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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

A Dozen Observations on Life and Markets

  
  Education
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OneDozenEggs_Full
Trading is the most difficult of sports: nowhere else does one begin a career by opposing the world’s most accomplished professionals.
Extreme trading size produces extreme emotional outcomes, leaving traders with certain trauma or addiction.
A universal trade setup: Hope, then despair.
Fidelity to purpose: the mark of good trades and great traders.
Mentors cannot achieve more for you than they have accomplished for themselves. (more…)

12 Rules to Invest

  
  Education
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1. Do not let trades become investments, but it is ok to let investments become trades.

2. Personality first. Know yourself! (The markets will exploit your weaknesses)

3. Develop your own approach.

4. Be flexible because you will be very wrong.

5. Find mentors. Today! Don’t expect anything from them.

6. START today. While learning how to invest, decide on an amount that you can invest in the markets and dollar cost average. Invest an equal amount of money once a month or quarter for a long period of time.

7. Keep your costs down.

8. Focus on your strengths, invest some profits in your weaknesses.

9. Do not ‘practice’ investing and do not call your investing money ‘Vegas’ money. Develop a routine.

10. Write it down! Start a journal.

11. Immerse yourself in the language of the markets and investing. It has never been easier.

12. Knowing when and how to sell remains the most mystical of processes. I just say do it consistently. There is no shame in leaving money on the table.

Discipline

  
  Education
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Learning to accept losses as part of the game and cutting them short is the single most important step towards becoming consistently profitable. It sounds simple, but in reality is extremely difficult for everybody. Why? Because we’ve been taught that giving up is for losers and we should fight till last breath. I certainly agree that you should not give up quickly, but only if you can influence the end result. Let me be clear, the stock doesn’t know that you own it and it doesn’t care that you cannot afford to lose the money. The market will strip your last cloth if you don’t know how to manage risk. You have to understand and accept your power. You cannot move the market. You cannot tell him where to go and how fast. This is why so many people, who are successful as entrepreneurs and engineers, have troubles breaking even in the capital markets. It takes a special kind of person. Someone, who can forget his ego and concentrate on what actually works. Very few people are able to reach that level and to distinguish their trading life from their personal life.

Trading or investing is a skill that can be learned. There are two ways to learn a new skill in general. Through the school of hard knocks and through the mentorship of others that have the gift of teaching. To become a successful trader, you need to somehow implement both approaches. Nothing can replace personal experience. You can hire the best mentors in the world to teach you and purchase the most expensive equipment and trading software, but this is not going to help you to build a new skill. Skill building is subdued to eternal physical laws. There are a hundred billion neurons in your brain. For every skill that you possess (speaking a language or driving a car), there is a certain combination of connections between some of your neurons. To build a new skill, you need to build a new net of connections. This is why every beginning is hard, this is why big changes do not happen overnight. You have to establish new connections, which takes hard work via repetition and visualization. (more…)

Cutting your losses and going with the trend – emotionally

  
  Education
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There is the famous old adage that as a trader you should cut your losses short and let your winners run. 

The best are able to do this. 

BUT it’s a very easy thing to intellectualise and yet quite another thing to execute in the real world.  After all if it was so easy there wouldn’t be all the writers, books, blogs, tweets, coaches, mentors etc in the trading world.  They would be obsolete.

HOWEVER IT ALSO APPLIES TO LIFE AWAY FROM THE CHARTS.

The ego and subconscious are often key adversaries to us gaining flow in our lives and achieving abundance.  This is true in both trading and normal life.

