

Wednesday, July 22, 2009

Where do we go from here? Higher? Rollover?

Tops are impossible to call... just going through a bunch of charts tonight and I'm seeing bull flags everywhere. We'll see about tomorrow.

Stocks I'm stalking, looking to unload and are on my radar: LVS, MCD, FXI, TAO, EJ, FCX, GS, MTW...

Update on my training with SMB.

I just thought I would give you guys an update on how I am doing with SMB. Last week I finished the first 5 weeks of the program. This is really the most intensive part because of all of the material that you need to get through and try to practice on the demo. It is really designed to be done as a full time program. It took me about 6 weeks to finsish the first 5 weeks, so I did well with keeping up as best I could. I wanted to get it done as soon as possible but at the same time I did not want to rush through it.

This week I entered into the second phase of the training program. This phase is about 6-8 weeks long. During this phase you are soley practicing what you have learned the previous 5 weeks on the demo. Each week that have you work on a specific trade setup and each week they add one that you can use to trade. In the beggining you are only allowed to trade with 100 share lots and have a max loss of $150. Which is really hard to reach if you do everything you teach them. So far this week I have had 1 down day of about $13 and 2 updays of $39 and $43 respectively. I am trying to reach $50 then my goal will be $100.

Anyways I am trying to use this time as best I can to develope and hone the skills that SMB has taught me to trade intraday. I am looking foreward to going live in September.

I want a bigger return...

I have been watching DRYS and EGLE for sometime. I haven't made any plays on them since last year. But I think that the baltic dry index has bottomed out. It hit a low in the 600's and is now above 3000. I decided to open up a 10 contract call position in DRYS at the $7 strike with March 2010 expiry for $1.35. I am targeting a move up to $15. At this level I will take at least half off of the table and then re-evaluate. I have never really targetted such a large gain, so this is a test.

Stock target: $15

Estimated Profit: $8 per contract or $8,000 +/- time value.

Tuesday, July 21, 2009

Stocks I'm Watching: LVS, MCD, AAPL, GS

Overall the market looks short-term bullish but we are entering seriously over bought levels and it seems as if everyone's getting in. Also the cliche "When the VIX is high it's time to buy when the VIX is low watch out below" comes to the back of my mind. Trading nimble.

LVS: Inverse head & shoulders pattern developing. BIG news about a Macau IPO which would help the casino company raise possbily $2 billion which could help significantly cut it's debt levels. Watching to see it chew through the natural $10 resistance and break above yesterday's close...

MCD: Will watch the stock closely as we approach earnings... consolidating could be a potential volatility squeeze looking for a pop and possibly to unload around .85¢-$1

AAPL: Yesterday bought a few call options @ $2.30 when the stock dropped off a cliff and bottomed out in the red watched it propel into the closing. Sold at the bell @ $2.60 for a nice 2 hour trade. May look to add if stock stays on support but may be too risky carrying into earnings. This will be interesting.

GS: Think GS is going to $200 by the end of the year but will wait til stock pulls back maybe get some Jan 10 calls.

Monday, July 20, 2009

A few names I am looking at

I wanted to get in on the MCD trade that Mark put on. But it never reached my entry price, Mark actually got filled pennies above my price. So instead of chasing it I simulated it in my account, a cool feature that trademonster has. It allows you to simulate trades along with your real trades all in the same account.

But I did put on a small position on MFE, it reports on the 30th. I bought 5 Sep 09 $45 calls for $1.60. This stock has been on a tear and has just recently made all time highs. I am looking for a break out, with earnings being the catalyst to propel this baby higher. I will look to add another 5 contracts on a pull back, using my descretion. My stop loss on this is $1. I am not exactly sure what my reward is as there are no other levels on the chart to refer back to but I think it is at least a couple points.

I also bought the 26/28 call spread in WFC as a earnings speculation for about $.80. Looking for WFC to head to its secondary offering price into earnings. Stop loss $.40

Stocks I'm watching: AAPL, GOOG, RIMM, MCD, UNG & HGSI


- AAPL: Up from $146. Earnings after the close tomorrow... May actually hold through earnings depending on how the stock moves today and tomorrow. AAPL may follow IBM's earnings pattern where you hold on the news.

- MCD: Call options up to .8¢ from .6¢. Will look to dismount when stock hits $60 or before earnings on the 23rd.

-UNG: Mighty move despite Haliburton's grim forecast this morning which sent the stock downward. Waiting for the reversal and for Nat Gas to recouple with oil and close the multiple gap.

- HGSI: Bought at $10.10 this morning, stopped out at $9.8 and look at it now. Oh well...

Friday, July 17, 2009


So I want advice from both of you on ideas of how to play the two positions I've got on. They are both very similar. In March I bought a long call spread on JPM and MET, and sold naked puts to help fund the trades. Both were put on for little out of pocket expense, with the bigger risk being having to buy later if the puts were exercised. Below are the prices I paid. Currently if I were to close out the positions at Friday's prices I can lock in between 55-59% of the total possible gains. I can argue on one hand that you take 55% now in 4 months on what was originally a 22 month play. I can also argue that at today's prices being above the naked call strikes, all I have to do is trade flat or even slightly down for the next 18 months and I can pick up that other 41-45% of possible max profit. And obviously you can do something in between leaving the plays on or total liquidation. Let me know if you have any ideas on how to hedge the gains in these positions as well.

Short $35 call +3.70
Long $22.50 call -7.65
Short $12.50 put +3.80

Out of pocket expense is -.15 per share. I did 20 contracts so $300 is invested. Max possible value here is (35-22.50) x 20 contracts = $25,000. The liquidation value is $14,380 or 57% of the max value.

