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Tuesday, October 31, 2006

Big Mover Stocks for Earnings 31/10 - 1/11


Tomorrow BMO: CRDN, CI, DVA

Monday, October 30, 2006

Week Ahead 30/10 - 3/11

Last Friday, Nasdaq closed in the red on higher than average volume. The main driver of this slide was Goldman Sachs cutting its growth forecast for motherboard shipments & reporting that motherboard demand is "falling off a cliff". It would be interesting to see if this sell-off will continue in this coming week packed with economic data & drag the overextended market down or will the stubborn bull streak press on.

Mon: Personal Income & Personal Spending
Notable Earnings:BEAV, RACK

Tue: Consumer Confidence
Notable Earnings: ADM, CCJ, X, CMI, UARM, GPI, PZZA


Notable Earnings: ERTS, CEPH, QCOM, JEC, MGM, WTW, RIG, NKTR

Fri: Unemployment & Payroll

Big mover stocks for earnings today AMC & tomorrow BMO includes:


Daylight Saving Ended

For those of you not residing in U.S., pls take note that daylight saving has ended on 29 Oct. For those residing in Singapore, the market starts 1 hour later @ 10.30pm

Saturday, October 28, 2006

Time Off

I've had very light trading this week. In part due to FOMC, in part due to myself. To be honest, I'm way behind in terms of my trade review & documentation. Although I've jot down the details of trades entered on paper, but I have not taken a closer examination of the charts that I've traded, review where I have done well and what went wrong and properly document them down in excel. So I've decided to only resume trading AFTER I've completed ALL my trade reviews. Hope to be able to start trading early next week.

Do take some time to check out the Blogroll on the right and also My del.icio.us on the left for some good readings.

Have a great weekend!

Thursday, October 26, 2006

Chart Study - ENER, LM, PPDI

I was going through some of my usual stocklist yesterday morning & noticed ENER in an uptrend channel. It was almost at the base of the trendline & supported by rising 50 MA. Nice rebound yesterday if you have caught the move.

LM announced earnings on 24/10 BMO. Wild intraday moves & closed just above 78.6% Fib retracement (from low in Aug to high in Oct) with doji. Stock up the next day.

PPDI another example of like LM. After earnings, closed above 200 MA on super huge doji. Stock up the next day. However on 19/10, tested 50 MA but unable to break and with that, the stock broke down.

Doji on its own represents indecision & its pretty neutral. However, if it is able to closed above/below key resistance or support, it is likely to signal a turn.

Wednesday, October 25, 2006

Big Mover Stock For Earnings 25/10 - 26/10



*Note that according to Briefing.com, FFIV is reporting top line only because of ongoing option investigation

My del.icio.us

Just like to bring your attention to My del.icio.us, a section (now) located on the left middle section of this blog. Newly created on our blog, My del.icio.us is basically our favourite bookmarks when we come across interesting reads. The source could be from other bloggers' del.icio.us or our find. It doesn't really matter. What's important is that through the blog community, we are able to learn so much and at the same time share with others.

As you know, this blog is still fairly new, so we are constantly exploring and building on richer content. As always, your comments are welcomed.

Chart Study - X & TIE

I saw Wall St Warrior (aka Trader Jamie) feature X as a NR7 price expansion today. Coincidentally, I noticed X as well, but for another reason -its Flag pattern. Did not occur to me its a NR7 until I read on his blog, thks Jamie for pointing this out.

As with X, TIE also in a consolidation mood until its breakout today. Again another NR7.

Note how both X and TIE have lower than average vol. during the consolidation period & surge in vol. when breakout.

Introduction To Volatility

Nick Perry of Schaeffer's Investment Research gives a basic introduction to historical volatility vs implied volatility

Tuesday, October 24, 2006

Big Mover Stocks For Earnings 24/10 - 25/10

Sorry for this late post. Today is public holiday in Singapore and I was out most part of the day.

Today AMC:

Tomorrow BMO:

Note that according to Briefing.com:
-KLAC and FDRY which are reporting AMC today is reporting top line only because of ongoing option investigation

-CAKE which was originally scheduled to report today AMC is postponing the release of financial results for 3Q06 until the completion of the review of the company's historical stock option granting practices.

Monday, October 23, 2006

Week Ahead 23/10 - 27/10

On the economic front, FOMC Policy Statement on 25 Oct is the highlight of the week. Usually the days ahead of this important announcement are rather quiet, but with the earnnings season now on, let's hope to see more excitement in the market on Mon-Wed.

