Archive for 2008

Trading Surprises

To be conscious that you are ignorant is a great step to knowledge” – Benjamin Disraeli
For many traders, novices and experienced alike, surprising news events can derail a virtual portfolio and many months of gains. In the past week I have had the opportunity to chat with a number of traders who made fantastic gains last year (>100%). And yet a good number of them have seen those hard-earned gains nearly decimated in the first month of the year. As I delved deeper into their strategies, I realized that many had been lulled into bullish complacency and had turned a blind eye to managing risk. A standard approach to managing risk is to maintain a degree of hedging at all times by employing index long put options against bullish virtual portfolio positions. But what happens when week after week and month after month the stock market rises and those long puts lose value as happened throughout much of last year?
Understandably, most traders hate taking losses and it becomes so frustrating to see gains from bullish positions diminished somewhat due to long put losses. As a result, many choose to abandon the protection afforded altogether. Indeed, a great majority of the traders I chatted with who suffered declines this month stated that they had decided not to buy put options because they considered them “expensive”. One trader in particular saw his account drop over half a million dollars because he refused to buy ‘expensive’ put options to protect bullish positions. 
One of the biggest advancements in any trading career is learning to accept losses. More specifically, a huge leap forward for any trader is to recognize that the goal is for the overall account value to increase and that it is perfectly fine for some positions in the account to lose value. In short, successful options trading demands hedging positions and it is the combination of those positions that should be profitable. Most traders focus on single positions within a virtual portfolio at the expense of prudent risk management. If you want to take your trading to the next level, focus on profiting from the combination of hedged positions. 
This is so important because any number of surprises can derail a virtual portfolio at any time and it can be

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CSI: Wall Street – Pinning the Rap on Societe Generale

I am trying to figure out if SocGen caused the big sell-off all by itself or if it was just the first of many hedge-type fund catastrophes we can be expecting this quarter as it's kind of difficult to sweep a year-end 100 point drop in the S&P under the rug

Mike's chart yesterday made me a little nervous, as did the market action on Friday as did the sheer idiocy of the Fed and the administration in handling the situation.  Barry Ritholtz thinks he may have a smoking gun as there was a job listing posted on Bloomberg fo what sounds just like the position held by "Rogue Trader" Jerome Kerviel way back on Jan 15th:



So when did SocGen know they had a problem and what on Earth would have made them decide to liquidate the virtual portfolio on one of the least liquid days of the year?  What could the mindset have been that this bank looked at $7Bn in paper losses and decided they'd better realize them now, rather than give the market a chance to come back from its nearly 10% dip that started the year?

An article in the British Telegraph also pegs the start of the scandal back around the 17th and it reads like a suspense thriller but I couldn't take it seriously as it refers to a "sharp-eyed compliance officer" who spotted Billions and Billions of euros worth of non-compliant transactions.   Gosh I'd hate to think what they myopic ones must be missing! 

Sharp-eyed heroes aside, the fact is that the President of the bank ran back after work and the entire "team worked late into the night tracing the origins of the strange trades."   Now look how neatly that timing (15th or 17th) coincides with the S&P failing support at 1,400, where it followed the CAC as it fell and gapped down.   In today's super-fast information age it's a little bit tricky to apply rumor spread theory but this sure looks like it fits the bill! 

It's ridiculous to think that an emergency gathering of senior staff at a large bank like SocGen would be able to conduct an investigation to track down Billions of
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Wild Weekly Wrap-Up

"Forward, backward, inward, outward, come and join the chase.  Nothing could be drier than a jolly caucus race.   Backward, forward, outward, inward, bottom to the top.  Never a beginning, there can never be a stop to skipping, hopping, tripping fancy free and gay.  Started it tomorrow but will finish yesterday.  'Round and 'round and 'round we go until forevermore.  For once we were behind but now we find we are be-Forward, backward, inward, outward, come and join the chase.  Nothing could be drier than a jolly caucus race!" – Alice in Wonderland

Are we on a road to nowhere or making some progress?

This week was an improvement over last week, when we had 4 consecutive down days, giving up 800 points from Tuesday to Tuesday.  Friday was a big disappointment as we have to crack 12,500 and then 12,700 to achieve some kind of symmetry that would indicate a recovery otherwise, based on chart patterns alone, things are going to look pretty grim.

