Options Trader

A big Casino?

2007-08-09T04:48:00.000-07:00

The market is a big game of poker. Just like the way players bluff in poker, the way a stock acts doesn't necessarily accurately represent the company behind the stock , he said.
If Wall Street is a game of poker, then the managements behind different companies are the players, They underatnd their companies to be dealt with.

Standing on the sidelines are the analysts, who are always trying to figure out the cards the companies have, he said. They are always trying to read managements' faces.

Then there's the Federal Reserve. The Fed doesn't have any cards itself, but it gets to see everyone else's cards and make judgments. The Fed is the casino, and change the rules of the game at will and at any time.

The emotional of trading

2007-07-05T06:03:00.000-07:00

Trading is often very emotional . The market is emotional (fear and greed of course.)

If you are new to trading strategies and are stuck in the rut of ‘getting ready to get ready, to get ready.’ Still reading and reading and making excuses to yourself – be careful. As they say – you can make money or make excuses, but you can’t make both. What is the bests way to battle that – take action, when – now of course. Put on a small trade – 1 contract or 2 contracts. Get skin in the game.

Lastly it’s about the right time for my ½ year review. ½ of the 2007 calendar year is over and it is time to refresh. How am I doing so far? How is my health discipline? Am I working out and getting my heart rate up on a consistent basis? How are my relationships? (This will affect my trading of course.) How is your trading? What are my top weaknesses in trading? Are I spending enough time on your trading? What are the books that I have read so far this year? Have I gotten lazy in ny self-improvement with your trading / with your marriage? What books have I read on being a better husband or wife this year so far? (Remember how you do anything is how you everything.) Finally what are my top 5 goals for the rest of the year? Physically, mentally, spiritually, relationally etc.... What books are you going to read? What will my weigh 6 months from now?

Remember you pay a price in life – regret or discipline. Discipline weighs ounces and regret weighs tons. Decide what one you’ll pay – in advance.

Apple

2007-07-02T03:13:00.000-07:00

The premise of Apple stock is that a major new product is going to roll out in the next few months. The product has caught the attention of the mass market and is eagerly anticipated. What would you expect from the stock?

Let’s look at a chart of the stock back in the middle of April, before the launch date of the new product was firmed up.

As you can see there was a nice uptrend over the previous year or so. Some of this stock price increase has been because of the anticipation of new products and some has been on good earnings reports. Now let’s look at what happens when the launch date of this new product is announced and the time right up to about a week before the new product launch.

The stock runs up quite nicely as the launch date approaches. What market condition are we possibly looking at? The famous “Buy on rumor, sell on news” phenomena. As you might have guessed by now, the company is Apple Computer (AAPL) and the new product is the iPhone. Let’s look at one more chart, which shows the stock right up to the close on Friday.

As you can see, the stock has been moving sideways as the actual date approached, with a little bump up the last couple of days. Where does it go from here? There is one last piece of news that still needs to come out. That is the sales numbers for the first weekend, which should be out early next week. There may get another small bump up when those numbers come out, but that the stock will likely trend back down as many traders who positioned in before the launch start to take profits.

Apple iPhone ‘halo effect’ set to drive Mac sales higher

2007-06-30T01:19:00.000-07:00

The latest consumer PC survey from ChangeWave Research shows two major purchasing shifts simultaneously hitting the marketplace. One is near certain to have a transformational impact on Apple (AAPL).

First, respondents were asked who had either bought a computer in the past 90 days or who planned to buy one in the next 90 to tell us which type of computer (desktop or laptop) and the manufacturer.

No major surprises here, as Apple’s consumer PC sales for the past 90 days have held steady in both desktops (8%; up one point) and laptops (12%; down 1-pt). The most important finding is the stellar year-to-year comparable on Apple laptop sales (+33%).

But when respondents were asked about their planned computer purchases over the next 90 days that the marketplace transformation becomes apparent.

An astonishing 28% of respondents who plan to purchase a laptop in the next 90 days say they’re getting an Apple Mac – a 9-pt increase since our previous survey in March. Another 22% say they’ll buy an Apple desktop – a 4-pt increase since March

What’s the most likely explanation for such large-scale projected gains going forward? First and foremost, all of the advance publicity surrounding the release of the Apple iPhone is concurrently having a ‘halo effect’ on Apple computer sales. But another likely contributor is the coming new release of Apple's highly anticipated Leopard Operating System (OSX) for Macs.

Bottom Line: For those wondering what a ‘Halo Effect’ looks like, take another look at the above Apple chart.

iPhone Makes Waves

2007-06-30T01:02:00.000-07:00

The Apple iPhone made its first appearance at Macworld in January 2007 and survey conducted to gauge early interest levels and the potential impact the device would have on the cell phone industry.

Participants were asked how likely is it that you will buy an Apple iPhone for yourself when it becomes available?

Nearly 1-in-10 respondents (9%) said they were likely to buy the new iPhone product when it becomes available -- 3% said they were very likely to purchase one and 6% said they were somewhat likely to do so.

So, Apple iPhone is set to Roil Telecom Industry and there is strong evidence that Apple should exceed its iPhone sales goals for 2008."

The iPhone is likely to have a big impact on smartphone makers such as Nokia (NOK), Motorola (MOT) and Palm (PALM), which will need to respond to the Apple phone's innovative design and features."

The combination mobile phone, Internet device and widescreen iPod media player has been the talk of the tech world since Apple Chief Executive Steve Jobs unveiled it in January, wrote Investor's Business Daily.

Other respondents pointed to the innovative features, such as a 3.5-inch touchscreen display, and Apple's brand reputation as the main selling points.

