OptionPundit

Category: OP’s Reading List

  • Interview with Curtis Faith (A Turtle Trader)

    As I shared earlier, I am interviewing Curtis Faith (An original turtle trader and author of a few excellent books on trading including the latest one “Trading from Your Gut”) tomorrow. This is rather a unique topic which has been discussed often on OPDiscussion forum as well as via e-mail exchange, time and again. This interview is an effort to help other traders via learning from master traders. If you would like to seek clarifications, ask questions pertaining to “gut feel”, “Intuition”, right brain driven trading vs mechanical system trading, etc., this is an excellent opportunity.

    Pls feel free to post your questions on comments section either of this post or the original post.  I shall compile and published a detailed post after the interview.

    As I mentioned earlier, a limited number of books (Trading from Your Gut) will also be given away for FREE to those asking excellent questions that help in explaining this right brain driven approach much better.

    Thanks for helping OP serving its readers better,

    Profitable Trading, OP

  • Trading from Your Gut

    Ever thought of understanding what does it take to be A Turtle Trader? What is “Trading from Gut“? How to make decision based on System Trading + Intuition Trading? Here is your chance to ask questions directly from the Turtle Trader, Curtis Faith, as I interview him during last week of Feb’10. Limited number of books will also be given away for FREE to those asking excellent questions that help in explaining the “Trading from Gut” concept much better.

    The questions may be either on turtle trading, his past books or on the new book, Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Traderut, that was just published last month. Pls do feel free to share real life examples as well.

    Trading from Gut shows how both types of traders, systems traders and discretionary traders, can benefit from whole mind trading. Opportunities come and go quickly in the new economy. Sometimes, the ability to think and act quickly based on gut instinct will reap the biggest reward for those traders who know both methods and how to use them together.

    Though I shall write my own review of the book later on, here are key insights from his book, Trading from Your Gut–

    • The critical role of experience and proper training: Why i.e., the novice’s gut is often wrong.
    • How to train yourself to overcome cognitive biases that lead you to mistakes: such as letting in too much noise, panicking over losses, wishful thinking, over reliance on recent experiences, inertia, and “herd” behavior or following the bandwagon instead of developing your own reasons for trade.
    • Building blocks basics. A clear easy-to-understand explanation of the structure of the markets including: the cycles of prices, market psychology (including fear and optimism), and the push and pull between sellers and buyers to help you develop your own market strategies
    • How to find opportunities: choosing the right trades (rather than making too many trades), being on the look out for the right conditions, triggering events, and mispricing. Also how to set up rebound swing trades.
    • Training to be a master: Specific steps you can take to train both your analytic and intuitive mind to work together with simplicity and speed, as markets require. Using both the left (analytical) and right (more intuitive) sides of the brain for success.

    Here is the snapshot of what Faith has to say about “Trading from Gut“-

    “The best traders have learned to combine the benefits of left-brain analysis and logic with right-brain big-picture intuition. So the best systems traders have learned how to draw upon the intuition and pattern recognition abilities of their right brains in the development of new trading ideas and to build strategies that are impossible without the use of human intuition, and the best discretionary traders have learned how to use left-brain analysis and logic to build a better framework for their mainly right-brained trading methods.”

    ABOUT THE AUTHOR
    You may find more about Curtis from his website, Curtis Faith, but here is a snapshot; he is known for getting his start as a member of the elite Chicago trading group, the Turtles. In his early 20s, Faith earned more than $30 million dollars as a member of the renowned group that started as a bet between it founders, Richard Dennis and William Eckhardt. Faith reveals the inside story of his days as a member of this secretive trading group in his bestselling book Way of the Turtle, which has sold over 70,000 copies and has been translated into 9 languages. Drawing from his unique experience as an original Turtle, as well as a successful entrepreneur – having founded several software and high tech start ups — Faith has developed a “whole mind” approach that will give traders at all skill levels the tools to become a master trader.

    Profitable Trading, OP

  • Volatility Edge in Options Trading

    One complete book on Volatility!! What??? Yes, that was the reaction I had on my mind when I received an offer from Financial Times Press to review manuscript of an upcoming book “Volatility Edge in Options Trading” by Jeff Augen, Instructor, New York Institute of Finance. Since I have a insatiable desire to learn, I accepted the manuscript and decided to read, but that coincided with my month long holidays and therefore couldn’t write a blurb in time for the book. Well the book is now published and you may buy a copy from Amazon.

    Let me begin my perspective that it was worth my time. It added value to my existing knowledge about IVs and specially reinforced my thoughts about stock pinning action. It’s not an easy book and therefore requires undivided attention. I couldn’t read and comprehend during my travel to places (my usual style of reading books) so I decided to read it during market hours, instead of looking at monitors, read the book and do simulations and back testing as well.

    The book is categorized well and each chapter has a summary page. Don’t jump straight to the summary as I would recommend following authors thought process to get to the points.