Short $30 call +2.85
Long $12.5 call -7.70
Short $7.5 put +3.20

Out of pocket expense is -1.65 x 20 contracts = $3300 invested. Max possible value is (30-12.5) x 20 contracts = $35,000. Liquidation value is $20,650 or 59% of the max value. Keep in mind the last trade is what's used for the current value, but the bid/ask spread is usually large for these since their expiration is still far out. So realistically the liquidation value is lower than listed above.

Expiration Friday

I only had one position affected by today's expiration. A week before June expiration I had sold naked puts on VLO at $18 for .50. That stock went down to $16 so I took possession at a cost average of $17.50. I then sold July $17's for another .50 to lower my cost average to $17. So I will be called out this weekend as we closed above $17 today. So I didn't make any money, but I turned a losing trade in to a break-even trade. This is usually why I try and stick with only selling naked puts on something I actually want to own or wouldn't mind owning. I broke that rule with SLV last month and that's why I just sold it at a loss rather than own it and sell covered calls long term. That's about it for me. If we break through 950 next week I'll be possibly looking to liquidate my 4 long call spreads, and the closer we get to 1000 I'll probably by some 1-year puts on the SPY as I just don't believe we're going to see anything worthy of being called a sustained rebound. For the most part I'll be in a wait and see mentality for a while and probably making some small moves every now and then just to gamble.

New possible play in MCD

After Mark mentioned MCD, I decided to take a look as this was not a stock on my radar. On the chart it looks like it has been trading between $56-$58 over the last month. I have a target of $61 on MCD. So I have placed a conditional market order for 10 calls at .57 or below. Currently the delta is at .31 and I see this picking up going into earnings. They report on July 23rd before the bell. The trend has been that the stocks tend to go up ahead of earnings. So I will actually look to potentially exit this trade the day before earnings. As I anticipate volotility to pick up next week I am looking for a 100-300% return.

Lets see if I get executed.

Getting flat in 401k

Today I moved all of my positions from my 401k into a money market to eliminate my risk going into a big week for earnings. The markets have crossed some key levels but have slowed. I am not sure if JPM and GS have set the bar too high or not. If earnings to suprise as much to the upside we could see a pretty sizable pull back from this 8% move. I am locking in a gain of 12.5% for the year, I may lose out on a couple of percentage points but sometimes you have to play defense first. I want confirmation.


Picked up 100 shares at $50 of MOS today. Sold $50.6 for a small profit. Watched MOS all week and missed the huge move with buyout speculation news. Starting to move my paper trading testing into the real world.

I may pick up a small position in MCD possibly today or Monday ahead of earnings on the 23rd. The stock looks like it's in a volatility squeeze and since I'm a loyal customer so I can attest to the fact that with the weak economy and the consumer trading down McDonalds stands to benefit. Also I'm getting the feeling that GS and IBM set the bar too high and the market may have to deal with diminishing earnings expectations and we may not be sustain this rally at best we may be continuing this sideways trading pattern. There may be flight back into consumer staples like JNJ, WMT and MCD.

Watching and waiting...

Time to go long in China?

Caught Fast Money last night saw Tim Seymour's comments about China and how it's beginning to look like China will be surpassing the US within our lifetime as the dominant economic power. Some data was released recently that reported that China has overtaken Japan.

This is a no brainer but just wanted to share some stocks I'm watching and waiting to get into with some Chinese real estate exposure: EJ & TAO

I'll be watching these on any major pullback to their 20SMA or even better 50EMA and looking to get some options exposure.

Market Techinicals and Position Update

The market broke through key levels yesterday and actually picked up a lot of steam at the end of the day. It seems to look as if the head and shoulders formation that everyone was chirping about may not have a follow through. It just goes to show you that the charts don't always come true, but they are high probability setups. I think that the market can continue strong if the S&P and stay above 930 with an initial upside target of 950. I would also like to see the Dow stay above 8600.

The market was lower this morning but with 20 minutes until the open it looks like it wants to try to open positive on the back of earnings from GE, BAC, and C. And additionally housing starts which were up 3.6% and building permits 8.4%. As I write this blog the S&P futures are only down 7/10's of 1 point.

GE met expectations with earnings but missed big time on Revenues. The street is a bit concerned with its industrial side of the business as GE capital met its targets. This is makes me feel even more confident that taking yesterday as an opportunity to book profits in the stock was a great move. I still have a little exposure via 3 call contracts only a $150 exposure. But I will look to close that out this morning as it was an earnings play and I did state that if it was not in my favor with in the first 30 minutes of trading that I would close it out.

I still have the 4 Call contract on JPM that I will look to take profits on today. I am looking for it to stay above the $36 level with a price target of $37. I bought the contracts for $2 and have a stop loss of $1.75.

Have to thank Jason for the insight on playing with smaller size when focused on other things. I really allows me to stay involved in the market and not really worry too much because I am not risking much. So thanks Jason for the comments on my previous post.

Until next time. Good luck Trading.

Thursday, July 16, 2009

Taking profits

After reading some of the material in that document that I sent you guys the other day, I decided to go ahead and book my profits in 10 short puts in GE today. I orignally sold them at $1.56 and bought them back at $0.41. A nice gain of $1,150 or 74% of the time premium I collected. I feel better taking those profits off the table instead of possibly giving it all back. I will let the Calls I bought yesturday ride into earnings tomorrow. A very small $150 position.

It feels nice going home with less risk tonight. We will see what I do with my JPM calls into the close.


Best Idea into the close

I got long JPM at $36 via August call options. Target to sell at $37.

CHA Designation

This post is also not trader related but I wanted to share that I just got the reslults back and I past the CHA level 1 (Chartered Hedge Fund Associate). Not exactly sure what I am going to do with it if anything, but when I first started it I wanted to make my way into the hedge fund industry and I figured this would give me a leg up. If anything it keeps my doors open. But right now I am focused on pursuing this day trading with SMB Capital and am feeling really good about it.

Not trading info but interesting article about the complicated analysis of unemployment

Wish the writer would have just stuck to the facts and analysis and refrained from his personal political commentary about a 2nd stimulus...