While the Dow managed to "bounce" off the August lows, the Trader Mike paints a darker picture of the S&P, which treated our old floor as a ceiling in yesterday's trading.  I mentioned in the morning post that we would have to take the pre-market gains with "a large grain of salt" and it only took me 10 minutes of trading to tell members "I’m not very excited about this market" in the morning chat.

At 9:55 we went for the QID $49s (ultra shorts on the Nasdaq) and just 7 minutes later I gave the general warning, with the Dow still at 12,445: "People are taking profits, be careful!"  By 10:39 we broke negative and I said: "For YHOO and all non-executed positions. Cash is better than stocks heading into the weekend. We were very, very lucky to come 600 points off our lows and, as I said yesterday, you have got to be well covered heading into the weekend."

We've been discussing all week the reasons investors tend to lose money and there was an excellent late-night discussion of trading strategies on the member board that I encourage everyone to read.  Along those lines, Dr. Brett posted a piece elaborating on this theme where he brings up the
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Bond insurers see whorling implied volatility on bailout fears


MBIA, ABK – Shares in the nation’s two largest municipal bond insurers, MBIA and Ambac, retreated sharply in afternoon trading after New York’s insurance superintendent suggested in an emailed statement that any sort of formalized bailout of the insurers would take time. Yesterday’s meeting between New York insurance regulators and a number of major banks regarding a possible bailout was a contributing factor to yesterday’s bumper rally in financials, sending credit default swaps on MBIA and Ambac sharply lower. Today’s uncertainty over the timeline and circumstances of a rescue plan has led to a general recalibration of the risk assessment in MBIA and Ambac shares. Implied volatility in both insurers is sharply higher, up 14.5% to 230% in MBIA and up 12.5% to 230% in Ambac. MBIA option activity showed traders rush to buy puts at the 10 and 12.50 strikes, selling calls at the March 15 line for $3.20 in what can safely be described as defensive posturing. MBIA shares are currently 12.7% lower at $14.49. The same held true in Ambac, where puts at the February 7.50 line sold heavily at twice the level of open interest, while puts at the 10 and 12.50 strikes were bought. Heavy traffic in calls at the 10, 12.50, 15 and 17 strikes suggest volatility positioning here as well, as Ambac shares trade 11.6% lower at $12.10.

QCOM – Shares in Qualcomm, the world’s second-largest maker of semiconductor components for cell phone, surged 9.5% to $40.03 this afternoon after the company boosted guidance for 2008 on strong global demand for its chips. With nearly 144,000 options trading this afternoon, four times as many calls are trading as puts, but directional bias shows many looking for muted upside in Qualcomm shares. Calls at the February 40 strike were most actively traded today as premiums were nearly 300% fatter, attracting buyers and sellers, while calls at the next higher strike, the 42.50 line, were mostly sold. In the March contract, we observed fresh shorting in March 40 calls on volume of nearly 9,000 lots, with traders pocketing the $2.25 premium in the expectation that the break past $40 won’t be sustained into March.

HGSI – Shares in Human Genome Sciences are basking in a 10% gain this afternoon at $6.19, having plummeted earlier after the company reported…
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Friday Already?

Boy this week flew by!

Certainly one of the most exciting weeks we’ve had in a long time and it’s very funny that we are making a very neat retracement which I predicted last night would lead us back to (hopefully) 12,777 on Monday as we retrace a very wide V-bottom where today’s likely close is  around 12,500

It would have been a great week to take a vacation and I’m sure going to be rolling up our protection into the weekend as we still have plenty of open calls, even after yesterday’s wild ride.  I didn’t get a wrap-up out yesterday as I was working on the virtual portfolio reviews but Free site readers can see some of the intra-day action under Thursday’s post as we are still testing the copy system for the basic membership site.