    The book covers fundamental about Options Pricing and elaborates a lot on volatility (Chapter 2 and 3) which may be a good refresher, but if you know it and “been there, done that”, you may want to skip those and go straight to Chapter 5 which is managing basic option positions. One thing I want to highlight, you do need to have an understanding about options, should know greeks and have fundamentals in place before taking full advantage of the concepts. Pls OP toolbox to find several tools that can help you get started. The same chapter, explains puts, calls, straddles and strangles, covered calls and puts, synthetics.

    I suggest pausing after reading chapter-5. Give yourself a break for a day or two and just try to simulate the ideas that author has described in the chapter-5. Play around with the price changes, IVs, and if your broker’s platform allows then do becktesting on examples given in the book.

    I liked Chapter 6, 7 and 8. I quickly glanced through chapter-9.

    Chapter 6 talks about managing complex positions and covers 5 interesting areas 1) Calendar and Diagonal spreads, 2) Ratios, 3) Ratios that span multiple expiration dates, 4) Complex multipart trades and 5) Hedging with the VIX. There are a lot of examples and therefore you need to either have your computer with you or a paper pen to follow trade completely. You won’t find a lot of discussion on how to convert calendar into XYZ or diagonal into calendar etc. but it does give fairly good idea on how to play these. I liked”hedging with VIX” but I wish there were few more examples better even if the author would have given a portfolio and show how to hedge that with VIX in different conditions. Nevertheless, he has provided good grounding to understand VIX which can be supplemented with free resource on CBOE or in the OPToolbox.

    Earning cycles are discussed in Chapter-7. Jeff has unfolded the price movements pre and post earning announcement and shared examples of strategies that can be implemented to benefit from this once in every three months event. This may be of importance to experience traders as earning cycle is about to begin (as of this writing). This is even more interesting for some stocks like GOOG, AAPL, BIDU, FSLR, SPWR which may offer great opportunities solely around earnings.

    Stock pinning via expiration cycle is discussed in Chapter-8. I liked it. Jeff has very well explained, in simple terms, what are factors that may drive “inefficiency” and volatility on this day. I have been experimenting with Google for long time and has two successful wins. Check the first one here and second one here. Specifically he talks about:

    1. Rapidly accelerating time decay
    2. Large daily IV swings
    3. IV collapse on the final day
    4. Stock pinning caused by unwinding of complex positions and hedges

    This is quite an interesting chapter that has potential to deliver good results provided readers have good understanding of concepts and did hands-on experience before diving with real money. This is once every month opportunity and returns (and so the loss) are significant. I would suggest reading it at the last (I think there is a reason why Jeff kept it last).

    It’s an interesting book that I would like to add to my reading list and would recommend to those who have some background about Greeks and understand fundamentals of options trading. As a kind gesture, I have been offered 5 copies of the book that I am distributing to 5 OPN members who often contribute to learnings of others as well.

    Profitable reading, OP

  • OP’s Reading List

    (for details pls visit www.OptionPundit.net)

    The reading list is gradually growing. As you might have noticed I don’t recommend book just for the sake of recommending and earning peanuts from Amazon. Hopefully, I have been able to provide value for your bucks and have added to your ever growing knowledge bank.

    Firstly I introduced “The Little Book that beats the Market“. I also gave several examples of real trade on how one can find plays for “option trading” and in fact OPN subscribers know how MRO (one of the results from MFI screens) delivered 33.8% and later 3.1% returns subsequently. This book continues to deliver good results and has over delivered many times and will continue to do so. If you haven’t not used yet, check out the website that delivers fabulous screen, for free. If you haven’t yet signed for guest access, check out Value Investors Club (Open only for 250 permanent members, free, but one needs to work hard to get the membership). The author, Mr. Joel Greenblatt, has brilliant track record, second only to Mr Warren Buffet.

    Then I recommended “Option Trading: The Hidden Reality“. This was the only book that was above $20. As I mentioned, this is not meant for beginners. One needs to have a good understanding of what options are? Once understood, then purchase this book which takes you to new heights in the options trading world. It’s not an easy book. Charles Cottle, the author, also offered 10% discount to those who buy under “OptionPundit” code. I am wholeheartedly recommending to buy from Risk Doctor so he is rewarded for great efforts. For those who don’t know Charles, read his impressive profile.

    A Guide to Economic Indicators by Economist was another addition to this library. I don’t think I could have interpreted weekly economic data published by several institutions worldwide without help of this amazing book. This is like dictionary that is alongside with me all the trading time.

    Mohnish Pabrai, who runs over US$400million funds based on inspiration from Warren Buffet and Charlie Munger recently published, The Dhandho Investor, that outlines a framework. He doesn’t necessarily talk about how to evaluate a business (which many think that this book is about), rather he lays out a framework for “Character of Value Play”. A resourceful book to find good play.

    I also recommended a book for speculative trading by being ahead of the market. Of course the book is not intended for option trading, but there is one particular event that happens 4 times in a year i.e. earning announcements where this book can be used. No one can predict exactly how earnings are going to be, but this does provide a good hint and one needs to prepare well for either direction. It does help to increase chances of success.