With the iPhone poised to hit the shelves on June 29 2007, there will be the accompaniment of extremely high levels of consumer excitement.

While no one is certain how the iPhone story will ultimately play out, surveys have shown the huge potential impact on the cell phone industry

Once the product is released, be on the lookout for the results of a Apple July earning announcement.

Insider Trading

2007-06-20T06:13:00.000-07:00

If insiders are buying a stock when it's at its 52-week high, "that is a clear sign that you want in."

Sometimes insider buying is "meaningless" and, on its own, an "insufficient" reason to buy a stock. "A lot of times you'll catch insiders buying their stock because they want to give the impression of confidence, to create an illusion that they're doing better than they in fact are,"

However, "it is pretty powerful endorsement when the insiders buy a whole lot of stock," especially when the buying is occurring at the stock's high. "These guys are not going to buy at the high unless they have some unshakeable conviction about their companies." Therefore, insider buying at the high tells investors that there will not be a pullback, "and there's nothing more bullish than that,"

Insider buying, coupled with a heavy short position, also equals a buy, "This is an explosive combination, and more often than not, it means there's going to be a short squeeze," meaning that the shorts will start buying to cover themselves.

10 Rules for Speculating with Options

2007-06-20T04:43:00.000-07:00

1) Be patient. Don't invest everything right away. Decide how much you want to risk in options during the next 12 months and spread your purchases over that time frame.

2) Diversify. Don't put all your eggs in one basket. Take at least two or three positions, and try to always own both calls and puts.

3) Minimize your risk. Pay as little as possible for each option. And always be ready to cut your losses.

4) Plan before you play. If you do not have a game plan that tells you when to take profits and when to cut losses, you will have a very difficult time making a profit.

5) Don't be greedy. The downfall of 90% of all options investors is greed. Putting all your money down on a "sure thing" is a certain recipe for disaster.

6) Maximize your leverage. Try to buy options that will increase in value by at least 100%. Buying cheap options is the first step in this strategy.

7) Buy options on high-volatility stocks. You have a limited amount of time to work with. Your best plays are on volatile stocks.

8) In general, buy out-of-the-money options. These options normally have lower prices, and they tend to carry less risk.

9) Buy undervalued options whenever possible.

10) Be patient. This rule bears repeating. Contrary to popular belief, buying speculative options is not a game that requires action every day. Successful options-buying requires patience and selectivity. It is the only way to win this game.

July Bear Call Spread

2007-06-03T19:04:00.000-07:00

LVS – Las Vegas Sands Corp.Las Vegas Sands Corp. and its subsidiaries develop and operate hotel, gaming, and resort businesses. It owns the Venetian resort-hotel-casino and the Sands Expo and Convention Center in Las Vegas, Nevada; and The Sands Macao Casino in Macao, the People’s Republic of China (PRC). The company’s casino resorts include hotels, exhibition and conference facilities, casinos, showrooms, shopping malls, spas, restaurants and entertainment facilities, expo and convention centers, and other attractions and amenities. It is also developing the Venetian Macao resort-hotel in Macao, the PRC; the Palazzo resort-hotel-casino in Las Vegas, Nevada; Sands Bethworks in Bethlehem, Pennsylvania; and the Marina Bay Sands in Singapore. The company was founded in 1988 and is headquartered in Las Vegas, Nevada.

Bear call spread:-

Buy July 85 call
Buy July 90 call

Technicals: The stock had a 52-week low of $57.68 set back in July. After the new low, the stock began a multi month rally which resulted in a 52-week high of $109.45. Since that high price, the stock has been steadily trending lower and much of the time beneath its 30-dma. A previous area of support found at the $90 mark failed to hold and ultimately, the stock resumed a trend lower with no safety net in place. The stock trades in the casinos & gaming industry which has been trending lower for several months. The MACD’s are reading flat while the Stochastics are providing a sell signal. Volume over the month of May has substantially increased as prices trend lower. It seems that there is plenty of momentum for prices to continue to slide.

Trading system

2007-05-07T04:40:00.000-07:00

How does a new trader go about creating a trading system? In general how do we decide on indicators for your trading system, and how to optimize them.

Just like in the execution of trades, the process used in the formulation of a new trading system should be standardized. This way, a trader doesn’t find themselves wanting a system or indicator to work and letting that skew their conclusions. Your first step is to decide which indicators you will use for your system (example: MACD or Moving Averages). How do you know what indicators to use? I have my own favorites, but everyone should test out and decide on their own indicators. For beginners, and even experienced traders, I recommended testing individual indicators by themselves. Beginners should test indicators for obvious reasons (because they don't know what works and what doesn't) Experienced traders should test basic indicators because they need to make sure that the indicators they were using 5 years ago still work. You cannot simply say that you think an indicator works well, you have prove to yourself via testing and the use of logic

Once you have tested out and decided on some indicators there are ways to optimize them. This is done by looking at various timeframes in the past and seeing how your indicators interact together. You might find that you were originally going to use a 20-day moving average, but that the 30-day works better combined with your other indicators. Decide on 9 or 10 stocks to run your tests on. Try to pick out some trading timeframes that match the trading timeframes that you are expecting to use. For example, perhaps you are going to be in most of your trades no longer than 1 quarter. Check several past quarters and see how the indicators worked.As you put together your system, there are a couple of other things to keep in mind. Here are a few items to think about:

What percentage of profit are you looking for?
What percentage of stop loss are you comfortable with?
How many trades at once are you expecting to be in?
Do the indicators you have chosen meet these criteria?

It is better to develop a system that meets your criteria then to fit a criteria to a system after it is developed. The best traders plan carefully their system and execute it without changing the rules in the middle of the game.