Notable earnings for this week includes:




Big mover stocks for earnings today AMC & tomorrow BMO includes:


Bulls Run

My COO showed this to me over the weekend, and it reminded me of the recent bulls run

Sunday, October 22, 2006

Secrets Of Options Trading Champion Revealed!

I have the honour to interview WeiPing Leong, who is the Grand Champion of the Options Trading Championship 2006 held in Singapore. During the 3 days championship using real money trading, WeiPing grew his portfolio by a whopping 198%! As part of his winning prize, he will be flying to U.S to visit the three Exchanges in Chicago. Here's our chat...

Simply Options Trader: How did you get started on options trading?

WeiPing: I got to know about options as a hedging tool during my university days way back in 1998. However, it was not until recent years that I started to look at it more seriously as a tool to trade for living. Thus, through attending options course which provided hands on exposure and doing extensive self studies, I believe I have equipped myself with ample knowledge to pursue my dream towards financial freedom through options trading. I always feel that we should take charge of our own financial life instead of waiting for the single paycheck at the end of the month.

However, at this moment, I'm still looking for every possible way to upgrade my skills in order to bring my trading experience to another level up.

Simply Options Trader: Describe your style of trading. How long do you typically hold positions? Do you buy front month options or options with more time value? Do you buy OTM, ATM or ITM options?

WeiPing: I consider my trading style as cautious as money management come on top of everything else. I plan my trade before placing a trade and I will trade according to my plan earlier. I normally do not hold my positions for more than 3 days to avoid theta decay. Most of the people have overlooked this by applying the stock investing principle in options trading which they are constantly hit by time decay without even knowing it.

My unique trading strategies give me the flexibility to switch between front month and longer term options to capitalize on the opportunities available that would maximize my risk to reward ratio. Having to say that, I do play OTM, ATM as well as ITM options depending on different circumstances.

Simply Options Trader: What are your favourite stocks for trading?

WeiPing: I personally like volatile stocks such as those from the energy as well as technology sectors. However, I do not restrict myself to other opportunities available as long as it fits my trading criteria.

Simply Options Trader: How do you determine entry?

WeiPing: My trading alert is mainly based on historical patterns, chart analysis and news. Any indication or confirmation of these would possibly trigger an entry signal.

Simply Options Trader: What's your exit strategy for winning and losing trades?

WeiPing: My exit strategy is simple. As I mentioned previously, I go into every trade with a trading plan that would predetermine my targeted profit and stop loss. So, whenever my profit target is reached, I would take profit by closing up my position. On the other hand, I would cut loss ruthlessly if my stop loss level is triggered.

Simply Options Trader: What technical indicators do you use?

WeiPing: MACD, Slow Stochastic, Fibonacci, Bollinger Band and SMA. However, most of the time I would use the combination of MACD and Slow Stochastic to determine appropriate entry level and I personally think that they are the best combination that I have come across.

Simply Options Trader: What single lesson did you learn along the way that has helped you the most in your trading?

WeiPing: I attribute my success to proper money management and I'm glad to learn about the importance of it earlier rather than later. What I have noticed along my trading journey is that newbies tend to succumb to the challenge of greed and given up their dreams thereafter. What I'm attempting to say is if you trade without proper money management, it's like you go to the battle field unprotected. Remember, money management always comes first.

Simply Options Trader: Tell us about 3 books you would recommend to traders to read

1) Trading For living-Alexander Elder
2) Short term trading in the new stock market-Toni Turner
3) The Complete Option Player-Ken Trester

These 3 books had played an important part in helping me to develop a consistent money making strategies in options trading.

Simply Options Trader: Give some advice to traders who have just started out

WeiPing: Always paper trade for at least half a year to get used to the strategies you are using. Make all the kind of mistakes you could possibly make and learn from it before risking your hard earned money. Do treat the paper trading seriously as it's a true reflection on your personality.

Simply Options Trader: What do you like best about trading?

WeiPing: Options trading is the kind of tool that could give us the maximum leverage with minimal capital outlay. It best suits the beginners who would like to enhance their trading skills with minimum risk which could possibly generating maximum profit. Besides that, no instruments other than trading can give you the privilege to convert information into cash in the fastest way.

Simply Options Trader: Thanks Wei Ping! Have a great trip to Chicago & we look forward to hearing more from you after your trip.

WeiPing: Yeah, I'm really looking forward to this trip and I hope to share my experience with you by the time I come back. Good luck!!

