OptionPundit

Tag: option trading

  • Don’t Be Impressed with Yourself

    While reading “Better Than Good” by Zig Ziglar, I came across this quote “Don’t be impressed with yourself”. I thought those were quite meaningful words of wisdom, particularly for those who deal with stock markets. It’s very easy to be “impressed with ourselves” when we have a winning streak, just to realize profits being taken away by Mr Market in a jiffy. This is not to say that we ignore “past performance” but rather “Don’t be complacent” and that one should “Treat every move by Mr Market as a new move”.

    The author refers to “Don’t be impressed with yourself”  with regards to not let the success rule your head. Be humble and yourself. While it is easier said than done, there is lot of truth in it. When we start to let success rule our head, it’s the success that drives our future actions and not the earlier traits which drove success. And stocks market is such a interesting place that has humbled many, time and again. No one, no matter how successful, is really spared who hasn’t been shown “door” by Mr Market over the last century and of course, even as recent as last year.

    So, it requires one to be level headed, learn to deal with uncertainty and be prepared to be “humbled”. Expecting for best but preparing for worst, even if you are impressed with yourself. Treat every single move of Mr Market as a “new move”, and therefore don’t have an impressions that past performance will drive future performance. I mentioned this earlier (not my words) “Charts don’t shape the markets, the markets shape the charts” else every stock chartist would have been billionaire romancing on the moon every weekend.

    Here is an interesting peice from John Hussman on uncertainty-

    In his book On Being Certain, neurologist Robert A. Burton quotes F. Scott Fitzgerald – “The test of a first rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” Buddhist teacher Pema Chodron calls it “being comfortable with uncertainty” – being willing to take every aspect of reality as the starting point, without wasting energy wishing things were different, without denying reality as it is (even if your next step is to work toward changing things), and without needing to know what will happen in the future. “The truth you believe and cling to makes you unavailable to hear anything new. The best thing we can do for ourselves is to be open to an unknown future.”

    Burton offers the same advice. Tolerating the unpleasantness of uncertainty, he writes, “is the only practical alternative to cognitive dissonance, where one set of values overrides otherwise convincing contrary evidence. Each position has its own risks and rewards; both need to be considered and balanced within the overarching mandate: Above all, do no harm. Science has given us the language and tools of probabilities. We have methods for analyzing and ranking opinion according to their likelihood of correctness. That is enough. We do not need and cannot afford the catastrophes born out of a belief in certainty.”

    That’s what precisely I am inferring from “Don’t be impressed with yourself”. If we are impressed with our results, we are probably impressed with our strategies, past performance and tools we used which might not be applicable in the new world that is about to appear. If however, strategies are driven to deal with uncertainty without being pumped up by “past performance”, there is good chance that one is well grounded.

    Markets have gone-up, and have gone-up very nicely. I feel as if I missed the rally. It’s an irritating thought in the “present moment”, but when it is thought in retrospect, it probably was a good decision under a set of circumstances which I considered that time and still consider as bearish. Dealing with uncertainty was what kept us grounded at  OPNewsletter and thus allowing us to generate over 8% returns (last week’s closing) in spite of being bearish. But again, that is “past” as of “this moment”.

    Have fun and profitable trading, trade cautiously,

    OP

  • OPNewsletter (Outperformance)- May’09 +6.1%

    Option Trading is equally useful to retail traders and can generate consistent income if used properly. Hope you enjoyed the free trade alerts for some earnings play (You may sign-up for the Basic membership that is free till Dec 2009)

    A Fantastic week for OPNewsletter! We played HAL, IBM, UPS and AMZN for earnings and all these one day players nicely added value to the portfolio. We chose to close HAL and AMZN and to keep IBM and UPS for further gains. These were special circumstantial opportunities and we took full advantage without having to worry which direction stocks will move post earnings.

    After many months of waiting, we crossed our 60% portfolio investment guideline. Maximum investment incurred was +64.4% and we shall continue to use that as basis for returns calculation even though we are now in credit generation phase. We have 42.5% in cash (assuming 10 k portfolio). The capital preservation strategy worked nicely. We moved out of markets in early when OPN subscribers were clearly warned of the upcoming market meltdown when I shared the need to stay away should Dow slips below 10,697. That was on Sept 15th, well in advance before the real disaster struck. As I always say, if you know how to preserve trading capital, you can always make it back to market. At OPNewsletter, Capital preservation is always a higher priority than missing a potential investment opportunity.

    Net, overall OPNewsletter is up +8.62% (x- brokerage commissions) and +6.13% (including commissions). We are nicely positioned to reap further gains and we still have 3 weeks to go for May expiration. I don’t have to worry so much about the market fall as that will further benefit our portfolios.

