Trader X makes Y billions last year trading options, Make tens of thousands of dollars every month trading options in an easy way, with our system you just need to spend only 10mins/day and become millionaires in shortest possible time, +1,000% average returns, with our recommendations see how I converted 5K into gazillions next day…

And many more…check out stock gumshoe website where he unfolds many of these so called “money makers”, though he covers stock newsletter primarily …

With all the marketing tactics, you will come across in one way or the other (via Google adsense on this site, etc) with such promising campaigns that lures you into giving impression as if-

1. Trading options is a child’s play and doesn’t require efforts
2. One will become rich overnight
3. You can do these while you are sleeping because their system has a panacea for the “achilies heel” of options risk

Even though we didn’t lose a month at OPN (this month may be the first one), and also that our speculative earnings results have been over 80% wins, I never admit to the fact that option trading is easy.  Just like any other business, Trading Option is a business and should be treated like a business no matter even if you do it part time. Just like any other business, it needs attention, it needs you to understand who your customers are, who your suppliers are, who your competitors are and what are your business’ strengths and weaknesses. Do you understand what I call “Dollar path” of your business i.e. money outflow and inflow. What are the choices you have made, what are the goals? and if those goals are smart (specific, measurable, achievable, realistice and time based), what are the strategies, what is your portfolio plan, are those time tested? and so on..

Money making has never been easier except during exceptional times. Sometime back I had mentioned that my friends in India and China had hardly believed in Oct/Nov’07 that their markets will fall and are too stretched. Many of those were first generation traders (they become long time investors when portfolio starts to accumulate losses) and had never seen “market fall”.

Trading is not an “instruction” driven business and it requires one to be very very quick in decision making. There are more than 1 way to get out of the trade and many times it will be different from last time. Let the newsletter provide you with the ideas, but ultimately, you have to have decision making in your own hands as per the trading plan you have for your investment goals. For instance, you may choose one newsletter from OptionPundit, another one from XYZ service, but these should serve specific purpose for your portfolio plan.

Also review, what’s driving your decision making, is it “greed” and “fear”? is it emotion driven or analysis driven? have you done sufficient paper trading that gives you confidence to fully understand options or the strategies you are going to use? are you treating option trading same way as stock trading? how much time have you spent playing with “what if” scenario planning vs. reading books or listening to gurus? Have you stress tested your portfolios, do as many simulation for your portfolios as possible, and one of those simulation will be turn out to be a winner for your portfolio…

I suggest you check out the emotional side of your trading preparation, are you being judgmental or analytical? are you in hurry to get fills? do you have risk management plans in place. I suggest have a blank paper, draw pictures of the risk/reward profile of your portfolio and adjustments for various scenarios. As per my learning, most motivation comes when I am able to convert a loss making portfolio into positive one and that’s the real win.

If you are looking for learning option trading, no need to go to seminars and spend thousands of dollars in one go. Prepare first and then go so you can ask right questions, adjustments etc to really seek value for your every dollar. Here are a few things that might set you started-

1. Free Educational Resources from OIC
2. Free educational webcasts from CBOE (It is even better than several paid seminars)
3. Free Option Strategy guide from Chartbender
4. Free Options Strategy Simulator from OIC
5. Free resources/articles from OptionVue

There are much more in the OP’s toolbox that is free as well. Here are some books that I have suggested so far, read those, understand those and you are pretty much done from learning point of view

1. Jeff has an excellent book on implied volatility
2. All about various option strategies by Charles Cottle (not easy book)
3. Options as strategic investment by Lawrence McMIllan

And there are several free articles at OptionPundit that you may find useful to get insights and prepare yourself before getting into this business. That’s pretty much it. Once you have equipped yourself with the basic to intermediate option education then go for paid seminars and you will be able to benefit the most.

Option trading is a business and should be given the same kind of respect as any other business demands. It requires hard work and thorough understanding. Once you have understood the fundamentals and been able to convert those into making money consistently, then only it’s easy.

Learn passsionately, trade carefully and profitablly, OP

Fed decided to keep interest rates flat, what’s the big deal? Markets staged a huge rally, Dow over 300 points; was that big deal? Gold dropped almost closed to support point $85 and Oil, metal and commodities were crushed, was that a big deal? These are not easy questions to answer but if we are invested, we need to draw hypothesis, find supporting data and move ahead for if everyone knows the answer, that is not the answer to invest in.

