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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

Trading with the Tao

  
  Education
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“The Tao” means different things to different people. It’s generally thought to have been introduced to the world sometime around 500 B.C. in China.  Since then, millions of interpretations have been contemplated. In modern times, everyone from the Dali Lama to Willie Nelson has offered their take on it.

What exactly is “The Tao?”

It’s usually translated directly as “the way” or “the path.”  But most who have studied it agree that it also refers to “the Source” behind everything.  The unseen force in the universe that essentially makes things happen.

A Christian theologian would probably see similarities between the Tao and the “Holy Spirit.”  Physicists likely see it represented as “energy.”  Self-help gurus often compare the Tao to “consciousness.”  Luke Skywalker called it “the Force.”  Had Michael Jordan delved into the world of metaphysics, he probably would have referred to the Tao as “the zone.”

The overriding message of the Tao is that you’re either flowing with it or against it.  You’re either in the zone or out of the zone, using the Force or blocking the Force. However you want to describe it, the point is that you feel good and peaceful when you’re flowing with the Tao and you feel bad and fearful when you’re trying to fight against it. (more…)

John Bogle’s 10 Rules of Investing

  
  Education
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“1. Remember reversion to the mean. What’s hot today isn’t likely to be hot tomorrow. The stock market reverts to fundamental returns over the long run. Don’t follow the herd.

2. Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market. That only seduces you into buying after stocks have soared and selling after they plunge.

3. Buy right and hold tight. Once you set your asset allocation, stick to it no matter how greedy or scared you become.

4. Have realistic expectations. You are unlikely to get rich quickly. Bogle thinks a 7.5 percent annual return for stocks and a 3.5 percent annual return for bonds is reasonable in the long-run.

5. Forget the needle, buy the haystack. Buy the whole market and you can eliminate stock risk, style risk, and manager risk.

6. Minimize the “croupier’s” take. Beating the stock market and the casino are both zero-sum games, before costs. You get what you don’t pay for. (more…)

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