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Remember – on this site and in our virtual portfolios ALL trades that are discussed are VIRTUAL trades and all virtual portfolios kept are VIRTUAL portfolios.  While we do our best to track the performance of various trade ideas in order to better understand the results over time – it is for educational purposes only, in no way, shape or form should you consider these to be actual results and you should never execute any trade idea that is discussed here without consulting a professional financial adviser.

Trading Policies

Entering a position: I do not generally enter a position when momentum is taking it in the wrong direction or if the market/sector is moving the wrong direction.  I rarely take a full position right away (see article on Scaling In). Generally, out of the list I share with you, I look for ones that have been going the WRONG way and then (after I check news and other factors to make sure my assumptions weren't wrong) see if there is an opportunity to jump in as a contrarian once the wrong-way momentum seems to be slowing, getting my options cheaper than I originally planned.

When entering a position I generally have a goal, say 100 contracts that I want to buy for my watch price or less. I usually put in a bid a dime under the asking price and hope for a pullback on my first 10 contracts then wait to see which way they go. If it takes off the way I thought, I buy 10 to 30 more (depending on confidence, my target price, why it is moving (news)...) at which point I usually will wait a day to see where it shakes out.

If a position goes my way quickly, this method means I only get 1/2 or less of what I intended but the profits usually make up for it. If it goes my way slowly, I build into a full position over the next few sessions.

If a position goes against me quickly, I only lose say 20% of 10-30% of what I intended to bet so I'm not devastated. At this point it gets complicated because I rechart, recheck and generally rethink but sometimes I will wait a bit (an hour, a day, a week) and add to my position at the lower price, reducing my base cost.

As a rule of thumb, if I'm not willing to put in more money when I am 20% down then I kill the trade entirely. At that point, I either move on or target a new entry, perhaps at 50% down but with options I often need to move into the next bracket by then (like an LVS trade we made where I started with $50 puts, which got smoked, and ended up with 150% of my original target in $55 puts).

Always be aware of the premium you are paying for an option and how the time value of the premium deteriorates every day. If, for example, you buy TXN calls 1 month out for a $1 premium, you are automatically losing .05 per session in time value. Unless you have a very good reason to think the stock will gain more than .05 every single day for the next month, you are just letting money drip away from you!

My goal in buying an option is almost never to hold it to expiration. Generally, on short-time contracts, I am playing for a swing in the equity price (or just the implied volatility of the contract) that will net me 20%.

The 20% quick gain: If this is an equity trade, this is a 5% rule where I set a 4% stop but I almost never trade equities...

Once a trade nets 20%, I immediately set a stop at a 15% gain. Making 15% on a short trade is a lot of money!!! Whether you make $5 or .05 per contract, 15% is still 15% and you need to be able to live with that.

For the purpose of my picks, I generally have no interest in a position once it makes (or loses) 20%, the trade is over if it goes down from that spot!

If the contract keeps going up I will usually a stop at 20% of the profits. At this point I am done with the position and am actually anxious to get my money back so I can move on to another trade as I am unlikely to make another 20% on this one.

Depending on how I feel about the trade at, say 30%, I will often set a sell price at 35% and hope to cash out. It is similar to when I am losing a trade - I ask myself if I would put money in at this price? If the answer is no, then I sell to some other sucker asap!

The 50% gain: At a 50% gain, I am looking to get my cash out right asap. I often feel like a thief for making that kind of money so I look to absolve myself with cash! If the stock even twitches at this level I get out and, unless I am 100% confident in my position, I do not leave it open to chance in the overnights.

Almost without fail, once a position goes to a 100% profit I take 1/2 off the table and set a very tight stop (no more than 20% of the profits) on the balance. At that point it is free money and I may let it ride for some time unless I need the cash for a better opportunity.

Bracketing: If I am in a wildly successful position, say the CME $420s go from $5 to $12, I will look to take the profits and re-bet my initial amount ($5) on the next available bracket (probably the $440s by then). This is assuming, of course, that I would, in a vacuum, make that trade from scratch given the new circumstances. Again, this gives me a free ride with a 40% profit already cashed out and I can relax.