Commodities and metals all together have been hurt badly over the past few days, Oil is nearly 20% down. Has the demand changed that dramatically? Not so much. What’s changed? Bernanke gave his testimony in early July and indicated (that’s my take away) tough actions. It was clear he will come after oil and commodities (as well as traders aka speculators). Recession or deflation is his biggest nightmare. He can’t afford to increase rates due to fragile state of economy but that will lead to inflationary pressure. It’s a complex yet simple situation, he needs to contain inflation without increasing rates. I, at least, so far have not found any other major insight that convinces me of such a sudden correction across the board. I however, shared my bearishness on commodities on Jun 21st, just a few days before the correction started. These are oversold now and we may see short term bounce.

Attached a chart that relates FOMC announcements, Gold Prices and S&P500 movements. You’ll notice that except in one instance gold prices rose almost after every FOMC announcement and markets fell in a few days time post FOMC decision to either cut rates or keep it steady. Read my post on gold dating back in Oct’07, just before its current trend began. It is still to be seen whether or not this will happen again now as fed is done with it’s rates decision. The only other factor that may influence is earnings. So what’s my take on gold? Unless we break down to 83 or lower, or break-out to $102, gold is trading in a range no matter what the experts say.

For Markets, before you read into rallies and huge optimism, pls note we are in times when short interests are record high. The rally wasn’t an impressive one. These rallies simply can be short covering for their positions.The big names who are beating estimates, they are doing so to beat their already lowered guidances. Almost every industry bellwethers is lowering guidance for next few quarters. For more on earnings, check this out. I haven’t seen any major convincing data or trends that support a higher markets, at least for now. Agreed that we are seeing metal, commodities and oil correcting, transport refusing to break lower but here is the big picture-

• Inflation jumping at decades high levels
• Wages stagnating & unemployment rising
• GDP flat or negative (Ignore stimulus checks)
• Housing and credit crisis accelerating
• Consumer credit card defaults are rising (AXP, MA, etc)
• Global economy are showing sign for slowing down

AIG just reported huge losses, in fact they have lost nearly $11billions in last 3 quarter. The company said it is doing an evaluation of all of its businesses and will report its findings in September. Freddie reports losses and cut dividend and more to come.

And btw, i don’t find good reasons for strong dollar as well (at least for the moment)? Commodities exports are doing good, but a strong dollar will hurt them and so it will for the US corporations that are drawing signicant earnings from outside of US and massive spending is needed, interest rates can’t go higher for the moment. So how a strong $$ will be supported?

Now you connect the dots I mentioned above, hopefully you get the picture and can draw your own hypothesis. These are just a few points to kick start thinking and create hypothesis before you go long on equity or any other asset class.

Oh by the way, the stocks list I shared for earnings, most so far had huge movement. Congratulations to those who played for large moves and IV crash.

Trade carefully, Trade profitably, OP

A very important week is ahead that might set tone for rest of the quarter. Fed Chief Bernanke will be announcing on Tuesday via FOMC announcement that he has decided to keep interest rates same (my guess) as US economy can’t handle any hike at the moment. Rate cut it out of question.

Though a lot of companies are going to announce earnings this week, here are few name that might see some significant movements- OTTR , OEH, HURN, BIO, NILE, PCLN, SNCR, WFMI, FWLT, KALU, AIG, COGT, CROX, DECK, HANS, INT

PIMCO chief Bill Gorss says “This deflating supply of credit is in effect the financial market’s version of Mad Cow disease.” Read more. On the other hand, John Hussman thinks that once market recognizes that we are in recession, we may observe abrupt losses-

The stock market certainly has experienced weakness year-to-date, but one of the important features of this weakness is that it has not been tied to any broad recognition of ongoing recession. Rather, the predominant source of weakness has been concern about financials and the mortgage market.

This suggests that there remains an important layer of risk to peel away: presently, the greatest threat to the stock market is not the potential for further mortgage writedowns, but the risk that enough evidence will emerge to remove the lingering doubt about an ongoing recession. Once an ongoing (and in my view, probably deepening) recession becomes broadly recognized, we may observe abrupt losses as the likelihood of more sustained earnings disappointments and much broader default risk becomes reflected in one fell swoop.

Whatever your perspective maybe, play it cautious. No single direction is a clear winner except that bears so far had upper hand. Whether it is a correction in the on-going long term bull market or it is a primary bear market, that still remains to be seen. I have shared my thoughts earlier and I am still holding on to those levels as primary indicator to tell whether or not tide has turned. At the same time, I would encourage my readers to read Adam’s perspective about bottom calling.

Read this if you are looking for understanding impact of high IV on options’s greeks. OTB has complied some good lessons on options. If you benefit from the posts, don’t forget to support the blog via visiting sponsors.

And of course, Olympics starts this week in Beijing China. A lot is on stake, national pride(s), sporting companies, travel companies and many china tickers are counting on business from Olympics. If those doesn’t materialize, we’ll see a show down on the likes of NIke (NKE). Stay tuned.

Trade carefully, Trade profitably, OP