All Entries in the "Blog" Category
A New World Order
What really is going on here? The market is on a tear, although volume continues to be low and as far as I can tell most Americans are not any better off than they were 6 months ago, in fact, I can make a case that most Americans are worse off. They fear for their jobs, or most likely fear they won’t find another job after losing the the one they had over the course of the last year. Many still fear losing their homes and if the news reports are accurate, we haven’t stemmed that bleeding yet. So what’s up? I have come to the conclusion that the market aka investors are inherently bullish and that any crumb of good news takes the market higher… Until the day that one piece of bad news comes along, and Wham! correction.
I’m a pretty conservative investor – with the exception of my last post – The Debit Spread – and I look to basic fundamentals when it comes to the market. Well over the course of the last year and a half, I’ve had to release my mental hold on the belief that the market moves based on economic fundamentals.   I think the market has changed, and I think it has changed for the long haul. I totally get that although the US stock market is made up of US companies, most of the companies making up the DOW are global companies with an increasing percentage of their profit coming from overseas.     I’m not referring to that, I’m referring to a market that now moves with much greater volatility on emotion. Emotion often times a result of NEWS!    We seem to have gotten away from the fundamentals of how our American companies are prospering and seem to trade with what gets reported by CNBC. Now don’t get me wrong, I love CNBC, it just seems to me that the market is overly bullish without the basic fundamentals to back it up.
We are in a new era of the US stock market – low volume, electronic trading, flash crashes, and emotional trading. I’m trying to get used to the new world, adjusting my strategies along the way. Having said all that, there is one thing I’m sure of, even though the rules may have changed, there’s still money to be made!
Happy trading!
The Debit Spread
The market continues upward, breaking through what were perceived threshold limits, 10,700 on the Dow, 1130 on the S & P. Volume is low, off a full 30% from September last year. While the market moves northward and there is little talk anymore of a double dip, I still believe we are headed for a correction, downturn, whatever you want to call it. I don’t believe and never did believe we were headed for a double dip, but I still go back to my old soap box reiterating that the economic news is not good and won’t be good until jobs return. So given what I believe, how do I trade? First I’ll admit that I’m becoming quite the fan of the vertical roll.  With the NDX on a holy tear, I have vertical rolled my position twice, both times to the next month and at least one strike price away. I am vertical rolling myself out of danger, and I’m very comfortable with that strategy. Most of the time I make money with the roll, one time I had to pay, but I’m very much okay with giving back some of my gain to remain safely out of the money.  I’ll wait for the market to turn down and lose volatility.
The one trade that I’m experimenting with (read, it’s a gamble so don’t necessarily follow my lead!) is the debit spread. I believe the market will go down sometime in the near future – (clearly a directional trade, which I usually avoid, but in this market I’m willing to take my chances) – so I BUY a debit spread – I’m trading the S&P, a 10 point spread expecting the market to take a down turn and when it does, I sell the position for a profit. Warning!!! This only works when you are predicting the direction of the market and you are correct!! What I specifically like about this strategy, which by the way is a 360 degree turn from the iron condors I usually trade, is the cost to get into the trade is small, your losses are finite, limited to only the amount it cost you to buy into the position and your profit is huge if you call it correctly.   Okay, I’m becoming a glorified gambler – and I like it.
Vertical Roll Limitations
The market is moving up, up 6 of the last 7 sessions. I have a call vertical spread position on the NDX and the strike price is moving uncomfortably close to my position so this morning I vertical rolled up and out, meaning I rolled my position further away from the current strike price and moved my position to next months options. I trade primarily the iron condor, which consists of vertical put spreads and vertical call spreads on the same index. So after executing my vertical roll to the next month, I wonder whether I would be able to complete my iron condor by getting puts in the current month. Of course the answer is no, not without additional buying power. So be aware that when you vertical roll, you will need additional buying power to complete the iron condor in current month, or if you already have puts and you want to vertical roll your calls, you are going to have to close your put position prior to vertical rolling if you don’t have additional buying power. The vertical roll is a very valuable strategy, but it has its limitations.
Happy Trading!