    • USO is down -1.34%
    • UPS is up +3.67%
    • IWM is up +6.08%
    • GDX is up +8.46%
    • X is up +13.01%
    • IBM is up +19.88%
    • HAL was closed for +22.69% and
    • AMZN was closed for +15.83%

    (If you would like to join for “No Profit, No Fee” OPNewsletter, pls click here to sign-up for the waitlist)

    We have reached our investment capital deployment goal for the month and I am not planning to add any more investment capital unless there are opportunity that I don’t want to miss at all. I am not expecting any major adjustments except in IWM if markets make strong move up. The probability favors downside.

    Looking forward to 16th positive month for OPNewsletter.

    Profitable Trading, OP

  • The 90/10 Principle

    While just about to start my work, I saw this great presentation from one of my friends, talking about 90/10 principle from Stephen Covey. I feel blessed to have such friends who not only discuss business but also shares life enriching thoughts time to time.

    This post is about “life” and the “options that life offers” us. Without further introductions, let me get to the 90/10 principle first-

    According to Steven Covey “10% of life is made up of what happens to you, 90% of life is decided by how you react“. W Mitch also mentioned something similar “It’s Not What Happens To You – It’s What You Do About It“. I fist met Mitch about 8-9 years back when he was visiting Japan. It was quite inspiring hearing his stories and how he got back to the life.

    Along the same lines, there is another relevant quote from Viktor Frankl, Austrian neurologist & psychiatrist who survived Holocaust in his work “Man’s Search of Meaning”: The last of human freedoms – the ability to chose one’s attitude in a given set of circumstances.

    What does this 90/10 means? We really have NO control over 10% of what happens to us; The other 90% is different as it is determined by your reactions.

    There is an example shared by Steven-

    You are having breakfast with your family, Your daughter knocks over a cup of coffee Onto your business shirt, You have no control over what has just happened; What happens next, You curse, You harshly scold your daughter for knocking the cup over, She breaks down in tears, After scolding her, you turn to your wife, and you criticize her for placing the cup too close to the edge of the table, A short verbal battle follows, You storm upstairs and change your shirt; Back downstairs, you find your daughter has been too busy crying, to finish her breakfast and getting ready to go to school, She misses the bus; Your spouse must leave immediately for work; You rush to the car and drive your daughter to school; Because you are late; you drive 40 miles per hour in a 30 mph speed limit zone; After a 15-minute delay and throwing $60.00 traffic fine away, you arrive at school; Your daughter runs into the building without saying goodbye; After arriving at the office 20 minute late; You realize you forgot your briefcase; Your day has started terrible. As it continues, it seems to get worse and worse; You look forward to coming home;When you arrive home, you find a small wedge in your relationship with your wife and daughter.

    Why?

    Because of how you reacted in the morning. Why did you have a bad day? You caused it. You had no control over what happened with the coffee. How you reacted in those 5 seconds is what caused your bad day.

    Here is what could have and should have happened

    Coffe splashes over you; Your daughter is about to cry; You gently say: “It’s okay, honey, you just need to be More careful next time.’; Grabbing a towel you go upstairs and change your shirt; You grab your briefcase, and you come back down in time to look through the window and see your child getting on the bus; She turns and waves. You arrive 5 minutes early a cheerfully greet the staff.

    Two different scenarios. Both started the same. Both ended different. Why? Because of how you reacted. You really have no control over 10% of what happens in your life. The other 90% was determined by your reaction. If you would like to know more, I shall encourage you to sign-up for one of the workshops conducted by Franklin Covey. I am personally fascinated with the 7 habits which did make an impact on how I think about things.

    Why am I sharing this? I think there is relevance of 90/10 principle even in trading. I don’t have statistical data to prove this, I think 90% of the success is determined by our preparation aka risk management for the 10% things that we have no control. We don’t know when will bull market start or bear market rally end? what matters is how well are we prepared to respond to certain developments. Another example- I realized a sudden loss a in one of the assets in my basket of assets, my success will be determined how I react to rest of the investments upon recognition of loss. Do I try to get back all the losses by being emotional or do I put a plan in place that helps me recovers by working in realistic way, hoping for better results but being prepared for worst.

    Easier said than done. But again, you never know until you try. How about giving a check to your trading. Here is what contributed to record 2007,  or 7-ideas from great minds, how about making money consistently or a thorough plan. You can make a change. Review your past trades, past decisions and see what do you need to do going forward.

    I shall continue to bring this topic up time to time. Meanwhile pls do share your thoughts or experiences.

