Forex Is Crazy

I think that traders and investors are already prepared for negative headlines. They have very low expectations, which is probably why we did not sell off more than the 9% that we got. The bad news out of Greece, the surprise hike in the discount rate, the interest rate hike in China. They all had the potential to be very devastating to the US equity markets. But for the most part they were shrugged off.  We are certainly not getting the same panic selling we got early last year. All I am saying is this could be the piece of news that may change attitudes, as prospects of the tax payers money being paid back. I think it bodes well for the market overall. But we will just have to wait and see. This could be interesting for the market!

  I have to admit February hurt a little bit. A few things I need to point out from this months results: 1) The position in NFLX accounted for $1,772 of the total $3,179 or 55.7% of the loss. I did a post trade analysis, Click here to read . With my attempt to repair the position instead of just booking the loss I increased my max loss from $1,250 to $1,772. If I would had just exited the day after the earnings release I could had gotten out for about a $900 loss. This was me not wanting to admit I was wrong. I too much size to begin with, and my risk expectations were way out of line if you read my post analysis post. But I learned a lot from the trade, so it was not for nothing. 2) Another $1,021 was from my position in DRYS. I overplayed this name, and then I got stubborn. When it broke below $6 that should had been my sign to exit. I did not have a stop loss set and I take full responsibility for this trade, but I am not happy with my management of the position. So as you can s...

A really good video!

GME, or gamestop is in the business of video games. Although I do not play video games I can see that the industry is just getting started in my opinion. As games get more advanced and more interactive I think you will see profits grow. GME is one such company to benefit. I see the video game revolution continuing for sometime. When this stock first came on my radar the stock was trading at $20.42 and has since sold off after several downgrades and an earnings miss. Call me a bottom feeder if you will, but I like the name and am willing to make the bet. I had written down that I was interested in the stock around $17 a share which is close to its 3 year low at 16.91. See chart below: This is an investment idea. I am looking to buy the ITM 15 calls out in Jan '12. They are currently trading at about $5 an call. Target: $28-30 Break even by expiry: $20 Stop: Below $15 Risk/Reward: 1:7 ish  Here are the price slices from the option pricing model: Buy 5 Jan '12 15 calls @ limit $5

RIG is another name that showed up on my filter list from Finviz.com a few weeks back. I have since been watching the stock and looking for the right time to enter. When it first popped up on my watch list RIG was trading close to $90 per share, today it is trading $81.31. My ideal entry price was set between $80-$82 as this is marks the bottom of the range that RIG has been stuck in since October of 2009, see chart below:   Since initially finding the stock there has been a few major pieces of news that have been released. On Feb 16th, 2010 RIG announced that its board had approved a stock buyback in the amount of $3.2 billion and also would now have a regular dividend in the amount of $3.11 annually or about 4%. The sell that occurred on this day is indicated by the large volume bar of almost 15 million shares as many investors were hoping for a $4 dividend, Greedy bastards. But nonetheless there is speculation that this is just the base dividend and that it will be increased in ...

I found AZN on my pre-set market scanner that I have saved over at Finviz.com. It is currently trading at a p/e af about 8.5 and a forward p/e of closer to 7 and below 7 if they hit there high target for earnings, which the company recently just revised upward. Very bullish for the stock in my opinion. I also find it as a good opportunity as the stock recently had a sell off after missing Q4 numbers. But it has found a nice base around 43.5, See chart below: As you can see highlighted in the chart the stock has been basing in a very tight $0.50 range from 43.50-44 since its Q4 miss in late January. Look at the candlestick where the low was put in at 42.21, this shape of candle stick is known as a hammer which more often than not signals a reversal in direction. So I like the fact that AZN traded faily quickly off this low and has been basing. So the trade: I am looking to buy 5 of the Jan '11 $45 calls @ 3.30. Now why am I buying so far out? I like the January calls as I am betting...

Click here to see the orignal analysis As I mentioned in the analysis last week. STEC will be reporting tomorrow. There is a lot of uncertainty that surrounds this name. Currently the options market is pricing in a 21% move in this name. I wanted to play this with a unbalanced straddle. And this is still true, my strikes have just changed since the stock has traded lower. See new risk profile and analysis from TOS platform below:   Buy 3 2:1 14 call/14 Put unbalanced straddle @ a limit price of $3.95 or better.