Thursday, October 19, 2006

Investors Are Indifferent To DOW Hitting 12,000

The latest Yahoo! Finance poll basically reflects that err....investors or traders don't really care about DOW hitting 12,000. So what's the hype at CNBC? Life still goes on...

Big Mover Stocks For Earnings 19/10 - 20/10

Today AMC:

Tomorrow BMO:

5 EMA Example by Trader-X

Trader-X had a very good example and explanation on using 5 EMA for day trading yesterday. Read here

Can DOW and SOX Hold?

The DOW marched strongly and crossed the 12,000 mark within 15min of the opening bell yesterday. However, this strength faltered and DOW eventually closed below 12,000. Let's see whether it can closed above 12,000 today, depending on the latest batch of earnings, AMC yesterday & BMO today.

Semicon stocks continued its losing streak, two days in a row. Can the rising 50MA support the SOX? Or will AMD, which was down 9.4% AMC after reporting earnings (down on lower than expected margin) drag the semis further?

Wednesday, October 18, 2006

Blog Juice From Traders

There have been a few happenings lately in the traders blog community. First, the launch of Wallstrip, nothing kinky here, but an info-tainment site with daily videos hosted by Lindsay Campbell and article contributions (or shall I say conversation?) by some of the well known trader bloggers. Want to know how to trade AAPL for earnings? Here's a post by Brian Shannon in Wallstrip. Here's another take on AAPL earnings by Adam

I would also like to introduce Michelle here. She is now a regular contributor to Trader Mike's blog. Her articles & comments are always well articulated and seems to go right into a trader's mind. Highly regarded by all, I recommend you read her contributions regularly.

In her latest write up, Out of the SKILL(let)into the Fire, she said

"Recently, I had reduced my trading rules to three, and I proudly presented this reduced list to my husband, who often plays the role of trading counselor. He was quiet, but his eyes said, two rules too many. So I had a think, and realized that the only rule is this one: Execute perceived opportunity according to my risk parameters. When a trader is surrounded by a flurry of rules, he wastes his focus and energy on not breaking them. They are actually a hindrance and not an aid. The rebel within says, no way, I am not going to obey these rules. Many rules also assuage the gnawing doubt that one does not really have a methodology, and therefore that problem, the fact that one's methodology is non-existent, risks never getting solved."

This is true because the day when I can cut down my trading rules to the bare minimum, I think I have made it as a trader as it means that these rules are so well embedded in me that they are part of me & I no longer think of them as rules! But of course till then, I still have to remind myself every now & then to follow my trading rules.

"We don't expect beginning pilots to fly huge planes at high altitudes all alone, and yet we expect that we can somehow do the equivalent in trading when we are first starting out. This common perception is fueled by the fact that making money by trading appears easy. It is possible that a trader can make the amount of money in an hour or even less which had taken several days to make at his previous job. This rather exciting aspect makes him think that trading must be easy; he does not need to have years of schooling and training as a surgeon needs to do in order to move up the salary ladder. He can just jump right in and mint the coin. Instead, he gives his money back to the market, again, again, and again, completely flummoxed as to why he cannot accumulate profits. Ironically, down the road, when he does trade in a consistently disciplined manner, making money does become easy-what he first thought it would be like before it turned into a nightmarish struggle with himself and the market."

I cannot agree more with Michelle on this. So many non-traders, and even traders themselves have the misconception that making money by trading is easy & expect to have windfalls right away. Trading, like any other skills or profession, takes time to be polished. And I think its better for you to pay your fees to the market when you first start out and learn from them than much later. Those who make huge windfalls when they first start out will usually not last in this market. Because their overconfidence, lack of money management and respect for the market will be their eventual downfall. Learn to trade well first, and the money will come later.

Market Wrap -18/10

The Core PPI data which rose a surprising 0.6% vs consensus 0.2% killed any hopes of DOW crossing 12,000 yesterday. The overall market tumbled and I've never seen the TRIN so high in a long time (it went as high as 2.36). The balancing came around lunch time & thereafter recovered some grounds, but the market indices still closed in the red. As mentioned before, the market is overextended & priced for perfection, so any tinge of negative news will create opportunity for sell-off, and today is a classic example.

We'll see if the CPI data today will serve as confirmation for the PPI data as PPI data are known to be much more volatile than CPI.

-PPDI had a wild swing after earnings released, closing the day with a huge doji. It will be interesting to see how this stock performs in next trading session

-After market closed, ILMN +18.5%, YHOO +4.2%, IBM +5.2%, INTC +1%, MOT -7.4%, NVLS -4.5%. Looks like a mixed bag of results, have to see how market reacts when it opens.

