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Given, No-Hype Options Trading

  
  Education
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Options trading can be daunting, in large measure because “the risk-adjusted return of any options strategy will tend toward zero over time.” (p. 16) It doesn’t matter whether a person engages in high-probability or low-probability trading, whether the spread of choice is an iron condor or an out-of-the-money vertical spread. Without robust risk management the options trader will over time end up with a huge goose egg in his account for all his efforts.

The author focuses on calendars, double diagonals, butterflies, and condors. His analyses don’t follow a standard pattern, but generally speaking he discusses trade structures, the rationale for various positions, and ways to enter and manage trades, including adjustments. At the conclusion of each chapter is a set of exercises to test the reader’s understanding of the material. Answers are provided at the end of the book.

Here I’ll sample his chapter on butterflies. The first important distinction is between at-the-money and out-of-the-money butterflies. An ATM butterfly, especially on a broad market index, is “a delta-neutral income generation trade.” An OTM butterfly is normally a speculative directional trade; it is an inexpensive, low-probability, high-risk trade. But an OTM butterfly can also be used as a “what if I’m wrong” trade. Let’s say the trader expects a stock to trade higher and has opened an appropriate bull call spread. But, in case the stock doesn’t trade as expected, an OTM put butterfly below the stock’s current price can serve as an inexpensive hedge.

The author outlines two ways to manage an ATM butterfly, a simple and a more advanced. The simple technique has eight steps. Here are a few of them. Sell the ATM options and buy one option at one standard deviation OTM and one option at one standard deviation ITM. Buy extra calls and/or puts on the wings to get as close to a delta neutral position as possible. Close the trade when you are down 20%. Close half of the contracts and take your profit if you are up 25% or more. Close the trade on the Friday before expiration week. (pp. 103-105)

No-Hype Options Trading is a practical book for the trader who has a modicum of knowledge about options but needs help with delta-neutral strategies. Whether this book will enable him (with lots of practice) to generate steady monthly income, the alleged goal of non-directional trading, is another matter. Markets don’t always accommodate the delta-neutral trader. Strongly trending markets present significant challenges and highly volatile markets are “the worst-case scenario.” (p. 153) by Kerry W. Given, aka Dr. Duke (Wiley, 2011) might be just the ticket. The book (for those who care about the sometimes dueling camps in the options world) reflects some of the techniques taught by Dan Sheridan, who was one of the author’s mentors.No-Hype Options Trading: Myths, Realities, and Strategies that Really WorkFor the options spread trader, especially the non-directional trader, who is looking for strategies and trade management ideas

25 Trading Mantras

  
  Education
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Seeing an opportunity and acting upon it are two different things.

•  Price has memory. Odds are what price did the last time it hit a certain level will be repeated  . . . (BR:  Until support or resistance fails).

•  Pay attention to price action, regardless of what the charts are saying.

•  Look for a reversal at the same place you’re expecting a breakout or breakdown.

•  Price action sets up against the majority; the best profits are often in the opposite direction of the way you’re planning to go.

• Add to your winners and cut your losers. ’nuff said.

•  Opportunities come along all of the time. Wait for the best ones.

•  Don’t overly anticipate or see things that aren’t there. Wait for your signals. (more…)

Leibovit, The Trader’s Book of Volume

  
  Education
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Mark Leibovit believes that volume analysis is “the closest thing we have to a real working ‘crystal ball’” in the markets. (pp. 425-26) In The Trader’s Book of Volume: The Definitive Guide to Volume Trading (McGraw-Hill, 2011) he outlines the fundamentals of volume analysis and introduces the reader to a broad range of volume indicators and oscillators.

We have all heard the mantra that volume precedes price. As Leibovit writes, “Market price trends do not happen in a vacuum; rather, it is the behavioral or programmed responses of traders and managers that result in the volume shifts that precede a price move. As the crowd mobilizes, as reflected in the volume numbers, its size and conviction will determine the direction and strength of the price movement. As the conviction of the crowd falters and the volume numbers pull back and diminish, so too will this impact the timing and direction of the trend.” (p. 24)

In analyzing the relationships between price and volume under various market regimes Leibovit pays particular attention to divergences where volume doesn’t confirm price action and signals a possible trend change. But he doesn’t rely solely on easy-to-spot divergences. He also introduces the reader to volume overlays, including moving averages, MACD, and linear regression. These overlays can help the trader see volume trends over a longer time frame.

And, of course, there is the plethora of indicators and oscillators, some 33 in all. Thirteen apply to the broad market; the rest can be used in the analysis of individual securities. In each case Leibovit explains the indicator’s or oscillator’s formulation, its use in trend confirmation, its potential divergence with price, and its use with other indicators. He also illustrates its practicality with a sample trade setup and entry. He closes each section with trader tips.

Throughout the book the author stresses that there is no “one size fits all” solution to selecting the appropriate volume indicators and oscillators. Volume analysis is an art, not a science. It depends on the instrument being traded as well as the trader’s time frame.