Schlumberger (SLB), just announced this weekend that the board has approved its purchase of Smith International (SII). The deal is valued at $11.34 billion. This values the shares of SII at $45.84 a share. The stock is currently trading at $40.26 per share. So there is potential for another $5.58. So I am looking to sell 1 Jan '11 2011 $45 put which is currently trading with a mid price at $7.75. The risk here is that there is regulatory hurdles that could kill the deal. But I am going to bet on the deal going through. Sell 1 Jan '10 $45 put at limit price of $7 or better.

Naps Clear the Mind, Help You Learn

Forturnes to be made in Forex

So here is my 1099 for my interactive Brokers account for 2009.

This is the bottom portion of my 1099 from 2009. It will take me a while to correctly construct an Excel sheet so I can break it down trade by trade. However, the bottom line results are pretty much in line with what I thought. For every dollar lost in my long portfolio (-$31,986) during the financial crisis, I made it back with options. The total for the year is (-$683), which means option profit was about $31,300. I knew I was close to break even because I remember liquidating most of the positions as my account balance neared its pre-crisis level. However, at the end of 2009 I still had about $30,000 of MTM unrealized gains. I'm the first to admit that a MTM gain means dogshit, realized gains are all that matters to me for record keeping or comparison purposes. So 2009 was a net loss and that $30,000 will be gains in 2010 unless I lose it before they expire.

On Thursday I bought 2000 shares of MO at $19.90. I sold (20) Jun 10' $20 calls for .54. There are two dividends before the June expiration of .34 each. Here are the three scenarios that can play out. Scenario 1 : I get exercised before the first dividend in mid March because the call options are ITM. If this happens my return is .54 on the calls and .10 on the stock. Total return of .64/19.90 = 3.2% for 30 days, roughly 38% annualized. Scenario 2 : I get exercised before the June dividend because the call options are ITM. If this happens my return is .54 on the calls, .10 on the stock, and .34 on the March dividend. Total return of .98/19.90 = 4.9% for roughly 120 days, roughly 14.7% annualized. Scenario 3 : The stock trades below $20 near both of the March and June dividends and the contracts eventually expire worthless. In this case my yield off the original investment will be .54 on the calls, .34 x 2 dividends, total yield of 1.22/19.90 = 6.1% for 120 days. If this happens, my...

I still need to catch up on my Excel sheet so this is just a back of the napkin accounting for this month. It is very misleading as the XLE has been a MTM gain for many months, I just decided to close it out this month. Excluding that trade, the true number is +$425, and there is a MTM loss on 500 shares of VZ of -$250. I sold naked $30 puts and will have them assigned over the weekend. So realized gains of $425 and a current MTM loss of -250 are the rough numbers for the month. While this is far shy of the $2,000 or so a month I need to break even with living expenses, I am at least thankful that the number was positive. And I am not intending to try to hit $2,000 exactly every month, but rather average that over the long-run. There are going to be times I decide to sit out for a while. I was actually surprised to see that even with the MTM loss that I was still up for the month. I had been holding on to the perceived mistakes that I made and completely disregarded some gains early in...

PFE is currently trading about 3 points off its January high of $20.36, at $17.66. PFE has traded in a channel highlighted in the chart below since the Mar '09 lows of 11.62. The upward sloping channel was breached on 2-4-10. So technically speaking the stock is weak and is quickly approaching its 200 day moving average. I think that this could act as support. The 200 day currently stands around $16.75, where I am interested in initiating a long position. I am not sure how I want to play it, but it will more than likely be through strait calls. Currently I am not initiating a position yet. But I do have an alert set at $17.25 to bring my attention back to the stock. I think a test of the 200 day is likely, but I also think that this level will act as support. I will update with a possible position later if my entry price is hit.