10 Commandments of Trading

2007-05-03T06:57:00.000-07:00

1) I will not trade every day just because I feel I have to.

2) I will develop a proven trading system, and realize that one bad trade does not negate the system.

3) I will set profit targets, and will take those profits when they are achieved. I will not change targets in an effort to create ‘just a little more’ profit.

4) I will not let emotions sway my trading decisions.

5) I will approach trading as if it is a business. I will be strategic and logical.

6) I will keep a trading journal, and note when and why my analysis failed and succeeded. I will review the journal weekly.

7) I will not fight the market. I will capitalize on whichever direction the market is going.

8) I will take small losses rather than let them become large losses.

9) I will become an expert in one area of trading and I will master every detail particular to that area.

10) I will invest in my success, whether it be seminars, books, or other education.

How to invest like Warren Buffett's

2007-04-27T22:57:00.000-07:00

Increasingly worried that the Dow Jones Industrial Average ($INDU) is too expensive after reaching a record closing high of 12,961 on April 20? Sitting on cash waiting for the market to correct and yet fearful that the rally will leave you behind?

Well, then, let legendary value investor Warren Buffett's recent purchase of 11% of railroad Burlington Northern Santa Fe (BNI, news, msgs) -- worth about $3 billion -- remind you there is another way to think about the stock market that doesn't involve attempts to predict market tops or bottoms.

The key to Buffett's buy is a measure called return on invested capital (ROIC), which indicates a company's power to grow its business profitably for investors over time. If a company's ROIC is high enough, it puts the massive power of compounding on the long-term investor's side. If return on invested capital isn't high enough, no share price is low enough to justify purchase by a long-term buy-and-hold investor.

The utility of Buffett's logic and the ROIC measure isn't limited to railroad stocks. It's especially well-suited to today's equity markets and increasingly global economy, and it's a great guide for picking stocks for your portfolio when the stock market indexes are at historical highs.

Of course, to apply Buffett's logic you first have to understand exactly why Buffett bought shares of Burlington Northern and two other railroads now.

The fundamental reasons an investor wants to own railroad shares in his April 18 column, "Buffett on the right track: Buying railroad stocks." But although these fundamentals explain why Buffett would want to own railroad shares, they don't explain why he'd buy them at current prices.

At first -- and even second -- glance, the timing seems odd even for Warren Buffett, who says he never tries to time the stock market. Even though Buffett bought his stake in Burlington Northern a few months ago, he was still loading up near an all-time high for the railroad's shares and near an all-time high for the Dow. To make things even more puzzling, he was buying as the U.S. economy seemed to be slowing. Railroads are notoriously cyclical stocks that do well when economic growth is speeding up and head rapidly downward when growth slows.

So, for example, Burlington Northern shares hit a high in April 1999 and bottomed in February 2000 as investors began to anticipate an economic slowdown. Real growth in the U.S. economy was a very robust 3.7% in 2000 and sank to a barely visible 0.1% in 2001.

It is not possible for me to believe that an experienced investor like Buffett has forgotten the cyclical record of a railroad stock such as Burlington Northern. So what was he thinking as he pulled the trading trigger and put $3 billion into this cyclical stock at what looks like a market and economic peak?

In my opinion, he was thinking that, as he has so often reminded investors, he doesn't buy stocks; he buys companies. And if you're buying a railroad company, this is exactly the right time.

Why? Because thanks to all those fundamental factors mentioned in Brush's column, the company's return on invested capital has finally inched above its cost of capital.

For years, railroads, even such recently well-run railroads as Burlington Northern, have earned a lower return on the capital they invest in their business than that capital cost them in the marketplace. That's not a recipe for bankruptcy -- a company can chug along in this position for pretty much forever because, thanks to operating leverage, it doesn't have to invest a dollar of capital to produce a dollar in earnings.

But earning less than the market cost of your capital sure doesn't encourage reinvesting profits in your business: The return is so low that it's more attractive to pay dividends or buy back shares. And that eliminates the power of compounding from the company's growth. Sure, the company can throw off lots of cash, as railroads do, but since they aren't reinvesting that cash, the business and the cash flow aren't growing at a compounded rate every year.

Standard & Poor's puts the weighted average cost of capital for Burlington Northern at 8.5%. The company didn't make that on average over the past five years. Look at the company's investment returns on our site. The five-year average is just 4.5% for the company and the railroad industry.

What our data don't show is that Burlington Northern and railroads in general haven't earned a return on invested capital above their cost of capital for considerably longer than five years. The last time these businesses were consistently that profitable was in the early years of the 20th century, roughly 90 years ago.

But that's been changing recently. Return on invested capital has climbed to 6.8% over the past 12 months. And in the past few months, return on invested capital has grown even more, so that it is either close to or actually exceeds the company's cost of capital. Railroads as a whole are riding this trend. In the past few months, Canadian National Railway (CNI, news, msgs) and Norfolk Southern (NSC, news, msgs) have also recorded returns on invested capital near their costs of capital. CSX Corp. (CSX, news, msgs) and Union Pacific (UNP, news, msgs) seem likely to pass this mark in the next few quarters.

So Buffett bought into the railroad sector just at the point where railroads could put the power of compounding to work: reinvesting this year's earnings and earning a high enough return to justify investing the earnings on those reinvested earnings next year.

For a long-term investor like Buffett, that turning point in a company's (and sector's) fortunes is more important than any temporary spike in the stock price -- because reinvesting and compounding each year's earnings grows the business at a rate that, in the long term, overwhelms any effect of buying at a temporary top.

