Archives of “Options” tag

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Japan finance minister Aso was asked about the potential for intervention in yen

  
  Analysis
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In response, Aso said that while he had no comment on volatility in the FX market he will respond appropriately depending on market conditions

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In Japan intervention in the currency market is directed by the Ministry of Finance. The bojj Bank of Japan will take the necessary steps in the market, but the directive comes from the Ministry. This is not the case in most other DM central banks, where intervention decisions are taken by the central bank itself (there is often consolation with the relevant government department of course).
In response, Aso said that while he had no comment on volatility in the FX market he will respond appropriately depending on market conditions

Saudi Arabia has already brought 40% of production back on line and rest could be back by month-end

  
Analysis, Crude
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Report from Energy Intelligence

oil 3 day chart
This is less-bullish for oil:
“Industry sources told Energy Intelligence that 40% of the lost production had already been restored by Monday, while one source said national oil company Saudi Aramco expects most of the rest — more than 3 million b/d — to be brought back on line by the end of September.”
More:

“Industry sources said that by Monday a combined 2.3 million b/d of oil production had been brought back on line — 2 million b/d at Abqaiq and 300,000 b/d at Khurais.

Industry sources said Aramco would seek to keep up oil deliveries to its customers by drawing down oil it holds in storage, while also offering crude grade swaps and maximizing output from its offshore fields.”

WTI is up $7.70 to $62.56 — about 80-cents from the highs. Read the full report here.

10 One Liner Rules for Traders

  
  Education
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Risk management- Plan your loss before planning your profit.
Diversification- Be bullish, be bearish, be involved in various groups/markets.
Proper Position Sizing- Trade small, trade safe.
Effective Trading Plan- Make sure your plan works, and/or makes money.
Cutting Losses Short- Enter a trade that offers a small loss.
Letting Winners Run- Don’t kill your winners.
Curbing Your Emotion- This is a bi product of trading small.

Recommendation: Give your account the same foundation so you can participate in the activity above.
Long: My rules
Short: My emotion

10 Ways to Move From Peril to Profits

  
  Education
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  1. The first question to ask in any option trade is how much of my capital could I lose in the worst case scenario not how much can I make.
  2. Long options are tools that can be used to create asymmetric trades with a built in downside and unlimited upside.
  3. Short options should only be sold when the probabilities are deeply in your favor that they will expire worthless, also a small hedge can pay for itself in the long run.
  4. Understand that in long options you have to overcome the time priced into the premium to be profitable even if you are right on the direction of the move.
  5. Long  weekly deep-in-the-money options can be used like stock with much less out lay of capital.
  6. The reason that deeper in the money options have so little time and volatility priced in is becasue you are ensuring someones profits in that stock. That is where the risk is:intrinsic value, and that risk is on the buyer.
  7. When you buy out-of-the-money options understand that you must be right about direction, time period of move, and amount of move to make money. Also understand this is already priced in.
  8. When trading a high volatility event that price move will be priced into the option, after the event the option price will remove that volatility value and the option value will collapse. You can only make money through those events with options if the increase in intrinsic value increases enough to replace the vega value that comes out.
  9. Only trade in options with high volume so you do not lose a large amount of money on the bid/ask spread when entering and exiting trades.
  10. When used correctly options can be tools for managing risk, used incorrectly they can blow up your account. I suggest never risking more than 1% of your trading capital on any one option trade.

 

15 Points For Traders

  
  Education
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  1. For a trader to be successful their intellect must defeat their ego.

  2. A trader must use probabilities to overcome their own personal opinions.

  3. A trader has to use risk management to overcome the hope that a losing trade will turn around and just take the original stop loss plan.

  4. A trader must allow the actual price action to overcome any personal directional bias.

  5. A trader has to let a trailing stop overcome their desire to take profits too early early in a trade.

  6. Successful traders use their passion and goals to overcome their tendencies to laziness or procrastination in doing their trading homework.

  7. A profitable trader has learned to allow patience to overcome their desire to trade before they get a real entry signal.

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Be Imperfect

  
  Education
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As a trader – or an investor – you will not be right all of the time. If you can accept your imperfection, and work within it, you will be much more successful:

If you have a perfectionist mentality when trading, you are setting yourself up for failure, because it is a “given” that you will experience losses along the way. You must begin to think of trading as a game of probability. Your losses ( that you hope will return to breakeven) will kill you. If you cannot take a loss when it is small ( because of the need to be perfect), then you will watch that small loss grow into a larger loss and so on into a vicious cycle of more and more pain for the perfectionist. Trading on hope does not work. The markets can remain irrational for a lot longer than you can remain solvent.

The object should be excellence in trading, not perfection. Moreover, it is essential to strive for excellence over a sustained period, as opposed to judging that each trade must be excellent. This is a marathon…not a sprint.

The greatest traders know how to take cut losses and let winning positions run. Perfectionists often do exactly the opposite. They get in at the wrong time, stay in too long and then get out the wrong time. Perfectionists are always striving and never arriving. The market will find the flaw in a perfectionistic trader and exploit it day after day.

5 Ways -Traders are Right ,But …. Still Lose Money.

  
  Education
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  1. You enter your trade correctly and it goes in your favor, BUT… you do not have the right exit strategy to capture your profits and they evaporate due to not having a trailing stop or waiting to long to exit to bank those profits. Sometimes winners even turn into big losers win not managed correctly. You have to have a plan to take profits while they are there.
  2. You enter the right trade BUT… at the wrong time, you either exit not allowing your trade enough time to work or you are stopped out but do not have a plan to get yourself back in the trade with the right set up. The right trade with the wrong timing pays nothing.
  3. You have the right entry and it goes in your favor BUT.. you pick the wrong stock option to express your trade. If you pick an option with a high implied volatility your trade has to overcome that vega priced into the option, after an expected earnings event that vega value will be priced out and you need the move in intrinsic value to make up that difference. With a far out in time stock option you need the price to move enough in the underlying in the time period of the option to make up the theta cost of time embedded in the option. It is crucial to understand the option pricing model to make the right option trades to express your time period and expected move. Sometimes options also do not have the liquidity in some stocks,or far out time frames, or far out of the money strikes. Getting in and out of an illiquid  option trade can be very expensive.
  4. You enter correctly BUT… get stopped out too soon because your position size is just too big and either you stop out from a monetary loss above your risk threshold or your fear of big losses stops you out. Trade the right size for your risk tolerance and give yourself some wiggle room.
  5. Your trade can be perfectly timed and executed and it can immediately go in your favor BUT… an unexpected news headline about your company, interest rates, commodity, or macro can still cause you to lose. Nothing you can do about this one but move on the next trade. The other four can be great lessons in how to be a winner the next time around.
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