Wednesday, July 15, 2009

1 new position in GE Long in front of earnings...

I have decided to take a small speculation on GE. As you guys already know I am bullish on GE which is why I continue to hold my 10 short put contracts that I sold for 1.56 per contract and are currently trading at $0.50 leaving me in the money by $1. I plan to hold until they expire in September or they are trading at $0.2 or below I will buy them back, which ever comes first.

Today I initiated a position less then half my normal size 4 call contract on GE at the $13 strike with August expiration for $0.39 a contract. This is a play for earnings only and in my plan is to sell it if I am not in the money by the first 30 minutes of trading after they report when the market opens, then I will sell. Initially I am risking $156, but I think my actual down side is about half that, $78. I am looking for a 2-3X return.

Paper trading and its value to you...

So for the longest time I hated paper trading because I always felt like I was missing out on opportunity. Plus I always put trades on that I would not have done in my live account. But recently I have determined that paper trading can be valuable if and only if you follow the same rules you would if you were to put the trade on in your live account, without hesitation. So what this means is using a realisitic position size (a size your live account could handle). Have an exit price. Basically to get any value out of paper trading you need to trade it as if it were real money otherwise you are just wasting your time. Paper trading is also a great place to test ideas to see how they would actually play out in the real market before you put your dollars at risk. But again you need to be realistic with the size of the position and the risk vs reward.


So with the market showing a strong move today I've decided to play the earnings game with AAPL. The stock gapped up and broke resistance. I believe that this may be a safe run into earnings so I bought 50 shares at 146.

I believe I've referenced this before but a site I use to gauge the market is I've made a ton of good trades because of the insight but more importantly didn't lose a ton of money.

Here's Dan Fritzpatrick commentary for today:

It's breaking out of a 6-week squeeze on pretty good volume. Let's say you wanted to buy Apple to capitalize on what's likely to be a run into earnings. Very, very simple thoughts to frame the trade (not complete by any means...but this is a basic thought process):

1. My thesis is that it's going to run into earnings. Since that's the thesis, I'm not concerned with fundamentals or even whether the company is going to meet, beat, or miss earnings, or what it's forward guidance will be (that's a different trade). I'm just focusing on the anticipation of the earnings event.

2. Since I am focusing on a pre-earnings runup, the stock must be advancing to confirm my thesis. Guys, it's just as simple as that.

3. I've quickly checked the calendars in the "research department" here at

4. Price targets have been raised from $150 to $175 (approximate). That gives the stock a lot of headroom to run -- no "latent resistance" (my term) created by invisible price targets.

5. Earnings, as mentioned above, are on July 21st. I have my timeframe.

6. I also checked the guidance calendar just because it was easy to do so. But it's not necessary for my current thesis of an anticipatory runup. I'll be gone prior to earnings (because again, that is my trade). Nothing wrong with holding a stock you like over earnings so long as that is part of your plan. Refusing to hold
anything over earnings relegates you to a maximum holding time of 3 months. While this has been a tough market, some stocks are certainly worthy of just being held because they are working. But, as noted above, this is the trade -- anticipatory earnings advance.

7. Sell AAPL (or associated call options if that's your gig) (1) prior to earnings; (2) when the stock falls back into congestion, thus negating the pre-earnings advance thesis; (3) when the stock hits a pre-defined target...say, $160 or so??

Very, very simple trade approach. (and just one of many that traders use)

Hope this is helpful.

Tuesday, July 14, 2009

Nothing relevant

Hey guys, I've been out of town for the last five days and haven't really followed the markets. Looks like there are quite a few posts I've missed. I'm going to try and catch up on Wednesday. I think I'm pretty much sitting tight through expiration in August. I've got long call spreads in place on JPM, MET, and XLE, and I own in-the-money puts on the SPY to hedge against it. I would love to take a run at S&P 1000 and cash out. If we fall below the high 880's then I'm hedged but not heavily. If we take a big dump I'll still lose. I don't have a strong feel for this market. I don't see a sustained upside, but the big correction just doesn't seem to materialize either. Rather than try to predict I'll just sit back and wait for a better time where it seems more obvious. I don't anticipate looking for a job until summer of 2010 so I need $30,000 to get by until then. I've got that much in time premium that will expire on my call spreads so I'm just looking to hedge those positions and buy myself some time until I can figure out exactly what I want to do.

The role of emotion in trading...


Our first trader is Ned. Ned is an off-the-floor trader who day trades the S&P 500 Futures. He’s been trying to be consistently successful for the last six months. Unfortunately, it hasn’t worked out very well. But it’s not because of his methods that he’s having so much trouble. No, the main reason Ned is not making the kind of money he wants is because he cannot control his emotions and consistently act in his own best interest.

From the very beginning, Ned was confident he would be successful day trading the S&P’s. He’d been very successful in his previous business. Ned owned a retail printing company and he’d learned to make good sound business decisions that helped him become very successful. He almost never made any major mistakes that were detrimental to the business. In fact, in over the nine years he owned the company, he really prided himself in always looking at the big picture and keeping his business moving forward. On the rare occasion when something did go wrong, Ned worked at lightening speed to fix the problem, and many times he turned the crisis into an opportunity.

Because of the smart decisions he’d often made, Ned was sure he could carry this into his new career of commodity trading. At least that’s what he thought would happen. So, when Ned received a generous offer from a corporation to buy his printing company, he decided this might be the time to take the money and run.

It wasn’t that difficult for him to decide to sell. He definitely loved having his own business and, of course, it was that much more rewarding because he was successful. But for the last two years, he’d been so busy that he was working about 65-70 hours a week. That left very little time for him to spend with his family. This made the decision to sell very easy for him.