Also, the $440s will not deteriorate as fast as the $420s will if the stock moves the other way, ie. a $10 drop will only cost me half of my position in an out of the money call whereas it would have put me back to scratch had I kept my initial position.

Exiting a position: No one ever went broke taking a profit - or a small loss! Learning to lose is probably the most important part of trading. When I'm wrong, I'm wrong. I get out and move on, end of story.

Like many times in my dating life, I am looking to get out of a relationship with a stock almost from the minute I find myself in one! As soon as I take up a position (because I LOVE the opportunity), I immediately become hyper-critical of every little thing it does and I am looking to leave it for a newer, more attractive opportunity. Perhaps this is cruel but I've never gotten a late-night phone call from a stock asking why I left it so I assume it found another buyer as well...

In day trades I generally put in a sell order in as soon as I take the position. If the momentum is strong in my favor I may raise my stop but if I buy something at 10am and someone is offering me 20% more at noon, I tend to take it! That kind of action is usually what Mr. Greenspan calls "irrational exuberance."

I have bought a contract, sold it, bought it again, sold it and bought it again all in the same day on many occasions (you have to trade electronically to do this, brokers can't take it).

Just like a relationship, I find it is best to just end it, not drag it out. I usually offer up my whole sale amount right at the current ask, not bid and give it a little while. Never, ever, ever put in market orders. Never, ever, ever, ever...

Did I say Never? Never, ever, ever...

OK, moving on. Never put in market orders - THEY will steal your money every time. Set a price you are willing to buy or sell for and stick to it. If I want to buy INTC $20 calls for .35 I will usually bid .30 and see what happens. If I get it, I am already 17% ahead of where I would have been. After a while or a short while if the stock is moving on me, I will give up and pay the .35 but I will feel better about it as I know no one is giving the stuff away for less.

If I put an offer in for .35 and I don't get it and it goes to .45 and I put in .45 and I don't get that I usually wave bye bye as that train has left the station. You need to rethink what you were trying to do at that point because if I had bought it for .35 and it hits .50 that quickly, I am sure as heck gonna take my 40% and run! That means you may be the proverbial bag holder at this point.

The Valero Rule: Whenever I am going to make an oil trade, if I want to win, I strictly enforce the Valero Rule.

You may hear a rumor or you may see a price spike or you may have information but you will never have anything on the guys who trade this stock!

The rule is very simple:

Do not take a long position when VLO is going down.

Do not take a short position when VLO is going up.

To confirm the Valero rule and make a trade I usually look at XOM, a lagging indicator and the OGX, OIH and XLE, middle indicators of the whole market and, of course, the actual price of oil or the USO ETF. Additonal stocks in the group are CVX, CHK, SU, SLB. We also have guest slots depending on news.

When almost all of these stocks are moving positive, I am confident buying - when moving negative, I will short with a vengeance.

When Valero changes direction, take your bets off the table!!!

The price action of Valero is like a window into oil arbitrage as the company, a massive refiner, buys oil on the spot market, adds value to it and then sells the refined products on the open market.

One look at the stock's appreciation over the years tells you not only are they good at their jobs but they also seem to get better and better at it each year!

How do they know? I don't know, I just know that after obsessing on this for over a year I now just accept the fact that they are much better at this than I am so I follow the Valero rule pretty religiously. Whenever I make an oil trade or talk about one, I try to remember to say that it is subject to the Valero rule but now I will be able to point to the article rather than rehash the basics each time.

The Microwave Oven Theory of Behavior: I am going to tell you something that I feel makes me a good trader. It is a Nobel Prize quality theory, so make sure I get credit:

People love to make random decisions and stick to them like they were directly given it as a commandment!

How does this relate to microwaves? Well, aside from the fact that our brains are constantly being fried by the things every day (ever drive on the highway and see one of those dishes aimed right at you? Do you know birds die if they fly too close to them?), this is what I observe.

You put something in the microwave, say pizza, and you put in a time, say 3:33 (or maybe you are a whole number person and do 3 or 4 minutes). Now, unless you are a chain store pizza buyer your pizza slice is probably not always the same size or maybe it has different toppings etc but you probably put in the same number every time.