The news after hours was as good as it gets with even Alan Greenspan coming out with positive comments on the economy.  This is so surprising and the timing so perfect that this morning I’ve counted 6 different guests who’ve used the term "conspiracy" to explain the madness of the week!  Richard Daughty wrote an amusing but true article in the Asian Times called "Bank Robbery Index Turns Bullish" where he says: "The irony is that the REAL crooks are the banks themselves! Hahaha! The Federal Reserve has been wildly, childishly, stupidly moronic in creating so damned much money and credit, year after year, expanding the money supply (monetary inflation), that they have stolen the buying power of your money."

Our society is run by insane people for insane objectives. I think we’re being run by maniacs for maniacal ends and I think I’m liable to be put away as insane for expressing that. That’s what’s insane about it.” – John Lennon

While we celebrate the return of the markets we are really just witnessing a reinflation of the commodity of stock certificates (along with Gold and Oil) as they become more expensive against  a falling dollar.  The dollar was making a very strong comeback on Tuesday, as the rest of the world was panicking and the "flight to safety" in US dollars that I noted that morning drove the value of your money from 76.20 to 77.35 overnight and drove oil and gold sharply lower.  Of course the Fed had to step in – the Fed is
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Short-Term Virtual Portfolio Status

I don’t usually do this as it’s so large but it’s been such a crazy week with so many changes I thought it would be helpful to show the current mix:

Description Qty Trans
Age Net
Issue Price/
Total Change
Curr. Price/
Change Today
Gain/Loss Market
24 Long Calls


  BDUCX Mar 280 CALL [BIDU @ $307.20 $37.00] 10 1/14/2008 (57) $41,160.00 $41.15 $11.25 $52.40 $21.13 $11,240.00 27.3% $52,400.00


  IDKDJ Apr 50 CALL [BIIB @ $58.13 $-1.10] 20 12/13/2007 (85) $16,000.00 $8.00 $2.10 $10.10 $1.60 $4,200.00 26.3% $20,200.00


  BVDDN Apr 70 CALL [BSC @ $87.74 $0.74] 40 1/4/2008 (85) $23,210.00 $5.80 $14.90 $20.70 $0.90 $59,590.00 256.7% $82,800.00


  CYFD Jun 20 CALL [CY @ $20.42 $-1.78] 40 1/23/2008 (148) $14,090.00 $3.52

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Long Term Virtual Portfolio Review

I didn’t have time to do a position by position review but here’s the open items.

Don’t forget I have a lot of DIA puts in the STP that add downside protection but this is likely to be the mix going into the weekend barring any crazy fluctuations that trigger covers or stopping out callers.  Remember, it is EXTREMELY unlikey that I will just kill an LTP position due to market swings alone, the real variable here is what we do with our callers:

Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
10 JUL 08 130.00 AAPL CALL (APVGF) LO $ 19,220.00 7/25/2007 $ 23,150.00   184
$ 3,930.00 20.4 %
20 JUL 08 130.00 AAPL CALL (APVGF) LO $ 37,610.00 12/18/2007 $ 46,300.00   38
$ 8,690.00 23.1 %
20 JAN 10 130.00 AAPL CALL (WAAAU) LO $ 99,210.00 1/18/2008 $ 88,100.00   7
$ -11,110.00 -11.2 %
Total Gain/Loss for AAPL
$ 1,510.00 1.0 %
50 JAN 09 60.00 AIG CALL (VAFAL) LO $ 10,160.00 11/2/2007 $ 28,500.00   84
$ 18,340.00 180.5 %

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Bargain Basement Virtual Portfolio Review

Up a 7% in 3 days is a very nice way to start a new virtual portfolio!

We may have gotten out of EDU and MRVL a little early but I like having cash into the weekend and we wanted to switch to the MRVL May $12.50s anyway so let’s see how things look today and think about pulling the trigger on those at $1.25.  I’m waiting for EDU to test the 200 dma at $61 but that’s another one we want to get back into at a higher strike.

As I metioned in the $10KP Review we’re going to pick up 10 BUD June $50s at $2,  Our other issue is SU and we’ll see how oil handles $90 but we certainly need to reposition these to pick up more premiums from our $80 caller.  The good news is the $90 calls are $4 so we’re likely to move up to 2x the March $90s with a less than full cover.

We still have no reason to cover Apple but I sure wish we had gone with Google instead!

Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
5 APR 08 135.00 AAPL CALL (APVDG) LO $ 6,085.00 1/23/2008 $ 7,250.00   2
$ 1,165.00 19.1 %
Total Gain/Loss for AAPL
$ 1,165.00 19.1 %
3 MAY 08 75.00 APOL CALL (OAQEO) LO $ 2,250.00 1/23/2008 $ 2,640.00   2
$ 390.00 17.3 %
7 MAY 08 75.00 APOL CALL (OAQEO) LO $ 5,260.00 1/23/2008 $ 6,160.00

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$25KP Review

The $25KP is brand new so it’s easy to review!

We were more conservative with our AMGN play than we were in the $10KP but we got such a lower entry on the Aprils that this should do very well for us.  As with the $10KP, we’ll have to play this by ear but it looks like my $47.50 tartget will be right on for the open

The only other open item is YHOO and we’ll use the same strategy as the $10KP, picking up the March $22.50s to cover further upside against our caller (while his gains cover our downside!).  As no one seemed able to fill CMP yesterday, I’m not including that but we’d still like to make our SNDK Apr/Feb $27.50 spread for $1.  If the market takes off, we’ll grab the Aprils first and try to time the cover to cut the spread down.

Up $6K (25%) and over 90% cash is not bad for a first week!

Description Type Cost Basis Opened Sale Price Closed Days Gain/Loss $ %
5 APR 08 47.50 AMGN CALL (AMQDW) SO $ 1,310.00 1/22/2008 $ 1,165.00   3
$ -145.00 -12.4 %
5 FEB 08 47.50 AMGN CALL (AMQBW) LO $ 510.00 1/22/2008 $ 570.00   3
$ 60.00 11.8 %
5 APR 08 47.50 AMGN CALL (AMQDW) LO $ 1,185.00 1/22/2008 $ 1,275.00   3
$ 90.00 7.6 %
Total Gain/Loss for AMGN
$ 5.00 0.2 %
10 JUL 08 50.00 EDU CALL (EDUGJ) LO $ 11,210.00 1/23/2008 $ 15,990.00 1/24/2008 1
$ 4,780.00 42.6 %
Total Gain/Loss for EDU
$ 4,780.00 42.6 %
20 MAY 08 10.00 MRVL CALL (ULJEB) LO $ 3,210.00 1/22/2008 $ 4,590.00 1/24/2008 2
$ 1,380.00 43.0 %
Total Gain/Loss for MRVL
$ 1,380.00 43.0 %
10 JUL 08 20.00 YHOO CALL (YHQGD) LO $ 3,360.00 1/24/2008 $ 3,950.00   1
$ 590.00 17.6 %
10 FEB 08 20.00 YHOO CALL (YHQBD) SO $ 2,470.00 1/24/2008 $ 1,840.00   1
$ -630.00 -34.2 %
Total Gain/Loss for YHOO
$ -40.00 -0.7 %
Total Gain/Loss
$ 6,125.00 26.3 %



$10KP Review

Finally we get the $10KP moving (and back to cash)!

AMGN should go well today, a very big relief as it was risky to ride it through earnings.  I think the way we are going to play this is to sell into the initial excitement this morning and reposition our selves with $50s on a pull back ($50 is a rapidly falling 50 dma and should provide some resistance), probably turning that into a spread play.

Headlines on AMGN range from "Amgen Profit Up, 2008 Outlook Steady" to "Amgen sees its sales dip amid FDA scrutiny" so expect a wild ride but the fact is they grew 11% over last year, when they were trading at $80 and the forward p/e is 10.55 in a sector that averages 26.

The BUD trade may be dead but I’m going to move them to the BBP, where we can afford to wait out the recovery with 10 June $50s at $2.  We’ll sell the Feb $50s against them, now .43 but hopefully for $1.  Hopefully as well, BUD makes enough of a comeback for us to get more than .15 for our calls.  DELL is making a little comeback but it’s a long way before we get our $1.20 back for the $30s.

Hopefully we got the right mix with SNDK but YHOO is already blowing our covers so we can afford to add 5 Mar $22.50s, now $1.55 as our Feb callers will absorb a loss and, if it keeps going, we can roll our Feb $20 callers to 2x the $22.50s to protect all of our gains.