Beware of a Bull Market
Wow, its been quite an interesting and volatile last couple of weeks. The “Flash Crash” notwithstanding, it seems that the correction we saw last week has disappeared in a wisp of smoke fueled by what I feel is false confidence. I get that people are relieved that Greece has been bailed out for now and that the European nations have bonded together to support the Euro, but the bailout is a band aid at best. As worst it has served to delay the inevitable and the inevitable is BAD. So as the market regains all it lost last week, we are back to where we were, totally ignoring basic fundamentals and basking is the belief the economy is in a V shaped recovery.  Who are they kidding???? We just got through Q1 earnings announcements and they were for the most part positive. So the market screamed up, up, up. Don’t investor realize that earnings were up based on managed inventories and cost cutting and not revenue growth? The job market has not gotten significantly better, jobs are not being created, so why the optimism? I just don’t think things are getting that much better that fast. Call me a pessimist, but I just don’t get it. And let’s talk about the deficit.  The IMF bailed out Greece to the tune of trillions of dollars. Okay, good to stem a catastrophic slide, we did it with TARP to keep our economy from crisis, but at the end of the day, who funds the IMF? Guess who? WE DO. the US makes up 20% of the IMF so in essence, we the US taxpayer is bailing out Greece. Where’s that money coming from? And the market screams up. I’m not an economist, and these are just my thoughts. So are we teeing up a big correction? Bigger than the flash crash of last week?   A market slide based on fundamentals that makes last week look like a bump? No one knows and I do believe we are in a slow economic recovery and that the markets will be up 10% or more by the end of the year. Just beware, rocky roads are ahead.
The Power of the Mastermind
One of the most beneficial hours of my work week is spent attending a Mastermind call with my fellow traders.
What is a Mastermind Group?
The concept of the Mastermind Group was formally introduced by Napoleon Hill in the early 1900′s. In his timeless classic, “Think And Grow Rich” he wrote about the Mastermind principle as:
“The coordination of knowledge and effort of two or more people, who work toward a definite purpose, in the spirit of harmony.”
He continues …
“No two minds ever come together without thereby creating a third, invisible intangible force, which may be likened to a third mind.”
In a Mastermind group, the agenda belongs to the group, and each person’s participation is key. Your peers give you feedback, help you brainstorm new possibilities, and set up accountability structures that keep you focused and on track. You will create a community of supportive colleagues who will brainstorm together to move the group to new heights.
Futures – Can They Predict the Market?
Anything that can help us figure out which way the market is going to head is a good thing right? YES. And I use as many indicators as possible to give me helpful information, avoiding deep analytics as often as I can. I’m sure you all know or have observed, the market seems to make some of it’s most significant moves at the open and the close of the trading day. It has been said that the open of the market is determined by the amateurs and the close of the market is determined by the professional traders, and whether you subscribe to either of those ideas, the truth is, the market does move more at the open and at the close, for whatever reason.
The Truth About Buying Power
We all know about the need for buying power when we make our initial trades during the month. And we all love that our thinkorswim software recognizes that you can’t lose money on both the puts and the calls when establishing an iron condor, so in essence our second trade of the month is essentially free. The question there for needs to be asked, how my money or buying power should I hold in reserve?
Will the Market Rally EVER End? Strategies for Getting Out of Trouble
Wow, it’s been quite a remarkable March/April hasn’t it? I don’t know about you, but when the market drove up, up, up at the end of the March trading month I was caught quite unprepared. I have been expecting a sell off for a while, in fact as a precaution, I didn’t even get puts in March, but so far I’ve been really wrong. So as expiration day closed near, I had to make a move. There were two strategies that I contemplated, the butterfly up and the vertical roll.
What You Need to Know About a Vertical Roll
We never really want to have to vertical roll our positions from the current month to the next, but sometimes it is necessary and is all part of trading for profit. Vertical rolling your position can be a very effective tool for managing a somewhat unexpected upturn or downturn in the market buying you time for the market to correct. Here’s what you need to know if you are contemplating a vertical roll.
Trade Execution Insight
Hi all, didn’t want to wait until our call next week to share some insight that I got from Scott this am.
Net net of what he is getting from his students and coaches:
Orders go through quicker if you trade in 10 point increments. (Obviously referring to the SPX)
It doesnt seem to matter what increments as long as they are 10 point spreads
If you trade 1-19 contracts your order goes to a routing desk and it takes longer to get orders executed
If you trade 20 or more contracts, it goes to the market makers and they have a little more leeway and your order will go through faster.
Exception is NDX in which case it doesn’t matter how many contracts you sell, they all should execute fairly quickly.
Cool stuff!!!
Jack, question for you, if you have a limited amount you are trading on lets say the SPX, should you trade 5 point increments and more than 19 contracts or
trade in 10 point increments and less than 20 contracts. Which trade will go through faster?
Thanks!!!!
Janet