Axiom number 1: People tend to repeat behavior, especially if it was successful once.

So the light goes on and the little thing spins and you are either a watcher or a walker (as you may have guessed, I hit the button and leave the room) but either way you usually end up standing by the oven with 20 or 30 seconds to go waiting for it to stop.

Here's where the Nobel Prize committee has to recognize me:

Axiom number 2: Everyone likes to think they knew (not know) something.

Now you are standing there watching the pizza spin and looking at the timer.

You may think it is done.

You may know it is done (you see cheese boiling)

You may be hungry.

You may be in a hurry.

But you will wait and you will watch the little numbers count down until you hear that beep. Go on, try it - I dare you to open the door with 3 seconds left!

Axiom number 3: We stick to arbitrary prior decisions despite new information to the contrary.

You pick a random number of seconds to cook food and then, despite observations to the contrary or a change in the situation, you stick to your original decision - In fact you are trapped by it! It is very, very hard to ignore your own advice, even though you didn't intend it to be advice to your future self at the time - just a number you picked on a whim. Your future self always defers to you because he/she thinks you are (were) the greatest thing since sliced bread!

This is what happens to people just 3 minutes after a decision is made, what about trade decisions that are made days or weeks ago?

Ah hah, so it does go back to trading (I bet you thought I was losing it!)....

Rather than reresearch, reread, rethink, reexamine our targets, we tend to treat them as set in stone. Learning not to do this will make you a much better trader (and also help you to finally redecorate the living room or clean out your desk or whatever).

Old decisions were made by the old you. The new you has learned things since then (even if it was just 3 minutes ago). The new you is older and wiser and more experienced and has had the benefit of reviewing your GUESS (because that is all it was) in light of real world circumstances and the new you is ready to make a proper decision.

Often the new me can't imagine what the old me was thinking when I made a trade or set a target (or gave that girl my phone number) but since I know how often the old me makes mistakes, I have no problem overriding my decisions even if it means a complete reversal!

If you can do that, you can beat the market because 95% of the people you are trading against cannot let go of those arbitrary targets they set for themselves when circumstances were different.

When Google, for example is upgraded to $500 but it stutters at $480, SELL! Open the door and take the pizza, it's done!!! If it isn't (you take a bite and it's still a bit cold) then get back in.

That's right, the old me bought Google at $420 when an analyst said $490 and the stock went to $470 in 2 days and I feel like a genius so I start counting my $50 profit and thinking about what I will do with it.

The next day it flatlines at $468-$470 and volume drops but the old me said $490 and I was right before and I said I have another $20 coming to me....

This is terrible logic!!! Why are you listening to the old you? (I know, it sounds kind of schitzo) You've had 2 days of observation yet you are willing to ignore that in order to slavishly follow, not even what you thought, but what some analyst thought 2 days ago (and he was probably listening to the old him).

You are you from the future. Full of knowledge that the old you wishes he had at the time.

HOMEWORK: Watch Back to the Future part 2 where Biff steals the sports almanac and gives it to the old him. Listen to what he tells himself.

Also, watch Deal or No Deal (NBC) with the Microwave Theory in your hand and think about how you make decisions.


Zero Hedge

US Claims Malfunctioning Russian Cruise Missiles Hit Iran

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

The past seven days have brought a wave of competing propaganda from both Washington and Moscow as both East and West scramble to shape the narrative on Syria where Russia’s “intervention” has apparently turned the tide in favor of Damascus, completely destroying the anti-Assad strategy of the Pentagon’s regional allies. 

It’s absolutely imperative for everyone to do their best to maintain the public’s trust here. This is how we put it on Wednesday: 

The West cannot afford to stand by and watch Russia do in a matter of weeks what the US has failed to accomplish in 13 months. Put simply: if Moscow declares victory over ISIS within the next month or two (and that ...

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All About Trends

Mid-Day Update

Reminder: David is available to chat with Members, comments are found below each post.

Click here for the full report.