I shorted the SPX futures at 1097.50 in after hours with a stop loss at 1102.50. Max risk is $250 ($50 per point). It just occured to me that the $250 risk I incurred on the SPY 106/105 bear put spread I bought a few weeks ago could have also been played by shorting the futures instead. The difference would have been in the trade off. With the options I had a defined risk/reward of $250 risk and $750 reward. With the futures I could set my stop loss at the same risk of $250, but the advantage would have been I could exit the futures at any time for whatever strike price I decided to exit at, but the options spread as I found out was only about 35% profitable even though the SPX had run down through my naked price on the spread at 1050. So obviously frustrating to see your target hit and only have 35% of the gain available to you because of leftover time decay. Futures have no such issue. The trade off here is that with futures you can be whipsawed out right away, with the option spread...

Here is a summary of what the company does: PDL BioPharma, Inc. (PDL) is engaged in the business of management of its antibody humanization patents and royalty assets, which consist of the Company’s Queen et al. patents and license agreements with several biotechnology and pharmaceutical companies. The Company receives royalties based on these license agreements on sales of a number of humanized antibody products marketed, and also receives royalty payments on additional humanized antibody products. The Company receives royalties on sales of nine humanized antibody products, which include Avastin, Herceptin, Xolair, Raptiva, Lucentis, Synagis, Tysabri, Mylotarg and Actemra. As you can see this company receives royalties for the antibody's that it has created and patented. I have been doing a lot of reading up on this company because I was really confused when I saw that it paid a 15% dividend. But after digging a bit deeper it looks like this company's earnings power is good un...

I am looking at Dean Foods as a possible long. I like the idea of buying the Jan '10 $15 synthetic position. As you will from the charts below, Dean Foods had a recent $4-$5 sell off. More recently on a downgrade from Deutsche Bank on an earnings miss. I want to take a look at three time frames: 20 day hourly, 1 year daily, and the weekly chart. First lets look at the daily chart: You can see on the day of the earnings the stock sold of about $2.5 points and then another $1 or so when the downgrade happened the next day. The low that was put in stands at $14.27. Now lets take a look at the hourly to get a better picture of the buyers and sellers intraday. In this view it looks like that $14.27 could have been the capitulation low. As strong volume of about 4.2 million shares came in to defend this stock from going any lower. Whats the game plan? I want to buy 5 synthetics, but I want to set a tight stop at $14.  Entry: $14.50 Stop: $14 Target: $17.50  Risk: $230-$300 Reward: $...

Risk Management in Trading and Emotional Self-Control In the recent post , I reflected on the fact that I find the psychological needs of high frequency traders to be different--and greater on average--than those of traders who make decisions on longer time frames. We've also seen how large increases in trading size and risk contribute to the emotional ups and downs of traders . The problem traders call " overtrading " is often the result of frustration and poor impulse control; less well appreciated are the ways in which overtrading--both in size and frequency--help to initiate and sustain emotional dysregulation. It is axiomatic among the hedge funds where I work that, when you're not trading well, you reduce the risk associated with your portfolio. Very often, portfolio managers will take a little time away from markets, regroup and focus on areas of distinct opportunity, and then take limited risk in a limited number of positions. As markets begin to reward the...

How To Lose Money The Right Way So much of trading success comes from learning how to lose the right way. If many of the traders I work with followed a few basic guidelines about losing well, it would aid their performance immeasurably: 1) Never lose so much on a single trade that you can't come back and be green for the morning or afternoon; 2) Never lose so much in the morning that you can't battle back and be green for the day; 3) Never lose so much in a day that you can't rally and finish the week green; 4) Never lose so much in a week that you can't have a profitable month; 5) Never lose so much in a month that you can't make money for the year. Psychologically, it's healthy to experience defeat and then overcome it. It strengthens you to battle back and win. If you lose the wrong way--by taking so much risk that you can't come back for the day, week, month, or year--you rob yourself of the victory that could be yours by going from red to green.