Another thing that made Ned’s decision easy was that he wanted to try a new business. He had learned as much as he could about commodity trading. He’d read as many books and magazines he could get his hands on. He definitely thought he could transfer his successful business practices to commodity trading. Thus, he could trade from home and be able to spend a lot more time with his family. He was quite confident he would be a success in this endeavor too. Boy, was he in for a surprise.

The second trader in our story is James. James also wanted to day trade the S&P 500 Futures. His background is a little different than Ned’s. James has spent the last four years working at the Chicago Mercantile Exchange where the S&P 500 Futures are traded. But James was not a trader at the CME. He had basically worked his way up from a runner. He was working for a retail commodity firm as a phone clerk. His job was to put in buy and sell orders for customers using hand signals.

From the first day James had started working at the exchange, he had always wanted to be a trader. He knew he didn’t have enough money to buy a seat on the exchange (which costs about $200,000). He thought his best chance to become a trader was to learn all he could from the various floor traders and other people on the trading floor, and then trade from off-the-floor where he wouldn’t have to own a seat.

James spent as much time as possible trying to learn how people in the commodity business made money. He was sure there had to be some very specific techniques only the real successful people were using. He certainly knew, like everybody else, that 80-90% of the people lost money trading. He was determined to learn what he needed to know so he could be successful when he started trading from off-the-floor. He wanted to start trading as soon as possible.

James made a point of trying to meet as many successful traders (both on and off-thefloor) as he could. He was lucky enough to be exposed to all these successful people on the floor and in the various offices at the Chicago Mercantile Exchange. He thought if he could figure out exactly what the successful traders were doing, he could model his own trading off of them. He spent every free moment talking to the various traders that he’d met and tried to find out the secrets of their success.

He learned a lot. He learned all kinds of different technical methods that the various floor traders and off-the-floor traders used. James had never traded a futures contract in his life. But the more he talked to different traders, the more his confidence grew. He was sure with the experience he was getting he would surely be a successful off-the-floor trader. But he still needed one more important lesson.

Ned began trading. He started with $15,000 in his account and decided he would only trade one contract at a time until he was sure he had the hang of things. Things actually started off fairly well for Ned. His first trade made 320 points ($800 before commission charges). Obviously, Ned felt very good about his start. Unfortunately, things went downhill from there.

On his next four trades, he lost on all four. The problem was that Ned had good profits on two of those four trades, but he failed to take them because he would look for a lot more than the market was offering. So, in his first week, instead of making a small profit or breaking even with the four trades, he ended up losing the original $800 and even another $1,200 more. This was very frustrating and confusing to Ned. He obviously needed to do a lot better if he was going to be successful in this business. But not to worry, it was only the first week. He certainly didn’t make a fortune his first week in the printing business.

The next week started basically the same as the first. His first trade (on Monday) was another nice winner of 280 points ($700), but the downhill slide started again. Ned did his next trade on Tuesday of that week. He got in and the market went his way about 120 points. Ned knew if he could make 200 points on this trade, he could get back to even. So that is what he decided to look for in this trade. He put an order to get him out of the market with a 200-point profit. The problem is the market only went 150 points his way and Ned did not trail his stop order to lock in a profit or at least move his stop to break-even. He really wanted to get that 200-point profit so he could be even, but the market came all the way back and not only took away the 150 points in profit it was offering, but also took away the amount he was originally risking when the market hit his stop order. Ned ended up losing $400 on this trade.

Now Ned was very frustrated. Sitting at his desk, he considered throwing his empty ceramic coffee cup across the room at the wall. Luckily he resisted doing this as the thought of getting the broom and dustpan to pick up broken glass didn’t seem like it would fix his losing trades. Nevertheless, Ned was extremely frustrated and needed to come up with a way to fix things.

“One of the most important things you can do is to set a daily, weekly, and monthly goal for yourself.” James was getting some advice from one of the most successful off-the-floor traders he knew. This particular off-the-floor trader had made over half a million dollars a year for the last four years, so James knew he was getting good advice.

“The way to be successful is to have measurable goals for yourself”, the off-the-floor trader continued, “and then you have to continually visualize yourself reaching those goals.” James understood about setting goals, but he really wasn’t sure what the visualization part meant. He knew he would need to find out what that was all about.

James continued to talk to as many successful traders as he could. They all seemed to say the same things. Goal setting was extremely important. Just trying to make money each day (without a goal) was a road to failure. It seemed like almost every trader James talked with really stressed the daily goal setting idea. In fact, it seemed the more successful the trader the more they stressed goal setting. James made a strong mental note that if he were to be successful, he would need to have very specific goals as to how much he wanted to make each day, as well as how much he was willing to lose.

James found another fairly successful floor trader named Bob. Bob was nice enough to give James some advice. “Yes I agree with you, you do need to set specific goals”, Bob said, “but I would say just as important, you must visualize your success each and every day. You must see yourself very clearly as a successful trader. If you can’t see yourself in your mind’s eye as a success, there is no chance you will become successful.”

Bob told James about a book he should definitely read. “Get the book Psycho- Cybernetics, it will tell you everything you need to know about visualizing your success. It’s the same method professional athletes use, but it’s really no different in our business. To be a successful trader, you must see yourself as a successful trader, even if it’s not true yet.”

James did not hesitate following Bob’s advice. He went out and bought a copy of Psycho-Cybernetics. He began studying immediately. James learned the different visualization techniques and began to use them on a daily basis. Even though he had yet to start trading, through his visualizations, he had already started to see himself (in his mind’s eye) as a successful off-the-floor trader. This would play a big part of why James would become successful.

Ned thought about the difficult time he was having. He needed to come up with a way to get better results. He thought that maybe the indicators and methods he was using were the problem. Ned decided to find some new methods to trade with. He bought various books and courses on how to trade the S&P 500. Each time he went through these materials, he was sure he would start having better results. The ideas and examples seemed to make a lot of sense to him.