To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Market News

News You Can Use From Phil's Stock World


Financial Markets and Economy

Zambia Seeks to Restore Confidence With Budget Amid Power Crisis (Bloomberg)

Zambian Finance Minister Alexander Chikwanda is seeking to restore confidence in the economy to help reverse the world’s worst currency, record borrowing costs and sliding growth. The two things that matter the most to the outlook are the copper price and power supply, which he has little control over. 

The World Bank is betting on mass migration driving the global economy (Business Insider)

The impact of&nb...

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Phil's Favorites

Deutsche Bank's $7 Billion Loss Is Just the Beginning of Wall Street Woes

Courtesy of Pam Martens.

Our email inbox yesterday and this morning raised more alarm bells for the mega banks – you know the ones I mean; the ones that should have been broken up before we were on the cusp of the next downturn. Here’s a quick rundown before we get into the details:

  • Deutsche Bank announced it will take an approximate $7 billion writedown in the third quarter and potentially eliminate its dividend;
  • Charles Schwab is out with a report on the potential for deflation and what it could do to corporate earnings;
  • The Treasury’s Office of Financial Research released a report on big bank liquidity concerns;
  • Bank of America released a report on the $100 billion exposure that the troubled commodities firm, Glencore, poses to global financial institutio...

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Kimble Charting Solutions

S&P 500…Stuck in this zone, welcome to the “Chop House!”

Courtesy of Chris Kimble.


What do S&P 500 bull and bears have in common? There opportunities are being limited by a tight range!

I started sharing with members several weeks ago that the patterns suggested the S&P would be in a “Chop House” environment for a while and that I doubted bulls nor bears would be that happy of campers.

In this type of an environment, unless you are really quick, nimble and accurate, its a time and place to take it easy and let this play out. For the majority of traders, the distance between the close on 8/25 at 186 and the close of 200 on 9/16...

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Whitney Tilson On LL, EXACT, And Martin Shkreli


Whitney Tilson On LL, EXACT, And Martin Shkreli

Courtesy of Value Walk

1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:

  • The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
  • I think this is the beginning of the end for the company.
  • My price target for the stock a year from now is $3, so I shorted more yes...

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Chart School

Yesterday's Losses Reversed

Courtesy of Declan.

Bulls can be happy with today's progress. What weakness emerged today was reversed by the close, a change on yesterday's action where sellers dumped in the last few minutes of trading. Volume climbed to register an accumulation day.

The S&P finished at the 50-day MA, but beyond that there is plenty of room beyond that to run to the next level of resistance at 2,045. Technicals are net bullish.

The Nasdaq pushed off its 20-day MA and has another 50 points of maneuver before it gets to its 50-day MA.  Technicals are not yet net bullish, but they are close.


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Sector Detector: Searching for solid support in the face of global headwinds

Reminder: Sabrient is available to chat with Members, comments are found below each post.

Courtesy of Sabrient Systems and Gradient Analytics

Uncertainty about the health of the global economy led investors to flee U.S. equities during Q3, primarily driven by worries about China's growth prospects and the Federal Reserve’s decision to not raise rates. Sure, there are plenty of real and perceived headwinds, but on balance it seems that a recession here at home is not in the cards. And when you consider sentiment and the technical picture, it appears that a continuation of Friday’s bounce is in store. The question remains as to whether the seasonally strong Q4 will be able to propel the bulls through levels of resistance that have built up.

In this weekly update, I give my view o...

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Swing trading portfolio - week of October 5th, 2015

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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Baxter's Spinoff

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).

The Baxalta Spinoff

By Ilene with Trevor of Lowenthal Capital Partners and Paul Price

In its recent filing with the SEC, Baxter provides:

“This information statement is being ...

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Mapping The Market

An update on oil proxies

Courtesy of Jean-Luc Saillard

Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself. 


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Watch the Phil Davis Special on Money Talk on BNN TV!

Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene


The replay is now available on BNN's website. For the three part series, click on the links below. 

Part 1 is here (discussing the macro outlook for the markets) Part 2 is here. (discussing our main trading strategies) Part 3 is here. (reviewing our pick of th...

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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

Thank you for you time!

FeedTheBull - Top Stock market and Finance Sites

About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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