Stop-Loss Points in Trading: Do We Need Stops When We Trade? Henry Carstens has recently written about ways to manage risk other than through stop loss points. I've noticed with traders recently that stops not only tend to be price-based, but tend to be placed at price points that are relatively obvious. For example, someone who is short stocks will place a stop just above a recent high or vice versa. Stops just above or below recent price ranges are also common. The problem with such stops is that they are natural targets for algorithmic programs that exploit asymmetries in buying and selling orders and tendencies. The trader with obvious stops falls victim to false breakout moves, exiting trades just before they reverse and go the intended way. An important gauge of the value of your stops is to track markets *after* you have been stopped out. Do you stop loss points save you money on balance? Do they protect you from risk, or do they shake you out of opportunity? Most trader...

Its a holiday today, so I am taking advantage of a little extra time to analyze some stocks that are on my watch list. Here are the stocks on my list: STEC, DFS, AZN, RIG, DF, GME, GS, LLY, NLY, PDLI, UUP, SPX (index). Below are a few trade ideas I have for some of the names on my watchlist. STEC is a name that I am pulling back out of past names that I have made money in before. Last time I played this I entered somewhere around $11-$12.50 and exited in the $15-$17 range. It continued its up movement to around $20 before pulling back. As you can see on the chart below I have level of support drawn on the chart around $14. STEC closed on Friday at $15.02. So we are about $5 off of the recent highs. I think $15 offers a good risk/reward entry with a stop below $14. I am looking for a retest of the high of $20.45 set on 1-13-2010. Risk/Reward = 1:5 Entry = Around $15 Stop = Below $14 Bias = Bullish Next Catalyst = Earnings 2-23-10 How to play it with options : I looked at three differen...

I have been looking to allocate about 20-30% of my trading capital to some dividend paying stocks. I am attracted to a few REITS. The two names that I am looking at are ANH and NLY. These two reits in particular only invest in mortgage backed securities that are backed up by the government. Meaning they are only buying investing in MBS from names like Fannie Mae and Freddie Mac (GSE's). So lets take a look at ANH: Anworth Mortgage Asset Corporation is a real estate investment trust. It invests primarily in United States agency mortgage-backed securities issued or guaranteed by United States government sponsored entities, such as Fannie Mae or Freddie Mac, or an agency of the United States government, such as Ginnie Mae, including mortgage pass-through certificates, collateralized mortgage obligations, and other real estate securities, on a leveraged basis. The company’s portfolio includes agency mortgage-backed securities comprising agency adjustable-rate mortgage-backed securitie...

http://blog.chart.ly/chart-ly-chart-of-the-day-whole-foods-wfmi/

Why I Hate Shorting Stocks, Joe Fahmy

http://online.wsj.com/article/SB20001424052748704182004575055410545763470.html

HFT Forcing Traders to Become More Sophisticated ~ T3Live Blog: Daily Stock Market Trading Commentary

Lets face it you are going to be wrong and you are going to lose money. That is just a fact of trading. If you can't handle it, then maybe you should try basket weaving or something. But just because you are wrong does not mean you get a get out of jail free pass. In order to survive in the market and make money on a consistent basis you need to learn from your losses. If you can't find the value in learning from your losses, you probably won't make it very long. When you lose money on a trade it messes with your head and self confidence. It is very easy to become very destructive to your account value, trying to make up those losses in an attempt at revenge. It is also very easy to become discouraged and leave the market all together. This is a normal weeding out process that the market performs on a daily basis. You have to look at it this way, everyday the market is recruiting the top athletes in trading. And if you are not willing to work at this, the coach is going to ...

So I know we've talked in the past about the benefits of the defined risk/rewards that spreads offer versus just being long or short the options, and we've talked about the differences between paper trading and actual trading. Now that I've had some experience with actually trading spreads this is what I've learned: the defined risk/reward of a spread really only applies if you carry that trade until expiration. Between the changing volatilities, large BxA spreads, and depending on how much time is left, your underlying could be exactly where you thought it would be but you can't exit the trade for the profit you anticipated. Example : You buy the 100/105 3-month call spread when the underlying is at 100, it shoots up to 105 tomorrow. Because your moved happened faster than anticipated you still have roughly 90 days until expiration so closing out the trade will not yield the max $5 of the spread. Had you just bought the 100 long you can close that out for a minimum...