This analysis -- and I readily concede it's only my reconstruction of what might be Buffett's thought processes -- would lead me to prefer Union Pacific to Burlington Northern. The latter railroad has raced ahead at the front of the ROIC pack because the company invested during the years when it was tough to justify investing in double-tracking, which allows trains going in opposite directions to pass each other more easily. The company now has far more of its routes double-tracked than a competitor like Union Pacific. That makes Burlington Northern more efficient now, but it also means that Union Pacific has more future opportunity to reinvest capital playing catch-up.

Bull Put Diagonal Spread for Earnings announcement

2007-04-16T03:56:00.000-07:00

Profile: Steel Dynamics, Inc., together with its subsidiaries, engages in the manufacture and sale of carbon steel products in the United States. It operates in three segments: Steel Operations, Fabrication Operations, and Steel Scrap and Scrap Substitute Operations. Steel Dynamics was founded in 1993 and is headquartered.

Trading Stance: This is going to be a great lesson for all of you who have never held a stock through earnings and profited. You’ll see the surprises if any, the immediate volatility changes in the options and the actions needed to be taken if a reversal occurs.That said lets look at the stocks position as it sits at the one year and five year high.Even though we’ve initially entered a bullish trade we do expect a bit of profit taking to step in (eventually), that is why we’ve used puts instead of calls since a mysterious reversal could always be triggered. So for now we’ll see what the news will bring us on Tuesday and of course this next week is April expiration, that too could be exciting but shouldn’t affect our May position adversely.

Control your Money

2007-04-15T03:59:00.000-07:00

The first and most important rule of trading real money is to use only "risk money." Risk money is money that you can afford to lose. It would not make you happy if you did lose it, but your life would go on without any change. In other words, risk money is money that is not needed for any necessity. As we transition from paper trading to real money trading, we must not use the rent money, mortgage money, grocery money, car payment money, insurance premium money, or tuition money. If that is all we have, it is not yet time to trade real money. Using money to trade that is needed for some necessity is dangerous and can cloud judgment. It places undue pressure on us.

As we begin trading, we must understand it is a business; successful traders rarely are gamblers. They do everything they can to put the odds in their favor. In addition to using only risk money, they carefully manage the money they are trading. One way to manage money for the beginning trader with a small account is to make equal dollar trades. If the trader is starting with $5,000 for example, each trade might be $500 or $250. What we don't want to do is make one trade $2,500 and the next $250. How could we possibly know which one is going to be successful? Generally, Murphy's Law goes into operation and we have a big loss on the $2,500 trade and a small gain on the $250 trade. Trading in that fashion soon takes the trader out of the game. Our first objective is to stay in the game. Making equal dollar trades helps us do that. Even if we lost all the money risked on one trade it would not be the end of the world. Of course, if we have a good exit plan, it would be unlikely that we could lose everything invested on the trade. On the other hand, if we placed a large portion of our money at risk on a single trade, it could end our career.

That sad story is all about money management and greed. If we manage our money properly, we remove a large part of the risk and prevent our greed from enticing us to do what the fellow in my example did. As we begin to trade real money, we are still building our confidence. Our paper trading may have been very successful, but it just isn't the same. Now, something important is on the line. Take it easy. Build confidence with equal dollar trades. If you lose part of your money on a small trade, so what? You will have losing trades so keep the losses small.

I believe an even better way to manage trading money is to use equal percentage trades rather than equal dollar trades. That is difficult to do with a small account, but can definitely be utilized as your account grows. I personally favor making trades where only 3% to 5% of risk money is placed at risk in any given trade. When losses are incurred and the account value drops, the next trade automatically is made for a lesser amount and when gains are made, greater amounts automatically are invested.

This seemingly simple device of managing money can build confidence, protect assets, and enable the trader to stay in the game.

Reasons to Trade

2007-03-24T18:29:00.000-07:00

One of the critical elements of trading he addresses is the psychological. Many of us have heard and mouthed the rubric that the markets move on fear and greed, but few of us have taken the time to understand how those emotions really work in moving stock prices.

It seems obvious that we trade to make money, but that may not be the real motivating factor for many. There can certainly be a "rush" from making trades. Some traders, it seems, trade just to trade. They are caught up in gambling mode and, for them, it seems critically important to trade without real regard to real liklihood of success. In spite of the market conditions they continued to make trade after trade even though only few were successful. I asked him why they were doing that and said to have money working all the time.

Clearly, there are times to enter bullish trades, times to enter bearish trades, and times to go play golf or go fishing or do something other than trade. If we do not recognize and believe that there are times not to trade, our successes will at least be seriously undermined by our losses if not completely outpaced by them.

Silicon Motion Technology Corp. (SIMO)

2007-03-24T18:18:00.000-07:00

It looks as though SIMO may present a call buying opportunity if it retreats to the 10 day or even 40 day moving average and then bounces up. I'll need to be careful to assure enough open interest when looking for the right calls to buy.

Bear Call Spread-March 07

2007-03-18T04:53:00.000-07:00

CEPH$67.25 Bear Call
Sell Apr 75.00 call $0.80
Buy Apr 80.00 call$0.30
return $0.50
11.11%

Technicals: The stock peaked in March of last year at a 52-week high of $82.92 and then promptly turned around falling to a 52-week low of $51.58 just a few months later. More recently, prices have been channeling sideways between overhead resistance, now near $75, and support below around the $70 mark. Last week, prices slipped below support for the first time in months giving us a breakout to the downside. The stock may return to test old support as new resistance, but for now things are looking weak. The stock trades in the health care/biotechnology & drugs industry which continues to pull back over the last two weeks and the stock’s fundamentals are very weak. Currently, both the MACD’s and the Stochastics are revealing sell signals.