Ned decided to use some of these new methods in his trading and get rid of the old methods he was using. He was sure it was the techniques he was using that were causing him to lose money. Unfortunately, it was not his methods that were causing his losses.

Ned started using these new methods to trade and was actually doing quite well for a couple of days, but then he made a serious mistake. He had a losing trade and got very angry. He had gotten stopped out of a position that he was sure was going to be a big winner. As soon as he got stopped out, the market went his way almost 600 points in 15 minutes. Ned decided he wasn’t going to let the market take his money. He proceeded to do three more trades. He let his emotions get the best of him and made the near fatal mistake of trading without stop orders.

At the end of the day, Ned had lost over $7,000. His broker had forced him to get out of a position that was over 1000 points against him. Ned wanted to stay in the position overnight to see if it would recover. Ned swore at his broker before he hung up on him. This time Ned did throw his coffee cup across the room. It shattered against the bookcase and made a deafening crash. His wife ran into his office to see what was wrong.

“What happened?” she asked, “What was that noise?” Ned didn’t need to answer as she looked over at the bookcase and saw all the broken glass on the floor. She told Ned she would get the broom.

“JUST LEAVE IT!!!!” Ned snapped at his wife. He couldn’t remember ever using a tone like that with the woman he planned on spending the rest of his life with. Without uttering another word, she walked out of his office. Ten minutes ago, Ned thought he couldn’t ever feel worse than he felt at that time. Now he felt worse.

James gave his two-week notice to his employer and began to get set up for his off-thefloor trading career. He’d gotten his real-time quotes and charts set up. He had opened a trading account and, in about two weeks, he would be ready to give his endeavor a try. James continued to visualize himself reaching his daily, weekly, and monthly goals. In his mind’s eye, he kept seeing himself finding opportunities in the market and taking advantage of them. He kept seeing himself trailing his stop orders to lock in profits and avoid having winning trades turn into losers. He kept seeing these images in his mind until they became crystal clear.

He visualized his equity continuing to rise in his account. Not at lightening speed, but more at a slow steady rate. He felt if he could just get himself to make $250 each day, it would be a great way to start. He realized that trying to make thousands of dollars each and every day was just not realistic for him.

James began trading on Monday. He had his goal in mind. He had spent a lot of time over the last couple of months visualizing what he would do and how he would react in as many possible situations as he could. In fact, he saw these things in his mind so often that he felt like they had actually happened for real. That really gave James a lot of confidence. Even though he’d not ever traded before, he felt like he had traded thousands of times.

It showed in his results. James’ very first day was a success. He’d made only one trade and made $275. He considered trading more, but then remembered that his goal was to try and make $250 a day, and doing another trade could make him more money, but it could also cost him the money he’d already made. He decided to just paper trade the rest of the day and keep his attained goal intact.

One of the most important lessons James had learned from other traders he knew (both on and off-the-floor) was the reason people were successful in this business was because they were able to find the ability to act in their own best interest. He knew that hoping and praying the market would move in a certain direction certainly had no bearing on whether the market actually did move in that direction. No, the thing that made people successful at trading was when they did what was in their best interest to get winning trades and avoid losing trades (or at least to keep the losing trades small).

For instance, James may have wanted to make 250 points on his next trade, but if most the market is offering at the time is only 150 points, then it’s obvious no matter how much you want 250 points in this trade, the most you can possibly attain is 150 points (and probably not even that much). You can ’t force the market to do something. You can’t control the market to do what you want. So you must control yourself to do what is in your best interest.

Because of James’ exposure to so many traders who understood that idea, it wasn’t very difficult for him to act that way too. It wasn’t easy, but it was probably easier for him than it would be for most others. Because of that fact, James’ trading did very well over the next several weeks. He consistently made between $600-$800 a week for his first month.

Sure, just like anybody, James had some losing trades and made some mistakes. When James did have a losing trade, he would visualize in his mind what he could have done differently to make the trade a success or to make the loss even less. He would see in his mind what he should do the next time the situation presents itself. He would do this with his winning trades also. He would think of ways he could have managed the trade better, and then see that picture in his mind over and over again.

Consistently doing these things helped James to make over $15,000 in his first six months of trading. He kept his goal clearly in mind and did what was in his best interest to keep moving towards the goal. Did it work perfectly? No, but it worked well enough to get him on pace to making the same amount of money he was making at his old job. But now he was doing it the way he wanted to do it, by trading for a living from home.

Ned was not as lucky as James. He was not exposed to people who could teach him the lessons that James had learned. Because of that, Ned decided that trading was not going to work out for him. He’s now back at the printing business again. He still dreams of trading. He probably could be successful at it if he only learned to act in his own best interest. But he never did.

Monday, July 13, 2009

This should really hit home...

Had to read this letter as a part of the SMB training program, thought you guys may find it insightful.

Anatomy of a Disaster

By Randy Reis III

SMB Capital Forward

Randy Reis sent us this article for the benefit of our desk. As way of background, Randy is a former successful trader. Because of his past success he took some time off and raised his daughter by himself. Also, Randy is an accomplished athlete and a really big guy. Those facts may make the below more interesting to some. We thank him for his efforts.

Randy's comments offer new and experienced traders excellent insights on the psychology of trading. There is a lot to learn from his comments. First, when you are in a position do not care about whether it trades in your favor or not. Just execute on your trading plan. Do not care. You will make many losing trades and many winning trades. One trade is not significant. So do not care. Also, you must execute your plan for every trade. We ask that you develop an exit plan for every trade. If your stock trades against you and to your exit price on the down side, then just hit the stock. Just hit the stock. Who cares about one loss? Hit the stock, gather information and reevaluate. Live to play another day. Finally, Steve has developed a breathing program for us. This will help with your discipline and patience. You cannot be a disciplined and patient trader if you have not developed the skills to be patient and disciplined. Breathing helps. And look if a 250lb, former successful trader, and former jock preaches breathing and yoga and meditation, I think you ought to listen.