But The Trader’s Book of Volume goes a long way toward taking the mystery out of volume analysis. In roughly 450 pages, amply illustrated with MetaStock charts, it offers concrete ways to use volume to improve trading results.

12 Market Wisdoms from Gerald Loeb

  
  Education
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It is funny how the best traders of all times basically repeat the same things with different words. 

Gerald Loeb is the author of ‘The Battle for Investment Survival’ and is one of the most quotable men on Wall Street.  Here are 12 of the smartest things he has ever said about the stock market:

1. The single most important factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages.

6. There is a saying, “A picture is worth a thousand words.” One might paraphrase this by saying a profit is worth more than endless alibis or explanations. . . prices and trends are really the best and simplest “indicators” you can find. (more…)

25 Trading Truths

  
  Education
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Seeing an opportunity and acting upon it are two different things.
•  Price has memory. Odds are what price did the last time it hit a certain level will be repeated  . . .
•  Pay attention to price action, regardless of what the charts are saying.
•  Look for a reversal at the same place you’re expecting a breakout or breakdown.
•  Price action sets up against the majority; the best profits are often in the opposite direction of the way you’re planning to go.
• Add to your winners and cut your losers. ’nuff said.
•  Opportunities come along all of the time. Wait for the best ones.
•  Don’t overly anticipate or see things that aren’t there. Wait for your signals.
•  The day isn’t over until the closing bell ring. The way it ends may be vastly different from how it begins.
•  Your first job isn’t to make money. It’s to protect capital.
•  Don’t rush to buy the lowest price or sell the highest price; It could get much lower or much higher before turning around. (more…)

12 Market Wisdoms from Gerald Loeb

  
  Education
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1. The most important single factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages.

6. There is a saying, “A picture is worth a thousand words.” One might paraphrase this by saying a profit is worth more than endless alibis or explanations. . . prices and trends are really the best and simplest “indicators” you can find. (more…)

12 Market Wisdoms from Gerald Loeb

  
  Education
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It is funny how the best traders of all times basically repeat the same things with different words. 

Gerald Loeb is the author of ‘The Battle for Investment Survival’ and is one of the most quotable men on Wall Street.  Here are 12 of the smartest things he has ever said about the stock market:

1. The single most important factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages. (more…)

Gerald Loeb’s Market Wisdom

  
  Education
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READ THIS NOW1. The most important single factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages. (more…)

16 Rules for Thirsty Traders

  
  Education
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I always liked these rules for their simplicity and I think they can benefit some of you, if only in the form of a gentle reminder of what you should be doing…or not doing.

1. Market direction is the most important thing in determining a stock’s
probable direction.

2. Price and Volume action are more important than a jillion indicators and
complex theories, no matter how cool they may be.

3. Don’t miss the forest (broad market) for the trees (individual stocks).

4. Don’t anticipate. Wait for confirmation.

5. Don’t trade contrary to the market’s direction.

6. Don’t try to “outsmart” the market.

7. Things can go much, MUCH further than you think they can, in either
direction.

8. Divergences work best with double tops and double bottoms.

9. Quite often, divergence analysis doesn’t work at all. When that happens, it
means the prevailing trend is very strong.

10. You need to effectively filter or limit the amount of data or charts to look
at; otherwise, you will spread yourself way too thin. You must have the time and
alertness to keep your eye on the ball…..hard to do, when you are juggling
thousands.

11. Don’t focus on every tick of each trade. If you are, you are holding on to
the handlebars too tight.

12. Have a plan. Set stops and targets. Don’t be afraid to take 1/2 profits and
raise (or lower) your stops. If your trade follows your script, great. If it
doesn’t within a reasonable time, consider getting out.

13. That said, it’s OK to give your trade a little time, unless you are clearly
wrong. You are often ahead of the market a little bit.

14. You will lose money sometimes. Every trader does. It’s a business, not a
personal indictment against you. Get over it and move on to the next trade.

15. Political opinion and markets do not mix.

16. Learn from your mistakes, or you will be condemned to repeat them.

4 signs of out of control trading

  
  Education
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1) Overtrading:  This is a very common problem for an out of control trader.  If you find that your size is much bigger than normal or you are trading at times that you don’t usually traffic, then make sure you slow down and write down a plan and stick to it.

2) Comfort in bigger losses:  When I hear a trader feeling comfortable about larger than usual losses that scares me.  This comfort tells me that the trader is not thinking rationally as losses should never be tolerated and especially outsized losses.

3) Trading new securities:  If a trader deviates at all from the strategy that made him successful, especially when he is a down streak, this concerns me.  

4) One sided trading:  This sign is correlated to having an opinion on the market.  If I see a trader constatnly focused on one side, regardless of what the broad market is doing, this person is so focused on being right that nothing else matters.  It is so important to be right that even if they make up 20% of what they lost it will seem like a victory to them.

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