Bear Call Spread-23 Feb 07

2007-02-23T21:16:00.000-08:00

Sell Mar 100.00 call$0.85
Buy Mar 105.00 call$0.30
Return $0.55
12.36%

Technicals: The stock hit a 52-week low of $49.25 back in March and then began a long-term rally that resulted in January 52-week high of $109.45. This new high was the result of the prices breaking out of a Symmetrical Continuation Triangle. This chart pattern is considered to be a bullish signal as it indicates that the current uptrend may continue and that is just what took place. As the target price was hit the stock has reversed direction slipping back below a former area of resistance. In other words, when prices did finally come back to test old resistance as new support the stock failed to find support and has now fallen below its 30-dma as well as the trendline. The stock trades in the services/casinos & gaming industry which is trading near its yearly high prices. However, its fundamentals are weakening. The MACD’s are showing a sell signal while the Stochastics are revealing a buy. We’ll expect overhead resistance around the $96 level to hold and keep prices below the lower strike price over the next few weeks.

Spread-19 Feb 07

2007-02-20T02:49:00.000-08:00

FFIV
Bear Call
Sell Mar 80.00 call$0.85
Buy Mar 85.00 call$0.35
Return $0.50
11.11%

Technicals: The stock bottomed out in August at a 52-week low of $40.55. After that low, prices reversed direction and began a long upward trend that resulted in a January 52-week high of $80.85. The stock didn’t participate in Wednesday’s strong rally after Ben Bernanke announced that inflation was in check. It makes us wonder if a possible Head and Shoulders Top pattern may be forming on the price chart. We won’t know for sure until the pattern is complete. The stock trades in the technology/computer networks industry which has been trending sideways for the last few months. The MACD’s are flat on the sell side and the Stochastics are also pointing towards selling pressure.

Trading is Tough

2007-02-05T05:34:00.000-08:00

Trading is hard. We aren’t talking about paper trading; we’re talking about taking your own hard earned money and risking it to test what you believe to be true. Trading is stressful. Real trading is difficult, and it can physically drain you. You could be soaring emotionally as you watch your trade profiting; then the next day, you may hit the depths of despair as another or even the same trade turns against you.

It’s during these times when a trade moves against us that we feel like giving up or we lose our focus and start aimlessly trying to make back our loss anyway we can. When I was a young inexperienced trader, if I found that I lost money trading a particular stock then I would be even more aggressive trying to get that lost money back. Of course, this resulted in more losses and more frustrations. What made it even more frustrating was that I knew of some other traders who were profiting off this same stock. I finally had to learn that I needed to stop trading that stock and go find one that I will succeed at, otherwise I won’ t have any money left to trade with. This can also be applied to trading systems. Why were others making a profit when I wasn’t? How come two different traders trading the same stock or system get so radically different results?

We all have our own personalities that make us uniquely different from others. Certainly you will have strengths, but you will also have weaknesses. Understanding yourself as a person is the single most important factor in deciding whether you succeed or fail as a trader. If you do not understand yourself, you cannot succeed, if you’re a stubborn person, you will find that this personality trait doesn’t work well when a trade is moving against you. Refusing to admit that you are wrong can be a very costly lesson. Make no mistake about it; your personality has a major influence on how you trade. It is more important than the broker you use, the stocks you trade or the latest and greatest trading software available. In Market Wizards, Jack Schwager suggests that the single most important element of a successful trader is in having a trading plan that fits your personality.

often get questions as to how I trade, and sometimes I have instructed my friends on what I do. However, when they try it, it doesn’t always work out as well as it does for me. If you find that what you are doing in your day to day trading isn’t working for you, then you need to adjust. Just because it works for your trading partner, doesn’t mean it will work for you. You may need to try several different trading instruments or trading plans until you find one that better fits your personality and then once you have found it, stick with it and don’t deviate from it. One of the most difficult aspects of trading is sticking with your trading plan. You will find yourself re-entering the market after a string of losses with the thought, "This time I will stick to my plan. I will not get sidetracked."

In theory, it seems relatively simple to make a trading decision based on a particular approach and then to stick to that plan. However, in practice, it can be difficult. Many obstacles and psychological hurdles are ready to trip us up at the very first opportunity. After back testing a trading system and proving to own satisfaction that the approach will work, we start out with a great deal of enthusiasm. We step forward with the very best of intentions; yet so often we find ourselves changing our plans in midcourse and losing out on what could have been a very profitable trade.

So what makes you think you can succeed? The market is littered with the corpses of those who thought they could beat the market with the latest technical indicator that has worked for the last 5 years. Then failed the next year, or when you tried it. Everyone's looking for the perfect system, the foolproof method, the quick solution, the get-rich-quick scheme. I have news for you — they don't exist. So you think you can succeed in the toughest market of all? What makes you any different from anyone else?

The answer is very simple — it's you. It is important for us to stay the course, but at the same time it is also important for us to remain flexible enough to change direction if the need arises.

PFE Put-23 Jan 07

2007-01-25T16:37:00.000-08:00

The stock was trading around a price of $26.29 on 23 jan 07. The chart above is a daily chart of the Pfizer Inc. [PFE]. The stock is rated as an average stock because it is fairly valued compare to its industry, its sector and the S&P 500. This trade was made mid-day on Tuesday. The trader selected the stock because overall it is in a downtrend, trending lower since its high set back in September. As the trader has mention, the stock does have wild price swings to it but it does have a very strong resistance level above. It just reported unfavorable earnings and so the trader believes that prices will yield to weakness and fall lower towards support near the $23.25. Of course, once this happens the Put option will increase in value.

Buy a June 25 put at 0.60

Bear Call Spreads

2007-01-16T03:46:00.000-08:00

GSF – GlobalSantaFe CorpGlobalSantaFe Corporation, through its subsidiaries, operates as an offshore oil and gas drilling contractor worldwide. It provides offshore oil and gas contract drilling services to the oil and gas industry on a daily rate basis.