Randy says it so well. So let's get to his thoughts.

“I have found that most times I have changed my rules on the fly, disaster results”. Who wrote that? I did. And yet, just days after I wrote it, I changed. Maybe a better word is ignored, my rules, and sure enough disaster did strike. I was going to recreate my trades here, along with charts and why I bought and sold, or really didn’t sell. But as I took a few days to think about this I recognized that that wasn’t the best way to for me understand why I did that and also to provide some value to others. If anyone has heard of Van Tharp, I did a lot of work with him years ago. For those who haven’t, he was one of the original “Market Wizards”, profiled by Jack Schwager, in 2 books written back in the 1980’s. So much of what I am going to write comes from him. The numbers below are fictional, but they do represent what I did this last Friday. So here goes a little soul clearing.

It’s been written that trading is 20% methodology and 80% psychology. When I first read that, I thought it was bull. But after many years (30 on the Street), I’ve come to recognize that it’s probably more like 95% psychology. Just think. Flip a coin. Is the stock going up or is going to go down? You’ll be right 50 percent of the time. Many say if you’re right 50 percent of the time in this business you can make a lot of money. Can is highlighted because the real key is in the exits we take and that is where psychology comes into play-that and position sizing.

I would bet that if you could take a look at significant bottoms or tops on just about any time frame, whether from 5 minute bars to weekly, that the extremes of the moves have been caused by people whose position size is greater than it should have been, greater usually than they initially wanted it to be. These extremes actually caused by people who have increased their size because the price was better than when they initiated their position. Look at any instance where you yourself have averaged down and bought more. It is natural to think that if we were right about an upcoming move and bought 100 at 85.10, then it's really cheap at 84.89? So… and because our ego at this point still believes we are right since it hasn’t hit our stop at say, 84.74, we should buy 200 at 84.89. And of course at 84.76, it shows some support and bounces. Then begins to drift down and at 84.79 it's a real bargain since support showed up just below earlier. And your risk is minimal since we’re going to be out at 84.74, only .05 away so…. Let’s buy 300 more. Now what started out as 100 at 85.1 is 600 average price 84.88 and it’s trading at 84.79. And I’ve been WRONG twice on this trade already.

But .11 up and I’m in the plus column. So then it trades 84.74 and I immediately try to sell using a .69 limit to be sure I get out. But other traders with faster systems or fingers or thoughts had the same idea, and its 84.35 in moments. And I just stare at the screen looking for something, anything that will tell me that that was the bottom. I am hoping that somebody puked out their position and now we can rise. As if my fingers aren’t bloody enough from trying to catch this falling knife since 85.10. Ahhh… there it is, a few days ago as it bottomed at 84.20 so that’s .15 away. And my average price is over.50 `away. And there’s a trendline connecting lows from a week ago. Alright this is it, I’ll buy` 400 at 84.29, reducing my average to 84.64 on 1000, my max position, and if it rallies I’ll get out ½ of it even. Then I will raise my stop and let the rest ride. Of course it breaks, and as it breaks I notice my P& L has dropped below my daily threshold. And since I’m not having a good week, I don’t want my Friday to end on a big loser. There’s always `support at the full (84.00), just give me a little bounce. If I sell it here, I’m done for the day. I don’t want that. Of course it drops further and further, and I puke it out finally` much lower, a few pennies above what becomes a significant low.

Ever done this? I’m sure most of you have. Ever done it more than once? Again, I’m sure that most of you have. Why? This is where psychology comes in. Why do we humans consistently do something that has not worked in the past? Why have some been able to stop doing whatever it is and some just repeat their past poor behavior? (There are a number of answers to that. I will suggest one later.) Let's take a look at some things.

1) Increasing a position that is negative is the beginning of entering a zone, and not the good kind. The only way to really evaluate the potential of a trade being` profitable is not to care. That’s right, not to care. The moment you care you have allowed your emotions to enter the room. And your emotions are the 600lb gorilla in the corner.` Right now he’s invisible, you can’t see him. He’ll make himself visible later, but then` your ego will convince you he’s not so tough. Your ego will convince you that you can handle him. But that 600lb gorilla, your own emotions, most times will force you to puke your position right at the bottom. And if it isn’t the bottom, then usually it wasn’t your emotions that made you sell, it was your discipline. If your position is bigger than 50 percent of your max, then you probably care too much. You don’t want the loss. So you don’t take it. Not yet anyway. A downtrend line gets broken, you think, “now we are going up”. Except it doesn’t. Here’s a classic dog that doesn’t bark! But I don’t see it that way because I’m in a zone, an emotional zone, because my position is too big and I’m losing on the trade. I care too much! All that I can see are the things on the chart, or the bids on the screen that support my position. I care too much!

2) A buy of 100 at 85.10, that’s ok, but it trades down to 84.89. Most traders have the conditioned response that says, “Buy more” (I want to be right). Hell, I am right. I’m good. I make money. In short, we all have egos or we’d be working for the city government with a secure job, nice benefits, a pension, and mediocrity. But suppose a shift in my perception was taken. Suppose we looked at this and said immediately A) I was WRONG! Yes my stop was 84.74, but the truth is I never thought it would go to 84.89. If I did I wouldn’t have bought anything at 85.10. I would have waited, or shorted. Well we’d have to subjugate that ego a bit, but would it be worthwhile? Profitable?

3) Suppose I looked at this and said, “Thank You” to the trading Gods for having the grace to let me know my direction was wrong so quickly on such a small position. I would have lost .21 on 100 shares and gotten a valuable clue as to the true direction of the stock. And just as importantly, I don’t care if I’m wrong on 100. I have no problem taking that loss. Hell, I can take 5 in a row and still be out only $110. And if I’m right on ONE GOOD TRADE, I can make that back quickly. That means I only have to be 16 percent profitable. Imagine if I can get to 50 percent?