    Do let me know how did you like reviews or if you would like me to review from some different point of view,

    Profitable Trading, OP

  • Heads, I win; Tails, I don’t lose much

    (for details pls visit www.OptionPundit.net)

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    I love this philosophy and that’s what I try using at OPN. OPN’s portfolios are based on statistical probability advantage.

    Let me introduce a great book that I finished reading over the weekend. The book is by Mr. Mohnish Pabrai (The “copy cat” of Mr. Warren Buffet). To briefly introduce Mr. Pabrai, let me share with you his achievements first- Pabrai’s hedge funds, Pabrai Investment Funds, have outperformed all of the major indices and over 99% of other managed funds. $100,000 invested with Pabrai in 1999 was worth over $659,000 by 2006-an annualized return of over 28% after all the fees and expenses.

    “The Dhandho Investor” (TDI) is a new book by Mohnish in value investing arena. An excellent book that is easy to read and understand. Written in plain simple English vs. complicated financial Jargons, TDI has distilled the very best thoughts of Warren Buffet, Benjamin Graham and Charlie Munger.

    Dhandho (Pronounced as dhun-doe) is a Guajarati (One of the Indian languages) word that comes from Sanskrit root word “Dhana” meaning wealth. Dhan-doe, literally translated, means “endeavors that create wealth”.

    Now let’s dive into why you should be spending less than $20 bucks on this great book.

    • Before Pabrai dives into “The Dhando Framework”, he gives excellent examples. The first one being how a small Indian section created over $40 billion in motel assets, pay over $700millions in taxes to the US government and employ nearly 1 million people, all within a span of nearly 35 years (from nothing). His examples vary from all sorts of “Dhandho investors”, not necessarily those who were “forced” due to struggles but also “cool dude” like Sir Richard Branson. He also talked about how he himself created his own fund with “The Dhando Framework”.
    • The 9-step “Dhandho Framework” is not hugely different from what you may have read on “Value investing” from thousands of books. But there are 3 new things that I learned from his book- 1) Focusing on arbitrage, 2) a perspective on “Low risk, high uncertainty” business and that 3) it’s better to be a copycat than an innovator (now u know why I mentioned him as copy cat of Warren Buffet). I call it “reapply”. You have to read the book to comprehend all the 9-steps.
    • It also has a chapter fully devoted to “exit” which I found quite interesting and worth considering as an objective when drafting a trade plan for value investing.
    • I found “9 ponds”, where I can fish for value investing, to be truly helpful. And I don’t hesitate in saying; it made “search” process easier. Of course one has to do due diligence in analyzing “business” before investing. Beside these 9 ponds, there are so many resources listed throughout the book that if I were to find myself, it would have taken huge time.
    • Lastly, reading quotes and words of wisdom from well known investors, at appropriate places, was an icing on the cake. Simply beautiful!

    Now let’s put your investment in this book in the Dhandho framework. Heads, I win; Tails, I don’t lose much (less than $20)!

    Enjoy reading, profitable trading, OP

    Disclaimer: My investment in this book has paid-off after finding this wonderful company from one of the resources (free btw) that I plan to use option strategies on.

  • Making Sense of Economics

    (for details pls visit www.OptionPundit.net)

    Every week we see loads of economic data that may move markets in either direction, but ever wonder how to make meaningful sense of it?

    Here is my latest book recommendation and addition to OP’s reading list. This book is a classic MBA economic text book but I think a worthwhile to be included into every investor or trader’s library.

    Introducing “Guide to Economic Indicators- Making Sense of Economics” by famous publication “The Economist”.

    This guide is a pocket-size powerhouse, packed with explanation of literally every economic indicator you may think-of. To use the words from the book itself:

    Written for the non-specialist, this highly accessible guide provides the keys to interpreting all the major and many lesser economic indicators that relate to:

    • GDP and GNI
    • Growth, trends and cycles
    • Population and employment
    • Industry and commerce
    • Money and financial markets, etc.

    The guide clearly explains the underlying economic realities of today’s world. It is an invaluable reference for anyone in business and studies.

    Now you may think of why to buy when there are tons of free websites that can offer explanation of each term. If you are like me, then you would love to keep this as a very quick reference guide in your bookshelf that you can refer to every weekend before data is announced following week. Now how to use this for option trading:

    1. Download the economic calendar from Bloomberg
    2. Refer to the calendar and interpret which are the market moving indicators (though Bloomberg identifies that, but you may wanna derive your own conclusions)
    3. Assess risk to your portfolio and prepare adjustments plans in advance (for instance, before FED meeting, I generally prefer to be out of Iron condors depending upon how far my short options are).

    Don’t expect this book to tell you how a perticular indicator will affect the markets. Think of it as dictionary and one will have to develop his or her own perspective. Albeit, I think this is invaluable tool and you may wanna include this in your “must have” reading list.

    Profitable trading, OP