Sell Feb 60 call at 0.80
Buy Feb 65 call at 0.35
Return 0.45
9.89%

Technicals: The stock peaked in April at a 52-week high of $65.21 and then prices promptly fell to a 52-week low of $44.26 set in October. After the low point, prices turned around and traded up to but fell short of resistance at the $65 level. Once the stock failed to make a new high prices quickly slipped below the support area of the 30-dma and continue to trade lower on increasingly strong volume. The stock trades in the energy/oil well services & equipment industry which continues to pullback from an area of overhead resistance. Currently the MACD’s are yielding a sell signal while the Stochastics are showing a flat reading.

Goals setting for 2007

2007-01-08T03:38:00.000-08:00

100% confident, no fear, no frustration
Never hooked taking trades I shouldn''t
Trade offensively vs deffensively
Never beat myself on a losing trades
Never trade attacking my ego
Never rush into trades without preparation
Trade with NO stress
No big swins in profitability
Always discipline to stop as planned
Never get exhausted after the trading day
Sleep well at night
Spend time with my family
Execise more
Follow trading Plan
Adjust losing trades
Network with elites

Happy New Year's Resolutions

2007-01-01T05:55:00.000-08:00

2007 New Year’s Resolutions

To be a more disciplined trader (for me, that means tighter stops)

To continue to observe strict money managment.

To achieve consistent profit in the market.

Update trading checklist; add new things I’d like to use and delete those that do not work in this market condition.

Most of us started trading with high hopes of success but we let our emotions and greed take over. Instead of taking the time to develop and test a prudent trading plan that works for us on paper, we just jump in with both feet and start using real dollars well before we’re ready. After all it looks so simple! How quickly the markets will humble us and beat us down if we are trading out of greed instead of a well thought out trading plan. It is at this point that many will give up and quit, but those of us who step back and rethink our trading approach will survive as we go through a rebuilding process. Successful traders aren’t quitters, we don’t give up. We learn from our mistakes, we become better persons and we succeed.

Don’t make the mistake of many who have tried and failed. They failed because they did not keep on keeping on. They did not persist in creating new plans to take the place of those which failed. When your plans fail remember that temporary defeat is not permanent failure unless you give up, unless you quit. You are never whipped until you quit. Even the best trades have bad days, accept temporary defeat as a learning process of how and what you need to improve at and make a new plan and then start all over again.

No one can expect to accumulate a fortune without first experiencing temporary defeat. When defeat comes accept it as your signal to assess what went wrong, and make new plans that put you on your way towards accomplishing your goal. If you give up, if you stop making new plans before your goal has been reached you are a quitter. A quitter never wins and a winner never quits.

Insider Trading

2006-12-29T19:51:00.000-08:00

ASIA – Holdings, Inc

Holdings, Inc. and its subsidiaries provide telecom software solutions and information technology (IT) security products and services to the telecommunications market in China. Its products and services enable its customers to build, maintain, operate, manage, and develop communications infrastructure. The company operates in two divisions, Technologies and Lenovo- . Technologies division provides business support systems/operating support systems, including billing, customer relationship management, intercarrier network access payment management, and operating analysis and decision support systems and solutions; and network infrastructure solutions consisting of network access and backbone infrastructure planning, design, and implementation for telecommunications and Internet service providers. It also offers service application solutions, including messaging software to support electronic mail systems, antispam software, antivirus solution for scanning and clearing viruses before emails are downloaded, and a support platform for value-added short messaging services, as well as a network hard disk product that facilitates Internet-based file transfer, sharing, and management. Lenovo- division principally provides IT security products and services for small to medium size companies with a focus on the firewall and virtual private network sectors. This division also offers financial services IT solutions, including bank core business processing systems, bank business performance management systems, bank call center systems, and bank notification systems. Holdings was founded in 1993 and is based in Beijing.

Towards the end of November two insiders made some rather large purchases of ASIA stock. Directors James Ding and Edward Tian together bought 2.45 million shares at a total cost off $14.61 dollars. On the same day of the purchase, “On November 29, 2006, Holdings, Inc. (the "Company") entered into a Strategic Investors' Agreement (the "Agreement") with CITIC Capital MB Investment Limited, an exempted company organized and existing under the laws of the Cayman Islands ("CITIC Capital") and PacificInfo Limited, an international company organized and existing under the laws of the British Virgin Islands ("PacificInfo"). PacificInfo is wholly-owned by Mr. Edward Tian, a founder and stockholder of the Company and a member of its board of directors.”

The stock has been in a consolidation mode for most of the year as it continued to bump its head up against overhead resistance at the up sloping red trendline. Then just days before the large insider purchase he stock exploded upward to new highs. On December 11th, the stock hit a 52-week high of $7.21. Once the new high was established the stock then retraced back to support at its 30-dma. The stock trades in the technology/computer networks industry which is trading at new yearly high prices. Currently, the MACD’s are revealing a sell signal while the Stochastics have rotated flat.

A Position Trader-A real trade

2006-12-22T01:28:00.000-08:00

Let’s take a look at an example of how this strategy works. The chart above is a five-minute chart of Mastercard [MA].

It looks like we have all four guidelines present for the mid-day setup. During this time the stock was trading higher than the previous day’s closing price, and it was also trading above its opening price. During the mid-day time period the stock was tending sideways at or near the day’s high and it had been doing so for more than 1 ½ hours. Now that we have the first four guidelines setup this stock goes on our list and we wait for the late-day time period to begin at or around 2:15 p.m.