So what’s the way out of this mess? Discipline….Discipline…discipline? Yeah, except that discipline fails so many in all areas of life. Look at dieters. They know what to eat, what not to eat, and how much to eat. Why can’t they keep their weight off? The answer is because most humans are conditioned. I see pizza, my mouth waters, so I order. I don’t even think about ordering, I just order. We need to slow down the response time between cause and effect. If I see pizza, I stop, I think: I had pizza yesterday, I’d be quicker on the basketball court, my pant’s would fit better, wouldn’t I be better off with the grilled chicken? Now go ahead and order the pizza if I want, but I have considered the ramifications. And it’s now a conscious decision not a conditioned response. Most, after thinking of all these things, I have reduced the odds of eating the pizza. Why? Because I shut down my conditioned response and made a choice. I looked at other possibilities.

Here is a suggestion….20 minutes of meditation in the morning is a very effective way of turning off the conditioned response mechanism. I know psycho mumbo jumbo! "Ommmmmm", the Buddha, and all that yogi stuff. Well it’s not the only way and it’s not easy. But it does work. Try this. Close your eyes, and try to think of nothing but your breath entering and exiting your body. Usually very quickly, thoughts will stream into your head. That’s ok, try again. And they're back. So you’re really trying to do something, but your mind insists on popping thoughts into your head. They’re really streaming in, and fast. Even though you’re determined. Who’s in control? That’s why we all sometimes do things that we know aren’t in our best interests. Whether it’s adding to a loser, or eating that extra slice of pizza, or losing it with our daughter after she’s lost her glasses for the 3rd time this year. Things that we look back on and say to ourselves “What was I thinking? Why did I do that?” Meditation can slow down the time between an event and our response. With practice, one can look at their own thoughts and recognize that sometimes our thoughts get in the way.

Picture a sign on the wall at Daytona Speedway and imagine a constant flow of cars going by at 200 miles an hour. And there are so many cars passing that you can’t even read the sign. It’s just a blur, like the market when you're in that emotional zone. You think you see everything but you don’t see all that you are missing. Well, your thoughts (especially about your position) are like the cars. They are keeping you from seeing the signs. And the sign is saying something like the stock or the market is “going up” or “going down” “or stay flat”, and quite often very clearly. Slow down the cars. Slow down your thoughts and you allow time for a different viewpoint to be seen, for a different choice. ………. A choice of following your rules!

I need to go meditate right now!

*First, it wasn’t a major disaster, thankfully. I’m cognizant enough of human nature and trading to know that the best way to make a lot of money is to trade as small as possible at first. Only after certain profit objectives have been met (win %, expectancy, etc) should position size be increased. With that in mind, I put a small amount of money into my trading account.

Once upon a time I was known to have had more than a couple of barroom brawls back when Brooklyn was a different kind of place. So naturally, when I started on Wall St., and heard about the Wall St. charity bouts, I was intrigued. So I entered and boxed for a few years in that. But my claim to fame was getting knocked out cold in Madison Square Garden, well the Felt Forum anyway, by the former NY State Champ Tom (the Bomb) Gimbel. Knocked out so good, or bad, that 1 1/2 hours later after a shower and in the taxi on the way to the post fight party, I still had no idea that I had been knocked out. I actually asked my friend, sincerely, if they had rang the bell for the third round early. The third round seemed to go so quick. He looked at me incredulously and asked, "Are you kidding me? You got knocked out!" Aahh never felt a thing anyway. Maybe that's why I ended up chanting, “Oommmm”. So, the yoga, meditation thing REALLY is a major about face!

Market looks weak despite today's positive opening

Quickly: The head and shoulders may come to fruition as earnings look to confirm that company's have boosted their bottom lines by cutting to the bone but are not able to forecast growth or improvement with the exception of the financials which should report incredible earnings with the yield curve in their favor but looking forward may begin to hint of the impending pain of the lagging effects of this garden variety depression/great recession with increasing commercial real estate and credit card defaults.

Stocks I'm stalking: SH, SRS, UTF, LOD and HTS.

Sunday, July 12, 2009

Great Post

One of the blogs that I follow is TraderFeed. This Psychologist/Trader is very insightful. Check out this post and read the comments:

Friday, July 10, 2009

Going to focus more on paper trading...

With the market just churning around until there's more earnings clarity I'm going to be focusing on training, learning and testing day trade techniques. My main goals in the next 6 months are to master the IB interface, raise my own personal capital, move my parents accounts under my advisor umbrella, improve my technical analysis, find solid consistent insightful resources, develop a fundamental routine, etc... like everyone else I'll be juggling a lot of balls.

Have a great weekend.

Earnings Season (Turn up the Heat next week)

Earnings will really start heating up next week when a lot of the heavy hitters start to report. I think a lot of traders are playing it safe into next weeks earnings. But next week could really set the tone for the next 3 months. If stocks can suprise to the upside on all fronts including guidance going foward this is what investors want to hear in order to jump back in. They want to hear good news as opposed to less bad news. In order to get all that money waiting on the side lines to get back in the game they need to hear that it is safe to come out and that the future looks prosperous.

I would be very suprised if the bank do not have another fantastic qtr, I mean with all this cheap money. Especially the big banks that have exposure to the trading side of the business and who have some priopritary trading going on. Some of the names I will be watching: GS, JPM, GE, AAPL. These are just some of the big names reporting next week.

I have refrained from adding any new positions over the last few weeks. I am still holding my 10 short put contracts on GE at the $11 strike for September experation. Although not as in the money as I was, I am never the less still in the money. I sold these with 2 outcomes in mind: 1) if GE stays above $11 I make an easy $1500 or 2) GE finish below $11 and I get exercised getting long at about $9.50/Share.

Thursday, July 9, 2009

Flat day will the market rollover and when?