Other than that, I am thrilled to have cash at the moment, it saves worrying about the weekend!

Description Qty Trans
Age Net
Issue Price/
Total Change
Curr. Price/
Change Today
Gain/Loss Market
4 Long Calls


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Zero Hedge

Auto Shares Surge As Fiat, Renault Confirm Merger Talks

Courtesy of ZeroHedge. View original post here.

With President Trump in Japan for a state visit and most of Europe headed to the polls to vote in the quinquennial EU Parliamentary elections, there was enough news to keep market watchers occupied during what was supposed to be a quiet holiday weekend in the US. 

But on top of these political headlines, on Saturday afternoon, the news broke that Italian-American carmaker Fiat Chrysler had approached France's Renault with a merger proposal that would leave the shareholders of each carmaker with half of the combined company, in a tie-up that would create the world's third-largest au...

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Phil's Favorites

Trump and the problem with pardons


Trump and the problem with pardons

Courtesy of Andrew Bell, Indiana University

As a veteran, I was astonished by the recent news that President Trump may be considering pardons for U.S. military members accused or convicted of war crimes. But as a scholar who studies the U.S. military and combat ethics, I understand even more clearly the harmful long-term impact such pardons can have on the military.

My researc...

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Insider Scoop

Jefferies Sees 60-Percent Upside In Aphria Shares, Says Buy The Dip

Courtesy of Benzinga.

After a red-hot start to 2019, Canadian cannabis producer Aphria Inc (NYSE: APHA) has run out of steam, tumbling more than 31 percent in the past three months.

Despite the recent weakness, one Wall Street analyst said Friday that the stock has 30-percent upside potential. 

The Analyst

Jefferies analyst ... more from Insider

Kimble Charting Solutions

DAX (Germany) About To Send A Bearish Message To The S&P 500?

Courtesy of Chris Kimble.

Is the DAX index from Germany about to send a bearish message to stocks in Europe and the States? Sure could!

This chart looks at the DAX over the past 9-years. It’s spent the majority of the past 8-years inside of rising channel (1), creating a series of higher lows and higher highs.

It looks to have created a “Double Top” as it was kissing the underside of the rising channel last year at (2).

After creating the potential double top, the DAX index has continued to create a series of lower highs, while experiencing a bearish divergence with the S...

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Chart School

Brexit Joke - Cant be serious all the time

Courtesy of Read the Ticker.

Alistair Williams comedian nails it, thank god for good humour! Prime Minister May the negotiator. Not!

Alistair Williams Comedian youtube

This is a classic! ha!

Fundamentals are important, and so is market timing, here at we believe a combination of Gann Angles, ...

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Digital Currencies

Cryptocurrencies are finally going mainstream - the battle is on to bring them under global control


Cryptocurrencies are finally going mainstream – the battle is on to bring them under global control

The high seas are getting lower. dianemeise

Courtesy of Iwa Salami, University of East London

The 21st-century revolutionaries who have dominated cryptocurrencies are having to move over. Mainstream financial institutions are adopting these assets and the blockchain technology that enables them, in what ...

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DNA as you've never seen it before, thanks to a new nanotechnology imaging method

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


DNA as you've never seen it before, thanks to a new nanotechnology imaging method

A map of DNA with the double helix colored blue, the landmarks in green, and the start points for copying the molecule in red. David Gilbert/Kyle Klein, CC BY-ND

Courtesy of David M. Gilbert, Florida State University


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More Examples Of "Typical Tesla "wise-guy scamminess"

By Jacob Wolinsky. Originally published at ValueWalk.

Stanphyl Capital’s letter to investors for the month of March 2019.

rawpixel / Pixabay

Friends and Fellow Investors:

For March 2019 the fund was up approximately 5.5% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 1.9% while the Russell 2000 was down approximately 2.1%. Year-to-date 2019 the fund is up approximately 12.8% while the S&P 500 is up approximately 13.6% and the ...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...

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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism


The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...

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Swing trading portfolio - week of September 11th, 2017

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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Free eBook - "My Top Strategies for 2017"



Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:


·       How 2017 Will Affect Oil, the US Dollar and the European Union


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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.

Market Shadows >>