A friend ask for thoughts on YHOO before earnings and I said I'll prefer not to taking any sides for YHOO becos they have pre-announced negatively on 19 Sep & stock took a hit & is now trading at 2 year low. And with all other bad news already baked into the stock, I think there's more room for upside than downside. But I didn't participate in Oct 25 Call which I could have bought for 0.55, becos looking at YHOO chart, they face resistance @ 25 & 25.5. Doesn't look like a good risk-reward deal to me.

-Big movers for earnings today AMC & tomorrow BMO:

Tuesday, October 17, 2006

How To Trade Big Mover Stocks For Earnings

If you have seen the charts of ETN & GWW, you will know what I mean by big movers. These 2 companies released earnings BMO on Mon, and if you have studied their past price movement after earnings, you will have these 2 companies on your watchlist.

So how do you trade these big movers?

You can try a current month straddle if you are unsure which direction the stock will go after earnings. Well actually, nobody can be sure where the stock will head, regardless of amount of research done, unless you have a crystal ball. So betting on one direction is....just BETTING, unless your risk is very low e.g. option costs 0.1, 0.2, 0.3. I'm not saying that a current month straddle has no risk, it still has. The risk is if the stock doesn't move in a big fashion or the IV collapse is really dramatic. You need big movers for straddle because you have to cover the price of 2 legs (both the call & put) to breakeven. Also, the past may not necessarily represent the future. If there are some structural changes to the company, e.g. M&A, I recommend you stay out of earnings even if the company has moved big before. I learnt my lesson in VTS. Paper trade this strategy if you are new to see if it is suitable for you.

Alternatively, you can take note of these big movers and watch for chance to do a day trade AFTER earnings is announced. By then, the IV would have settled down somewhat & knowing their earnings results & analysts comments, you will have a better idea which direction the stock will go. Even better opportunities are those historically big mover stocks which have not made their moves post/pre market. GWW & ETN are good examples. Both have a minimum move of about $4 in the last few earnings announcements.

For today, you may want to watch these companies which have in the past been big movers:
-PPDI (announced 16/10 AMC)
-ILMN, YHOO, SYK (all to announce 17/10 AMC)
-CDWC(18/10 BMO)

Monday, October 16, 2006

Week Ahead 16/10 - 20/10

Its been a busy weekend for us. The annoying haze is back & my sinus was acting up the whole day yesterday. Feeling tired now, but looking at the exciting week ahead will definitely perk me up.

The earnings season will be in full gear this week with many big names announcing earnings. We've also got a few key economic data coming out as well. To top that off, this Fri is expiration day. WOW!

Tue: PPI
Notable earnings: IBM, INTC, YHOO, MOT, MER

Wed: CPI
Notable earnings: APPL, JPM, EBAY,AMD, ABT, AMLN, ET

Notable earnings: SNDK, BRCM, GOOG, MCD, KO, UNP, XLNX, NUE, RS, HON, BTU, NE

Fri: Expiration Day
Notable earnings: MMM, CAT, ACI, SLB

Whether the market can sustain this upward momentum or otherwise will largely depends on how the bulk of the companies performed in Q3 & more importantly their guidance.

During these few weeks of heavy earnings release, pls take extra care to check if the company you are trading is due to announce earnings if you are initiating swing trades.

Thursday, October 12, 2006

My Trading Style (Part 3)

Part 1, Part 2

When I come across potential candidates to trade, I will first zoom in on the potential room for movement. If the potential move is less than $1, I pass. Why? Because options trading is a different playing field from stocks. Let me give a simple illustration here. I've mentioned that I like to buy ITM options, having a delta of 0.5-1.0. So assume the following:

->Stock moves in your direction by +$1
->Delta @ 0.6. For every $1 move on the stock price, the option price moves by $0.6.
->Slippage of $0.2 for a round trip (which is very common)
=> Net(before commission) :+$0.4

And this is also assuming that IV doesn't go against you during this period and ignoring time decay. Now consider the risk you are taking on....you get the picture now? In stock trading, you don't need to consider factors like delta, IV, time decay. A $1 move on the stock price is a $1 gain (excluding commission). You will also realise that a $0.2 slippage as a % of option price of say $4.0 is far greater than as a % of stock price of say $50. No wonder Bernie Schaeffer said in his book, The Options Advisor, that many options traders fail because they trade options like stocks.

In terms of technical analysis, I'm currently mainly using indicators like Moving Averages and Fibonacci. Sometimes, I also look at Bollinger Bands (BB), RSI, ADX, MACD and Slow Stochastic. You can find out more about these indicators very easily, and Investopedia is a good place to start with.

My first mentor is a non-believer in technical analysis (T.A.) because he believes that T.A. reflects something of the past and stocks are only driven by news going forward. However, overtime and through my second mentor, I found T.A. to be very useful in helping me to determine resistance & support and hence determining entry & exit. These indicators are now an integral part of my trading. I'm not refuting the teachings of my first mentor, because news does really have its place in trading. Well, my VTS straddle trade is a living proof that news does matter. News such as earnings release, FDA approval, M&A etc are important and we need to know when such events are happening, especially if you are a swing trader. The last thing you want is to enter a swing trade and the next day it gaps in the opposite direction by 50%! due to some pending FDA approval or earnings report. Speaking of which I avoid holding overnight positions in energy sector & pharmaceutical sector as they are highly volatile.

Well, I've always feel that there is no one trading strategy that is superior than another. Its all about finding a trading style that suits yourself. In the next part, I'll share my thoughts on the 3Ms of trading: Mind, Money Management and Method. To be con't...

Wednesday, October 11, 2006

Trade Review - VTS Straddle

This trade review is overdue. And I told myself I gotta get it done today. Ok, I got slammed in the face by this *straddle* game which I took out for VTS earnings.
*Straddle is defined as call + put combination at same strike, same mth

Q1)Why did I enter?
-Becos based on the past few earnings anouncement, this co. has a min. movement of abt $4. Great moves, I told myself.
-Next I checked the volatility: Historical @48.5, IV @33.7. IV is still lower than HV, even better!
-At point of entry, stock price @64. Not too bad, its pretty close to the strike price, a condition which must be fulfilled before I do a straddle play.
-I ran the options calculator to estimate what my losses wld be in the worst case scenario, i.e stock moves sideways, time decay, IV collapse. Hmm, but wait a minute, since the IV is lower than HV, there is no IV collapse to talk abt. I did noticed that IV fell to 20s early Sep, right after co. announced merger. But heck, it can't go THAT low again I guess. Moreover, months prior to the merger news, the IV has been looking at an avg of 40. So I made do with downing the IV to just 30 for worst case scenario. Potential loss seems very acceptable in worst case scenario. Great! I was very excited, but I had a naggy feeling abt this trade....as I told my COO..but I went ahead nevertheless. I will talk more abt this naggy feeling later...

Q2)What & When did I buy?
Oct65 straddle @3.7 on 4/10. Company to announce earnings AMC that day

Q3)What happened after earnings released?
-Day 0:It announced $0.25 EPS vs Reuters estimates of $0.42. Revenues $178.4 mln vs $186 mln consensus. VERY lousy results. Good, looks like the market will thrash this stock.
-Day 1: But stock was flat as pancake the next trading day. And I realised that my straddle price is falling like a stone even though stock price has not really moved much. I immediately checked the IV. True enough, IV dropped to low 20s! Although it tried to make a dash towards 65 when it opened(which I can't justify given the very poor results), most of the day it was hovering bet. 64-65. Worse, I also noticed that volume was low compared to last few earnings release. Its not a good feeling, I knew I was dead meat if it continues in such directionless move. I decided to give it another day to move, and win lose or draw, I will close it before the weekends.
-Day 2 (6/10): I closed out my losing position @2.5, because it is not making the moves that I expected it to make

Q3)What went wrong & lesson learnt?
You remembered me talking abt the naggy feeling? The truth is, I noticed this stock for potential earnings the weekend before they are due to announced earnings. But I saw a big gap up in VTS chart in early Sep & found out that its due to a merger news. I have this subconscious feeling that the merger will limit the stock's ability to move big becos the price for the merger has already been agreed on. Nevertheless, I decided to ask my mentor. Expectedly, she told us that news doesn't bother her (She is not a news-driven trader, more of technical-driven trader), & that she has traded VTS for earnings in the past with good results, so she is going to keep this stock in mind closer to earnings.

Unfortunately, I think the merger did have an impact on this stock's earnings move and the trading volume after earnings confirmed that.And the real IV was probably closer to 20s than 30s now becos the merger news kind of change the whole landscape for this stock IV. I'm glad I closed this position early, becos you can see from the chart that the stock is not exactly going anywhere these few days & time decay (I bought Oct contracts) would have killed me even more if I hang on.

This is definitely the worst straddle trade for earnings I've had to date. I'm not blaming my mentor for this. No doubt her views gave me the reassurance to go ahead with this straddle, but as a trader, one should hold FULL responsibility for your own trades. And I only have myself to blame for not trusting my own intuition. But well, looking at it more positively, this trade has taught me to avoid co. that are in process of merging/being acquired for earnings play. And I paid the market to learn this lesson.

Earnings Season Start On The Wrong Foot

After reading the after market news on AA's disappointing Q3 results, I think the market will start on a negative tone the next trading day. AA is already down 6% after market closed (AMC). Expect it to drag the rest in the basic industry sector down.

Although DNA reported good results & raised Yr 06 guidance, some of its drug sales came in below street expectation. Stock is down 1.7% AMC.

LM is down 9.8% AMC as it guides below consensus. Though its reason for guiding down looks company specific, it may well provide a good excuse for profit taking in the rest of the financial sector which has been on a run lately.

All in, with the overall market looking over extended & losing some upside momentum in the last 2-3 trading sessions, these earnings result is not going to go down well with the market. Get ready your PUT options.

Founders Of YouTube Are $1.65B Richer!

Google is buying over YouTube for $1.65B!!! No wonder the 2 founders of YouTube, Chad & Steve are laughing(their way to the bank). Here's what they have to say...

Tuesday, October 10, 2006

"Could Haves, Would Haves" - SNDK, FLR

"Could Haves, Would Haves" are stocks which I have planned to trade, but due to some reasons or another e.g distracted (just like today!), have other positions to monitor etc, I did not execute them.

SNDK is one stock which I was looking to enter once it clears 58. Initial target @ 60. Didn't hit my target, but came close.

FLR has got a nice double bottom formation, and I was looking to enter above previous day high @78.88. Areas to watch: 80.0, 81.0. Ok, this one I was kind of watching it from the start, but had my reservation on the lower than avg volume, the bearish start of the market today & the slow trading day on a banking holiday. Usually for breakouts, I like to have confirmation with higher than avg volume. Nevertheless, it managed to come close to my first level of target @80

So what's the lesson I learnt today? STAY ALERT! Becos opportunities always come at the most unexpected time!

Blog Readings On Columbus Day

Quite a number of good bloggings, perhaps due to the quiet trading day. *Btw as I have mentioned earlier, we have made some changes to the format of the blog & will be adding more exciting stuff here. If you have problems viewing after this change, pls let me know through the comments section, any feedback is welcomed*

The latest blogger sentiment poll for the week by tickersense is out. Slightly bearish stand, but I see alot more bloggers standing neutral compared to previous week.
Trader Mike has an excellent write-up on NRB (Narrow Range Bar) if you want to find out more after reading my earlier post.

Wall St Warrior had a great day trade today on X, go check it out. After reading his 2 trade postings last week on X, I have added X on my watchlist over the weekend. But I guess I was not alert enough today, thinking its Columbus Holiday & it should be rather quiet and so I missed the boat on X. Btw, the move on steel stocks was due to rumours that London Metals Exchange maybe starting to start trading of steel futures.

And see Daily Options Report's Adam interview with stocktickr. I HAVE to have this quote from him here:

StockTickr: What advice can you offer traders who are just starting out?

Adam: Be disciplined. Define your risk. In many respects, you make money by NOT losing money. Good days come, often when you least expect them. It is your ability to whether the inevitable bad days that will keep you in the game until then. My experience is that traders who routinely 'double down' losers ultimately get carried out; traders that halve or take off losers tend to survive.

This is what I have been telling myself as well as a few friends who have just started trading. Bear this in mind especially if you are planning to have trading as a career.

Monday, October 09, 2006

Book Review - The Option Advisor

The Options Advisor

Those of you familiar with options would probably have heard of Bernie Schaeffer. An options expert, he is the chairman & CEO of http://www.schaeffersresearch.com and a frequent guest on TV and financial magazines

As this book is focussed on options trading, I found myself taking a longer than usual time to complete reading this book, simply because options & the trading of it is harder to understand than stocks. The Option Advisor is divided into 2 parts: Theory & Foundations; Application

In the first part, he compares expectational analysis vs. fundamental and technical analysis. His combination of expectational analysis with contrarian approach suggests buying on low expectation instead of merely low price as "cheap can get cheaper". I fully subscribe to this as many times, we see stocks move on expectation and nothing else has changed. Schaeffer talks about how to select the right stocks by using sentiment and technical indicators. I enjoyed chapter 4 "Managing Your Options Portfolio to Maximize Reward and Minimize Risk" the most. Risk management is one of the most important concepts in trading and here, he drives home this point by comparing the P&L of two traders.

Moving on to the next section, things are starting to get more exciting. He shares the different approaches to options trading, from aggressive strategies (what he calls the baseball strategy), Quick Trades (what I would call short term trading with duration of <1 week), LEAPS (Long-term Equity AnticiPation Securities) to conservative approach like credit spreads. These approaches demonstrate the versatility of options and you would probably find a strategy or two here which you like. If you have already started trading, you will probably find the next two chapters on selecting brokers, opening trading account to doing research on the internet to be of no value add or maybe even outdated (I think this book is written almost ten years ago)

If you are just starting out on options trading, this is quite a good book to learn more about open interest, options volume, implied volatility and the various options trading strategies. However, be prepared to take more time to digest this book.

My grading review: B

What Exactly Is Delta?

Up till last week, my understanding of an option's delta is that it represents the option price movement for a one point change in the underlying instrument. This means that if an option has delta of 0.5, the option price will move $0.5 for every $1 move in the stock, assuming all other variables constant.

I also understand that a OTM option has delta between 0-0.5; ATM option has 0.5 delta; ITM option has delta between 0.5-1.0, increasing as it gets further ITM. I am also aware that for the same strike, a front month option will have a higher delta than the next month option. But I never quite understand why, until I saw an article on "Delta for the rest of us" by Brian Overby in the Oct issue of Options Trader Magazine

In this clearly written article, he said that market makers define delta as "the option's probability of being ITM at expiration". Enlightenment! This definition makes much more sense than textbook explanation.

In other words, an ATM option has delta of 0.5 because it has 50% chance of expiring ITM. If say a stock is trading @$62 now & expiration is say this Fri. A current month 60 Call will have delta of say 0.95 as this option is highly likely (has 95% chance)to stay ITM with only a few days to expiration. On the other hand, a next month 60 Call has more time to move, hence likelihood of staying ITM at expiration is lower, which results in lower delta.

But the story is reverse for OTM options delta. A next month OTM option will have higher delta than current month OTM option, because as Brian says "If you are buying OTM options, time is your friend", so there is more time for the next month OTM option to move ITM by expiration, hence next month OTM option has higher delta.

Hope you have a better understanding of delta after reading this.

The Week Ahead 9/11-13/11

We made some changes to format of the blog over the weekend. Hope you like it...

Ok, this is going to be an interesting week, full of buzz. Let's see what we have got lined up:

Mon: Columbus Day
Banking Holiday. Bonds market will be closed. Expect it to be a light volume trading day for equities

Tue: Start of earnings season
Notable earnings: AA, DNA

Treasury Budget

Wed: FOMC Minutes
Notable earnings: YUM

Thurs: Fed Beige Book
Notable earnings: PEP, COST

Fri: Retail Sales
Notable earnings: GE

Friday, October 06, 2006

Election Conspiracy?

Just heard some juice abt the election conspiracy from TheBullTrader. Not sure if its true, just passing it along. As I'm living in Singapore, I'm not familiar with the governmental structure or election matters. So I looked up the wikipedia & found that the election for U.S. Senate & House election will be held on 7 Nov 06.

Extract from Briefing.com on sectors to note for coming election: Susquehanna sees brand name pharmaceuticals, defense contractors, telcos, pharmacy benefit managers (PBMs), managed care cos, asset managers, student lenders and oil and gas firms benefiting from continued Republican control of both chambers. Firm sees generic drug manufacturers, hospitals, and alternative energy providers benefiting more if the Democrats seize control of at least one of the chambers, most likely the House.

Where To Learn Day Trading - FREE

I've been reading a few of these blogs regularly because they have very good examples of day-trades. I think I will try to blend in some of their strategies with my own to better my day trading. But take note that we are dealing with options here, so you may need to fine-tune abit, instead of taking it wholesale.

These traders use:
-mostly 15 min or 30 min charts

-EMAs, but more commonly 5,8,10,13,20

But pls don't use ALL on your charts, you will have a hard time looking at charts with so many lines. Choose 2 which you think is suitable & stick to them

-NRB (narrow range bar) for entry

-Fibonacci Extension to set entry / exit target

Take some time to study these traders & their styles & I'm quite sure it will help to improve your day trading skills:

-MaoXian (abt 100 dummy trades egs. One of the first bloggers to use NRB concept)
-Wall St Warrior
-Mercado de Estocástica

Thursday, October 05, 2006

Stock Pimp of 2006

Oh my, check out who's the winner(s) of Stock Pimp '06

Congrats to them. Btw, I like to read their blogs too. I call them "character style" trader blogger :)

Dow Made It!

After trying for several days, DOW has finally closed at new ALL TIME HIGH @11850.6! CNBC should really have some fireworks to celebrate this! Hahaha!

Stocks rallied across the board as Fed Chairman Bernanke talks & economic data which lend support that interest rates will at least remain at current level. The Dow was up 1.1%, S&P 500 up 1.2% & Nasdaq up 2.1%. Tech, Retail & Housing sectors took lead in advancing. (p/s: I'm still thinking what's the real reason behind these advances. I think its more to do with the start of the qtr & fund managers have money now to buy into their favoured sectors)

OIH broke the 120 support after release of inventory data, but recovered to close @ 122.6. Cramer said on radio that OIH is a goner, more downside but getting close to a bottom.

Many traders had a good day, congrats to them. Let's hope the market will continue to trend up or down clearly & say goodbye to choppy days.

Btw, I bought Oct65 straddles for VTS, which is reporting earnings after market close. According to Reuters Estimates, it reported $0.25 EPS vs Reuters estimates of $0.42; revenues rose 30.5% YOY to $178.4 mln vs the $186 mln consensus. Figures look lousy. Should be on the downside tomorrow. Let's see how it works out.

Wednesday, October 04, 2006

Market & Stockwatch Recap 3/10

What i want to say abt the market today is pretty much summed up by Trader Mike & his charts. So I won't post the market charts here. Dow made a new high today of 11795. Hmm...but I just want to caution that Dow is only made up of 30 stocks, so its move can be easily manipulated. Anyways, all 3 major indices bounced off their support & started gaining momentum to the upside after 10am ET.

I was pretty frustrated that I was not able to participate in 2/3 stocks I highlighted yesterday. Both had moved far too fast for me to react. Duh...both had managed to hit my initial targets....if only I was fast enough, if...if...if. This kind of experience pains me as well, although I know deep in me that its really no fault of mine. Ok, enough of whinning...Now let's take a closer look at the 3 stocks that I mentioned yesterday:

PPDI: It made a $1 move in 5 mins from market open. Too fast for me to catch. It hit my initial targets of 34.0,33.75. So I had to let it go. Throughout the day, 33.75 served as the support. See chart.

: A gap down & also another $1 move in 5 mins from market open. Again too fast for me to catch. Hit my initial target of 39.0 before rebounding to close positive. See chart.

HRS: Still in my watchlist, waiting for it to clear 42.0

Tuesday, October 03, 2006

StockWatch - 3/10

Click charts to enlarge view

Expect Weakness In Semi

Marvell (MRVL) shook the after hours trading when it reduced 3Q07 rev guidance & its Board of Directors has concluded that the co. would need to restate historical financial statements. Stock trading down 18%. According to Briefing.com, the anticipated decline in net rev is largely due to lower than expected demand from a number of the co's hard disk drive customers.

Trading down in sympathy is Broadcom (BRCM).

Expect this news to dominate weakness in Nasdaq & SOX tonite when U.S market opens.

Monday, October 02, 2006

Good Readings

Check out this interesting post by Dr Brett Steenbarger , a psychologist, on Trading to Win Vs. Trading to Not Lose

To quote him: "We can never eliminate loss from life or trading; nor can we repeal the basic uncertainties of markets. What we can do is develop an edge in the marketplace and, over the course of many trades, let that edge accumulate in our favor." How True!

In case you haven't noticed, I've recently posted some good articles here.Before we start trading in the month of Oct, take stock of Sep & do some good readings to reinforce your mental strength & you should be off to a good start!

End Of Sept, Looking Forward To Oct

Like what many fellow traders (tradergav,Uglychart, movethemarket,stocktickr) feels,Sept is indeed a tough month for trading & some think its even a tougher month than Aug. Looking back, although overall market was on the uptrend, if you have watched the market closely, its really choppy. Just like a tennis game, the scoreline is NOT really reflective of the intensity of the match. A set 6-2 looks like the winner trounced the loser, but if every game was a deuce, then the scoreline belies the difficult match.

For myself, I had less trading activity in Sep because there were simply less good setups & market condition was not favourable for trading in many days. And I think the following rules from Linda Bradford (thanks to TraderGav)in particular saved me from being whipsaw in Sep:

-Never get into the market because you are anxious because of waiting
-If a market doesn't do what you think it should do, get out
-Standing aside is a position

If any of you out there had a fantastic trading month in Sep, pls add your comments here. I'm sure we will all be happy to learn from you.

Anyways, Welcome Oct!