So I have updated our blog with the new post editor. It makes uploading pictures and placing them in the blog a littler easier. In the old editor would upload your pictures and they would default to the top. With multiple pictures it was difficult to move the pictures to the exact spot in the post that you wanted it. Know you can upload your pictures at once and they remain in the image window and you can insert them to the exact location that you want them. For more information on this web address below. http://www.google.com/support/blogger/bin/answer.py?answer=156829

Okay so Thursday and Friday I let my emotions get the best of me, and to be honest they drove my trading decisions. I did not like seeing some of my positions trade against me. I also felt like I was missing out on this downmove and felt compelled to have positions on. But the reality is that you don't have to make a trade. I tried to force some trades when I sold those call spreads in GOOG, PCLN, and ISRG. Only to realize that I was not comfortable with the risk vs reward of those positions. I tried to convince myself that I was but risking $3400 to make $540 just did not sit well with me. I felt very anxious. So I did the prudent thing and took them off. Both the entry and exit of these positions were out of pure panic. After I exited the call spreads I had to get up and go for a walk to clear my head. As each call spread was actually considered 2 positions, it caused me to trade 6 round trip day trades in a 5 day period which led to a margin call for pattern day trading. My firs...

So I sold 2 of the ISRG 340/350 call spreads@1.35. I sold 1 GOOG 550/560 call spread at 1.35 and I sold 1 PCLN 220/230 call spread @ 1.35. See below.

Today I am on the hunt to sell call spreads in the following names: ISRG, PCLN, GOOG. All are stocks that have in the last month or so Made new 52 week highs. I am constructing call spreads that basically make the bet that these names will not rally to take out their 52 week highs by Feb '10 expiry. ISRG --> Looking to sell the 340/350 Feb '10 for $1.35 GOOG --> Looking to sell the 550/560 Feb '10 for $1.50 PCLN --> Looking to sell the 220/230 Feb '10 for $1.75 I have finally been able to make the switch from bull mode to bear mode. I think that most of February will be down. I will start looking for longs sometime in February. I will be looking at the market leading stocks to regain their 50 day moving average as a sign that the market may be turning. And as we get closer to Feb expiration I may look for put spreads to sell to turn these call spreads into iron Condors. I will update later as to what I actually put on and at what price.

Thursday, February 4, 2010 New S&P Chart--The Breakdown Edition By: Scott Redler The market will always speak, and therefore, active traders must pay attention and listen. All the signs were there that this type of move was in the cards since the day companies started getting sold off heavily on great earnings reports and when key market stocks broke important moving averages. I am not going to rehash all the sings, as I posted them nearly every day on this blog. The biggest key was when the uptrend line was broken--that was a game changer! On January 21, 2010 the S&P was sitting at 1,130. That was then, but this is now:

What Type of Market Are We In? Feb 4th, 2010 | By sspencer | Category: General Comments , Steven Spencer (Steve's) Blogs , Trading Theory We are in a downtrending market! What? We are in a downtrending market!! What? downtrend!!!!!! What does this mean for short term traders? Short stocks if they pop to previous support levels If the market trends up for two days then pray for a third day gap up so you can short the market!! Trade with less size as downtrending markets tend to be more volatile Be mentally prepared for the market to meltdown at any time. See traderfeed.blogspot.com on an excellent post on what to look for. http://bit.ly/945ZkT If the market gaps down and there is a feeble attempt at a bounce on the Open then put your short caps on. Remember that stocks go down more quickly than they go up. Take a deep breath when your shorts start working and give them some room to trade lower If a stock makes a hard down move on volume wa...

Ready for the Big Game? Derek Hernquist February 4th, 2010 Most of us will watch the Super Bowl this weekend, and marvel at the offensive machines run by Manning and Brees. Are they that much more talented than the rest of the population? Compared to that stud on your high school or college team, then yes. Versus the other 30 NFL QBs(plus backups), I think the answer is a definitive NO. So why does it look so easy for them? What can we learn as market speculators? I think much of the difference lies between their ears, in the way they process information. Take a supremely talented athlete and throw him into the neighborhood Turkey Bowl, and he will dictate the flow of the game. Put him with professionals, and he'd better get a plan real quick or he's Ryan Leaf. The preparation AND repetition needed at that level becomes just as important as arm strength and foot speed...replace strength and speed with instinct and intellect, and the conversation m...