Around 2:15 p.m. as soon as our stock breakouts of its sideways channel we place a buy order. We buy the stock when it trades one tick above the sideway intraday high prices. A tick is simply a price unit that the stock trades in. For example, if you were to look at a NASDAQ Level II screen and you saw that the inside ask or best asking price that you could buy the stock was $94.00 and the next higher price above that was $94.02.

We also have all three guidelines present for the late-day breakout. During the mid-day time period as the stock was consolidating it reached a high of $94.60, so once the late-day time period begins and the stock trades above this price by one tick or 0.02 cents (the stock trades in 0.02 cent increments) then you would enter the trade. A stop-loss could be placed just below the low price of the mid-day sideways price base which reached a low of $93.95. Lastly, we’ll exit the trade once prices pull back. This will be a judgment call as to how much you are willing to let prices pullback before you exit the trade. The main thing to remember is to never let a wining trade turn into a losing trade. Meaning if you had entered this trade and were profitable right from the start as the stock rallied higher and you noted a pullback, don’t wait too long to exit the trade that all the earlier profits are given back as the stock retraces. Exiting at breakeven is much better than exiting at a loss.

Bear Call Spread

2006-12-21T14:05:00.000-08:00

OSIP(OSI Pharmaceuticals, Inc)
Sell Jan 40.00 call$0.60
Buy Jan 45.00 call$0.20
Net credit $0.40

Return 8.70%

OSI Pharmaceuticals, Inc. engages in the discovery, development, and commercialization of pharmaceutical products for the treatment of oncology, ophthalmology, and diabetic diseases in the United States.

Technicals: The stock had a solid rally higher from the months of May to October which resulted in a 52-week high of $43.17. After the new high, prices slipped below the support area of the 30-dma finally finding support near the $36 mark. Prices are now coiling between overhead resistance at the down sloping trendline and support below near $36. The stock trades in the health care/biotechnology & drugs industry which looks to be bumping up against resistance and rolling over. There doesn’t appear to be much institutional interest as the stock’s fundamentals are very weak. Both the MACD’s and the Stochastics are flashing sell signals. There is a possibility of a bounce off support but there isn’t anything at this time that would cause the stock to rally through overhead resistance.

A Position Trader

2006-12-21T01:46:00.000-08:00

A trading strategies for swing and position traders is a technique for those traders who have the time to watch the market throughout the day and have access to inter day charts. Trading inter day requires a high degree of skill and the ability to emotionally detach from the markets.

Typically the middle of a trading day falls within the time periods of 11:15 a.m. and ends somewhere around 2:15 p.m. EST. It is during this time period that someone who watches the market all day long will note that things really begin to slow down often becoming very choppy in nature not really trending in one direction or another. For that reason, this is frequently one On the other hand, during the time period of 2:15 p.m. to 4:00 p.m. EST things begin to stop churning and start trending. This is the time period that we will be looking to actually place our trade. After a morning rally in the markets, the mid-day doldrums soon follow as the markets begin to consolidate. It is during this time that the setup for our trade begins to take shape. However, once mid-day has passed we’ll be looking to take advantage of the price action that occurs between 2:15 p.m. to 4:00 p.m. EST.of the hardest times to trade during the day.

On the other hand, during the time period of 2:15 p.m. to 4:00 p.m. EST things begin to stop churning and start trending. This is the time period that we will be looking to actually place our trade. After a morning rally in the markets, the mid-day doldrums soon follow as the markets begin to consolidate. It is during this time that the setup for our trade begins to take shape. However, once mid-day has passed we’ll be looking to take advantage of the price action that occurs between 2:15 p.m. to 4:00 p.m. EST.

This strategy is by using a five minutes inter day charts. Here are the guidelines that we’ll use for the trade setup:The stock needs to be trading higher than the previous day’s close. The stock should be trading at or above its opening price. During the mid-day time period the stock should be trending sideways at or near the day’s high price. On a five-minute chart, the sideways trend should be at least 1 ½ hours in length.

During the mid-day time period the trader will stop trading and go searching for stocks that meet the above criteria, and make a list of these stocks. Once the list is in place the trader waits for the time period from 2:15 p.m. to 4:00 p.m. EST to commence.

Below are the guidelines used to trade the late-day breakout: Again using a five-minute chart, the trader will initiate a trade once prices move one tick above the side way inter day high prices. Once the trade has been initiated the trader will place a stop-loss just below the mid-day side way price base. The trader will then exit once prices begin to reverse direction or exit at the end of the day with a Market On Close order.

We will exit the trade once prices pull back. This will be a judgment call as to how much you are willing to let prices pullback before you exit the trade. The main thing to remember is to never let a wining trade turn into a losing trade. Meaning if you had entered this trade and were profitable right from the start as the stock rallied higher and you noted a pullback, don’t wait too long to exit the trade that all the earlier profits are given back as the stock retraces. Exiting at break-even is much better than exiting at a loss.

if you’re lucky enough and the stock should continue to run higher for the rest of the day without significantly pull back in price, then you can exit at the close of the day (and hopefully the high of the day) with a Market On Close order.

This trading strategy is not for all, but it can be used successfully by those who have the time to watch the markets throughout the day.

Investment Banker

2006-12-18T04:45:00.000-08:00

Last week Goldman Sachs (GS) reported record earnings that were up 93% from the previous year. The news media really picked up on the fact that this translated into some incredible bonuses for the employees, including the amazing fact that the average bonus would be around $600,000. As a major player on Wall Street, this good earnings news probably helped the DOW to close at record levels for the week. Goldman Sachs main business is what is known as ‘Investment Banking’. But this is not banking as most people look at it. Just exactly what is investment banking?