Watched all day and did nothing. No motivation or decision either way from traders... guess we'll see how earnings will play out and how various economic news affects the market. I'm guessing we'll see inconclusive evidnece like job claims today where there's an asterisk or unaccounted factor that skews the data or only confirms that things are getting less worse but improvement still remains to be seen.

Depending on how the market finally resolves the ubiquitous head and shoulders pattern I have a few shorts I'm watching like the chart below and checking my earnings calendar. If I had to bet I'd bet that we will see a confirmation of a breakdown within the next few days but I'll defer to the market.

Wednesday, July 8, 2009 Feedback

Actually like this site... I listen to the broadcast commentary and market screens on the virtual Trade Floor... kinda actually feels like your around other traders with CNBC in the background, chatter and just general noise. I really enjoy listening to Sperls of Wisdom and play by play analysis/style to the market. This is exactly the kind of environment I would love to be around: a real forum to interact with other experienced traders.

May actually consider subscribing. Thanks Dominic for the tip.


I took my loss on SLV today closed out 1000 shares. I haven't done the math but it's roughly $1800 in the shitter. If silver goes back up I've got a big call spread on still from $15-$20. I needed to raise the cash because I've got a big committment to buy on XLE. I sold naked $45 puts a few weeks ago when it was at $53, we're under $45 now so I've got to be prepared to own that and start selling calls against it. Other than that my only holdings are a covered call on F at $5 that expires in Sep. I've got Jan 2011 call spreads on MET and JPM that I intend to just let ride. I had been lightening up over the last month after the breadth of the rally got light.

After I sold the SLV I bought 5 SPY $98 puts. Those are in-the-money by $10, I paid $10.50 so .50 time premium. Every 10 points in the S&P translates in to $1 on the SPY. So let's do the math and I'll show you why I prefer this play. If the S&P moves from 880 to 870, the SPY would roughly move from $88 to $87, that's a 1.13% move down. My $98 strike puts would move from $10.50 to $11.50 for a 9.5% move. So rather than short the market or use a 2X or 3X ETF, I prefer to just buy in-the-money puts and in this case would get leverage of roughly (9.5%/1.13%) = 8.4x

I did this 18 times on the DIA in September and October, picking up 10% profit on each trade. Some of those trades lasted a few hours, the average length was 3 days. But that's because we were falling so fast. Anyway, just wanted to share with you what I'm doing. A 10 point move in the S&P happens often so just know that those can be 10% gains if you happen to call the right direction.

Tuesday, July 7, 2009

Time to short?

I'm looking at some short ETF's, shortable stocks and possibly puts as almost all technical signals point to a more prolonged pullback period. Sources I trust who are knowledgeable respectable traders believe we should see some sort of rally probably occuring in early trading as a response to today's sell-off but ultimately the uptrend will prove short-lived and just a short pause before we continue downward. A lot of stocks are showing the same head and shoulders pattern while their inverses are just that an inverse head and shoulder situation.

I'm going to probably take on maybe 1 or 2 short ETF positions tomorrow in the morning especially if we rally. The ETF's I will be closely monitoring are: SH, DOG, SBB, PSQ, MYY, RWM, SEF

Michael Jackson caused today's market collapse

The market puked today and all I heard and saw today was the memorial service for the pop singer so if I have to blame something this has to be it. Looks like we're trending toward downward with a series of lower highs and lower lows... I have to do a market recap tonight and see where we're at technically as well as individual sectors and stocks. Hopefully I'll have some commentary today or tomorrow otherwise I'm waiting and watching.

Thursday, July 2, 2009

Short term Trader...Long term 401k

I wish I could trade my 401k the same way that I trade my retail account. Unfortuntly with a 401k, because it is a retirment account you are restricted in what kind of trading can take place in the account. But lay on top of that the limited options that you get at certian companies, like mine and you have a bit of a predicament. But you have to make due with the choices that you have. So I try to actively manage this thing as best I can. I only can invest in mutual funds and a money market. So I try to make my allocations wisely. YTD I am doing pretty good, up about 11%. But I am starting to formulate my plan in the event that the market takes a dump. I am watching the 8000 level on the dow, if this level is breached I will liquidate and move everything to money market until I see another bottom in place. If it stays above 8000 I will stay the course.

Not sure if you guys have retirment accounts or not, but if you do please share how you manage them. As in any style of trading, goal number one is capital preservation and I think this is especially true in a retirment account. I just can buy into the whole buy and hold mentality, because the long run is so far away and so much can happen between now and then.

This market has reminded me more and more why I have such a short term bias on stocks. I don't like to hold risk for long periods of time. I think that is what really draws me to day trading with SMB. I like the idea have being flat at the end of the day.

Let me know what you guys think.

Website that shows a visual representation of the market

I recently began using this stock screener site to approach the market from macro and drill down into the sectors where money is moving into and out of:

T3LIVE.COM: Marc's Trading Station Layout#links#links#links

T3 live is another big prioprietary trading firm in NY. They actually are now in the same office building as SMB. Marc Sperling is one of their top traders and puts up 7+ figures every year. He is a phenominal trader. On his best day last year he was up $250k. Check out his trade station.

T3LIVE.COM: Marc's Trading Station Layout#links#links#links

Wednesday, July 1, 2009

Still loving and adding to UNG position

Happy end of the quarter!

Well I'm getting overweight in UNG. To date I have 2 positions in this natural gas play: 200 shares and 7 Oct 16 09 CALL Options averaging around $2.3 per contract.

I still think that money will eventually flow back in violently into this beaten down energy. Yesterday the stock gapped down but rebounded off the intra-day low at the close. Today the stock is fighting to break up and begin a run off support. It seems that everyone is bullish on natural gas. I'm comfortable holding this stock especially towards the end of the year when we see the seasonal energy shift...

Otherwise not much to do today. Private sector employment news today didn't seem bad enough to stop the fund managers from finishing off their window dressing.