If you are unwilling to accept you are wrong and move on it is all too easy to not keep your losses small.    (more…)

Market Wizard’s 25 Trading Clichés and Axioms to Follow, Memorize and Practice

  
  Education
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  1. THE MARKET ITSELF IS THE ULTIMATE WEILDER OF JUSTICE. JUDGE, JURY AND PROSECUTOR.
  2. RECIPE TO LOSE FOR SURE: OVER-ANALYZE, PROCRASTINATE, HESITATE.
  3. LEARN TO SWEAT OUT, HANG ON TO AND SCALE OUT OF YOUR WINNERS.
  4. HIT SINGLES AND DOUBLES, NOT HOMERUNS. THE HOMERUNS ARE USUALLY THE RESULT OF GOOD TRADING AFTER A PROFITABLE TRADE HAS STARTED TO MAKE ITS MOVE
  5. A BIG LOSS CAN DESTROY YOU. IS RISK WORTH TOTAL DESTRUCTION?
  6. LOVE TO LOSE MONEY. NOT BECAUSE YOU’RE AN IDIOT, BUT BECAUSE LOSING MONEY IS AN IMMEDIATE FEEDBACK MECHANISM. EMBRACE THE SIGNAL AND DITCH THE TRADE.
  7. NEWS IS HISTORY. THIS IS THE MOST IMPORTANT AND LEAST OBSERVED RULE. DAYTRADING ARCADES UP AND DOWN WALL STREET HAVE DOZENS AND DOZENS OF LCD’S TUNED TO ONE STATION, CNBC. BY THE TIME THEY PUKE IT OUT, IT’S ABOUT 7 TO 12 HOURS OLD. THERE IS NO SUCH THING AS “BREAKING NEWS” ANYMORE. SOME TRADERS TELL ME THEY TUNE IT OUT. YOU CAN’T. IT GETS INTO YOUR SUBCONSCIOUS AND AFFECTS YOUR TRADING. PUT YOURSELF ON A TOTAL NEWS BLACKOUT FOR A WHILE AND SEE WHAT HAPPENS TO YOUR RESULTS. LOSE TOUCH WITH THE REST OF THE WORLD. ISOLATE YOURSELF TO YOUR ALGORITHMS, DATA, CHARTS AND MASTERING YOUR TRADING PLATFORM. AND IF YOU WORK FOR A FIRM WITH DOZENS OF LCD’S TUNED TO CNBC, MAINLY SO THAT THEIR “GUY” WHO IS ON ONCE A WEEK IS SEEN AND HEARD BY EVERYONE AT THE FIRM. THIS PERSON RARELY KNOWS HOW TO TRADE. I KNOW OF A FEW FIRMS OUT THERE LIKE THIS.
  8. THE FIRST LOSS IS THE BEST LOSS BECAUSE IT HURTS THE MOST. LEARNING TO LOSE IS IMPORTANT. LEARNING TO LOSE AS LITTLE AS POSSIBLE IS THE MARKET’S PAVLOVIAN WAY OF TEACHING YOU HOW TO TRADE PROFESSIONALLY AND PROFITABLY
  9. EARN THE RIGHT TO TRADE BIGGER. YOU’LL KNOW WHEN YOU’RE READY. DON’T RUSH IT. THE BIGGER YOU GET, THE MORE IMPORTANT EXECUTION STRATEGY BECOMES. YOU DON’T WANT TO BE SLOPPY, LIKE MOST PEOPLE I’VE MET, EVEN THOSE THAT WERE SO CALLED MENTORS TO ME, OR WHO I CALLED “MAESTRO”. SLOPPIEST TRADER IN THE WORLD. TINY ORDERS LEAVING ELEPHANT FOOTPRINTS WHILE SMART TRADERS TAKE MAMMOTH ORDERS AND DON’T MAKE A RIPPLE
  10. BE YOURSELF. DON’T TRY TO BE SOMEONE ELSE. FIND THE STRATEGY THAT WORKS FOR YOUR PSYCHE. IT TAKES WORK, READING, TESTING, AND INNER-REFLECTION. YOUR CHARACTER HAS THE CORRECT STRATEGY OUT THERE. YOU HAVE TO FIND IT. DON’T TRADE WHAT SOME SCHMUCK WANNABE HEAD TRADER AT A SHADY FIRM TELLS YOU TO TRADE, OR USE A STRATEGY TAUGHT BY A FIRM THAT LETS YOU ONLY TRADE THAT STRATEGY. GET OUT OF THESE FIRMS. (more…)
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