Investment bankers are not really bankers at all. The fact that the word banker appears in the name is partially responsible for the false impression that they are like most banks. Investment bankers are not permitted to accept deposits from anyone. They do not provide checking accounts or savings accounts for customers. An investment banker is simply a securities firm that specializes in helping other business firms (generally corporations) obtain the money they need on the best terms possible.

When it comes to the actual process of having stock or bonds issued, corporations approach an investment banking firm and will ask it to act as advisor and distributor. When the investment banking firm assists a corporation in the distribution of stocks or bonds, they are acting as an underwriter. So the investment banker is the middle man in the market between corporations and investors.

The investment bankers, like a stock brokerage firms, receive their money through fees and the ‘spread’ between the public price stocks are being offered at and the price that the firm buys the stock at. These fees are normally set before an offering. There are also usually commission fees that go out to brokers that are designed in such a way that the brokers are encouraged to sell new stock offerings to their clients.

Bottom Line – In general, when the investment banking firms are doing well, the stock market will usually be on the bullish side of things, as we are seeing now with the Goldman Sachs earnings. When corporations are optimistic about the future, they tend to go to the public markets more for additional capital for expansion. So, these earning numbers from Goldman’s are another reinforcement of the healthy nature of the current market.

Bear Call Spread for week & next

2006-12-16T23:24:00.000-08:00

Done a bear call spread on TELK

Selling Jan07 @ 25 for 1.80
Buy Jan07 @ 30 for 1.15
Net credit is 0.75 for Jan07 expiry date.

Next week will be watching earning play for ORCL & FDS

Bear Call Spread for Jan 07

2006-12-08T19:23:00.000-08:00

I have entered a Bear Call spread for ticker symbol ONXX for the expiry month of January 07
Sell Jan 22.50 call at $1.05
Buy Jan 25.00 call at $0.35
Net credit $0.70

Net return for the month -16.28%

ONXX-Onyx Pharmaceuticals, Inc. operates as a biopharmaceutical company in the United States.

Technicals: From the beginning of the year, the stock began to breakdown; this resulted in a multi-month decline to lower prices and a 52-week low of $12.70. After the new low prices did manage to break back above the 30-dma trending all the way back up to close a gap that occurred during the month of June. Now, that the gap has been closed the stock has reversed direction falling below the support area of the 30-dma and the rising trendline. The stock trades in the health care/biotechnology & drugs industry which has been trending sideways over the last two months and there hasn’t been any institutional interest in a long while. Both the MACD’s and the Stochastics are signaling selling pressure.

The business of trading

2006-12-08T18:36:00.000-08:00

Investing in the stock market is often exciting and at times can be very rewarding. The rewards are easy to explain because you want rewards, the more the better. However, when it comes to losing money , it is an entirely different feelings.

Trading is always associated with different level of risks and we often need to find the level of risk we are able to tolerate and comfortable with.

One of the biggest mistakes is that if we try to invest our money that we cannot afford to lose and we need this money for our basic living like buying groceries or paying our utilities bill , then that is not investing, that like gambling in Las Vegas.

The stock market has been proven to be a fantastic place to invest and grow our money over long period of time and accordingly to finding, it is one of the best asset that outperform other class of assets over a 20 years time span. However, investing in hopes of making a fortune overnight usually involves tremendous amount of risk and never be done except with "risk capital" which mean money you can afford to lose without changing your present lifestyle and financial circumstances if it is lost.

Investor often has to battle the emotion of fear and greed in the stock market and therefore we if we are not able know what has gone wrong and have the discipline to put a stop lost and a trading plan to exit because of greed , then our career in the stock market is often said to be short-lived. The discipline investors are said to be very mechanical and automatic. They have a trading plan and they stick to it as they know that not every investment is a winner.
As said earlier, the biggest enemy of an investor is emotion, when stocks are dropping and investment starts to lose money , you may get into "house of pain"and with this feeling, it is difficult to make good decision thereafter, worst of all, you find it hard to sleep.

In conclusion, managing the risk before going into a trade and stick closely to our pre-determined trading plan of entry and exit points will help us to take the emotion out of investing.

Stock valuations for the year ending 2006

2006-12-08T02:07:00.000-08:00

We often hear things in the stock market like (P/E) ratio. So what does this indication really mean. In general this means using measurements to determine if stocks are valued higher or lower that the historical mean.

The year of 2006 is almost coming to an end and the DOW is at historical high at 12,000 levelThe price to earnings (P/E) ratio has outpaced the rise in the S&P 500 index during the past two years. In the third quarter of 2004, the S&P 500 P/E ratio was 20.3, in the third quarter of 2005 it was 18.4, and the just completed third quarter of 2006 has a P/E ratio of 17.5. If you look at operating earnings the numbers are even better, with a current operating P/E ratio of 16.0.

Therefore the decline in the P/E ratio is a bullish factor. As long as this type of earnings growth continues to outpace the market, the rally will continue. Athough the current P/E ratios are slightly above historical averages, but nevertheless represent very good value given current economic conditions.

A standard starting point used in the market for valuation is to compare the P/E ratio based on expected future year earnings to the yield on the 10-year Treasury bond. On this basis alone, stocks could be considered significantly undervalued. The P/E ratio for the next twelve months based on just 5% growth in operating earnings is 15.3. That is equivalent to a 6.6% earnings yield (this is earnings divided by price). That compares extremely favorably to a current 4.7% yield on the U.S. Treasury 10-year bond. By this measurement stocks could be currently undervalued by over 40%.So the overall market is fairly bullish, and as long as inflation is kept in check that the market could continue to rally . Of course there are always the unknown factors, including world events such as terrorist and oil factor which can always change things quickly. But for now, these factors are aligned in a bullish way.