I was analyzing my naked Mar $45 XLE Puts. While looking at the option chain I see that there is two ticker symbols for the $45 Mar strike price. I always assumed that they were separate because one was originally a LEAPS contract and one was the regular near-term expiration that doesn't become a ticker symbol until it's regular calendar cycle begins. So it turns out that this is correct, however, this is what I learned: the LEAPS contracts do not expire on the third Friday of that month, they expire on the last day or that month. So the LEAPS for the same month same strike price have slightly longer maturities and this is why the stay separate ticker symbols. I always wondered why your LEAPS didn't just turn in to the regular calendar cycle contracts once they became available. I thought maybe it was for capital gains reasons because LEAPS are taxed at the short-term rate even if you held it for more than a year. So attached is a snap shot of the prices today for the two d...

Ouch! Couldn't have had worse timing on the SLV puts sales. Hopefully if I have to take possession there is an attractive covered call to write against it.

So since the complexion change in the market I have bought and sold out of SPY, making very small profits. I can't seem to find the holding power for the short trade. I am not sure where the market is going to go, it feels like there is still more downside, but I can not convince myself to take on any shorts with much conviction. It may also be the fact that I feel like I am late to the party. What if this is only a 5-6% correction and not a 10% correction. I do not want to panic out of my long positions, just because I see a little red. I really wished I would had kept the 108 puts that I sold yesterday as they would had been good for better than a double. But like I said I can't seem to hold the short side. Tomorrow the all anticipated jobs number comes out and because of the fragile market conditions a bad number could be just the catalyst for the next push lower. But then again a good number could be the catalyst to continue up. Or it could be a non-event. Damn, I wish I ha...

STLD reports today after the bell and I want to take a position to capture some possible upside. Looking at the front month straddle the options market is pricing in about a 10% move on earnings. So here is what I am going to do. I want to buy the Mar '10 $16 calls and sell the March '10 15 puts to enter into a "risk/reversal" or "synthetic" (skipping one strike down). I chose $15 to sell as this seems to be a level that the stock may have bottomed out. In recent weeks STLD made a run to a new 52 week high of over $20 per share. Since then it has had a 25% pull back. Analyst are forecasting $1.37 per share for earnings next year giving this one an attractive p/e of about 11.67. Now keep in mind that these estimates bet on the continuation of the recovery. I point this out as I am willing to take delivery of these shares at the $15 level. Here is the daily chart: Notice that I have also plotted the HV and IV on the lower studies of the chart. There is only a ...

I'm willing to get back in SLV for the long run at roughly $15 so today I sold the following: 10 Feb $16 puts .40 10 Feb $15 puts .10

So below you can see the new additions to the summary page. I have added a few new columns. I added your suggested column on # of trades per strategy. In the main table in the middle I pulled in the number of contracts by month as well as the commissions by month. I was surprised to see that I traded over 500 contracts in January. Below are my current holdings.

Yesterday I bought 1 Feb '10 put @ 195 strike for $8.30. Priceline.com is another tech name. As the tech breaks down, this name is in my opinion one of the better short candidates. It reversed course to the downside after hitting a high of $231.49 on 12/28/09. The downtrend was confirmed when it traded below its 50 day moving average (Yellow line). Days later another confirmation came when the 15 day moving average traded below the 50 day. I got in yesterday when PCLN was trading at about $199, it did rally but this is a high priced stock and very volatile so you can not panic with moves against you. As long as this stock stays below its 15 day moving average I am in. Currently that target is at $207 at which point I would have a loss of about $285. I am trying to slowly expose my portfolio to the downside. You will see from below that I am down about $200 in the position as of now.

I have added a section for profit by strategy (Right) as well as a tracker for hedges (Bottom Left) that I add on after I had already put on my initial position.

I am not an expert in technical analysis, but here is some basic analysis that I think might play out. And I am putting together a game plan if this unfolds.

From SFO magazine: