We’ve adjusted a position in the Paid-to-Play portfolio today: [Read more…]
The Math Doesn’t Work When You Suffer Big Losses
I was talking with a relatively new day trader last night at my twice-monthly trader meetups here in Colorado. We were chatting about stop losses. Or more specifically, his inability to stick to his “mental stop loss levels.”
As you can imagine, this was leading to him taking occasional big losses – which were wiping out good runs in the market.
He’d make a few hundred bucks several days in a row. He’d then lose it all (and then some) on one bad trade.
A lightbulb went off in his head when I reframed the importance of not taking big losses. No doubt many of you are shaking your heads and uttering – duh!
But for this gentleman, it took me breaking it down this way for him to get the picture: [Read more…]
[Options Premium] Blue Steel
I dunno why, but thinking about train tracks and rail stocks got me thinking of Blue Steel. There is absolutely no connection between today’s trade and the pose made famous by the Zoolander film. But, you’re welcome.
Today’s trade idea comes straight from All Star Charts’ recent Mid-Month Conference Call.
While not aggressively bullish here, I do think there is an opportunity to leverage high options premiums into a high-probability bet. [Read more…]
[Options] Avoiding Earnings Landmines
It’s that time of the quarter where we options swing traders need to be extra mindful of pending earnings releases. The last thing we want to do is place a directional bet in a stock or it’s options heading into a binary event that could decapitate us in a heartbeat.
This is frustrating us right now because most of the charts we like best (both the bullish and bearish ones) are in stocks with earnings slated to be released in the next week or two.
During our morning Analyst meeting today, we discussed the fact that many of the banking/financial sector stocks have already reported earnings by now, therefore, this is a place we should look.
Specifically, we like the big money center mega/multinational banks that are represented best by the $KBE ETF. Here is a chart that paints a pretty good picture of why we like it: [Read more…]
[Options Premium] Knives are Falling
Our Ian Culley said it best:
Don’t catch falling knives!
It sounds simple enough. But in reality, traders continue to lose fingers as they reach for downtrending assets.
It’s true in stocks, it’s true in commodities, and it’s true in bonds. It’s true in any asset class, really.
And the knives keep falling left and right. Let’s avoid getting our hands cut and let’s just go with the trend, shall we?
[Options Premium] Hiding Out With the Aristocrats
While this certainly is not the market environment to be taking aggressive long bets in, there are some stocks that are displaying tremendous relative strength that we can play with strictly defined-risk positions to protect ourselves.
Our Young Aristocrats Report shows us stocks that aren’t just paying dividends but are doing so while they’re going up and thus paying us via price appreciation as well.
And this week’s report serves up a great opportunity.
[Options] When It’s Tough Picking Direction, Why Choose at All?
Look, we’re not going to sugarcoat it: it’s hard out there right now.
Regardless of your timeframe, if you’re trying to make aggressive long or short bets in this tape, you’re getting chopped up. So are we.
These types of markets grind us out and wear us out. It is what it is. We can’t choose the market we’re given, we can only control how we react to it.
This much we know — forcing directional bets right now feels like a fool’s errand.
But with options premiums elevated across the board, there are opportunities to put on delta-neutral short premium trades where charts suggest some consolidation may be taking place. However, we need to be careful not to sell premium on stocks that have earnings releases coming up soon. So to avoid that all together, we’re going to limit our universe to index and sector ETFs. [Read more…]
Anything Can Happen. Be Ready.
The best trade I ever executed was a loss.
That is not a typo. I lost money on this trade. Actually, it was a series of trades. But it was executed with one decision and one combination of keystrokes.
It was the summer of 1998, and it was my first year trading.
The Long-Term Capital Management debacle was weighing on markets. There was money being made on the short side. Big money.
Many of the more successful traders in my office had already earned a boatload of cash with aggressive short trades on this particular morning. And at lunchtime, they decided to head out to the golf course to celebrate another day of crushing the markets.
But not me.
Nope, I was still a piker trader at that time, still trying to figure out how to stop losing money. So while the rest of the guys were high-fiving each other on the way out the door to the golf course, I stayed at my desk banging keys, trying to catch up to the big shots.
As we moved through the sleepy lunch hour, markets were showing signs of another leg down and I was building a short position in about 8-10 stocks. Slowly at first. Small amounts of shares. Nibbles, really.
But my conviction in my bearish position continued to rise as S&P futures fell. So I continued to increase my position. I was shorting the big dogs at the time: Microsoft, Intel, Yahoo, Worldcom, Dell, eBay, and a few other semiconductor stocks.
Over the course of about an hour, I had gotten my position big enough that it was actually starting to make me uncomfortable. It wasn’t my largest position ever, but it was still uncomfortably large for me. I was making a little bit of money – not a lot – in this position, but I was already starting to count the winnings I was surely about to earn when the bottom fell out of the market and skidded toward the closing bell.
And then the unthinkable happened… [Read more…]
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