    Enjoy and Profitable Trading, OP

  • Harley (HOG) Misses, JP Morgan (JPM) Beats

    Harley-Davidson Inc (HOG) said quarterly earnings fell 37 percent, pulled down by costs from its recession-triggered restructuring and a tax change in its home state of Wisconsin but still expecting to meet full-year shipment forecast;  “mildly encouraged” that the rate at which sales declined in the United States, its biggest market, slowed during the quarter.

    The company reported first-quarter net income of $117.3 million, or 50 cents a share, down from $187.6 million, or 79 cents a share, a year earlier. Analysts, on average, expected the company to report a profit of 52 cents a share on sales of $1.30 billion, according to Reuters Estimates

    Well, even though it missed, doesn it matter? no, its shares rose 6.2 percent in premarket trading on Thursday.  My bearish trade is going to nose dive, but thankfully those are May’09 options, so I still have time to convert those into possibly bullish spread or play intra day to reduce loss exposure. This is going to be 2nd consecutive losing trade after CSX.

    On the other hand JP Morgan (JPM) reported better-than-expected first-quarter profit as improved investment banking performance offset increased losses from credit cards and other consumer debt. Most are saying AIG Pay-outs and Mark-to-Market has no major impacts. You may wanna read an interesting article from NY Times for an additional perspective. And oh btw, where is the competition? Isn’t this good time to get rid of regulatory strings; so why shouldn’t I refund TARP funds and make more money?

    Have fun, profitable trading, OP

  • Fast and Furious

    “Fast and Furious” is how I can describe the rally we have been seeing so far. As I mentioned earlier that this is the most healthy rally I have observed so far in this almost 17months old bear market. Albeit, on a psychological perspective, I am not yet convinced that this is the start of a new secular bull market.

    I won’t go into tons of statistical data (The internet is filled with that). Let me keep it simple. What’s driving-up the markets?

    • Is it the fund managers/institutional money that “needs” to be in the market because You won’t get paid any performance bonus for “Zero” return?
    • Or flow of money that doesn’t want to “miss out” the rally as they missed getting out of the market crash?
    • Oh yeah, how about the “positive” news that says that rate of decline has declined?
    • Or is it the poor short seller being grabbed by the neck and held against the wall?

    Too much of bullishness, too much of intelligences and too much of love for stocks and eagerness to “pick bottom”; hardly a sign of “exhaustion” or panic” or “hate” for stocks, something that is typically associated with bear market bottoms.

    And oh btw, where is the value? If this is the deepest recession since world war-II, then shouldn’t we at least expect the stock valuation to reach equal to past bottoms of at least comparatively milder recession like 1970-74s, or the early 80s.

    Net, what’s my bottom line? I am bear but I don’t want to trade against the trend as well, which means I am delta neutral to short delta, in general.

    And oh yeah, here is my comment on Goldmand Sachs going into earnings-

    GS May find a temporary resistance at 129-130 area…may look for temp intraday… They do have one of the best run since lows below 50 last year. But too soon to fast Smiley..they are announcing earnings tomorrow morning and my bias is that they will beat it..and guess what no one can really estimate the impact of mark-to-market relaxation so quickly (was it intentional???)..so chances are that will be upward surprise…and oh btw, banks have been told to keep mum on stress test results…

    Times for being cautious.

    Trade Carefully, Trade Profitably, OP

  • OPN Apr’09 +12.5%, 15th Positive Month (Out of last 16)

    Get ready for an action filled week that has lot of economic data flowing in, traders returning from holidays and banks announcing earnings. Of course, Banks have to have positive impact due to “relaxation” in Mark-to-market accounting rules. This week is also flooded with other earnings and option expiration schedule, an excellent environment for exceptional opportunities.

    April was another winning month for OPNewsletter. 15th out of last 16 months. In spite of the whipsaws we observed, this month didn’t require much adjustment, almost sitting idle generating cash for OPN trades. OPN has successfully rolled over the portfolios for May holdings (If you would like to sign-up for OPNewsletter, pls click here).

    OPN closed +12.54% x-commissions +9.10% including commissions. We used up almost 38% of our capital. That’s a pretty good returns considering that we could sleep well without worrying about adjustments. If not the last few days volatility of X, the results would have been far better, but that also didn’t result into any significant adjustments and we closed +11.78% based on the way OPN calculates for intra month and >+6% even assuming the max capital.

    IWM and USO portfolio closed for +13.97% and +14.55% based on OPN way of calculation. Essentially the returns are much higher when compared with less capital involved (OPN uses the maximum capital invested at any point as the base for the whole month vs only for the duration it was used). For more information on OPNewseltter, pls click here. This was the 2nd running month of profits for USO. Last month we closed USO portfolio for +22.8%.

    The above result doesn’t include results from speculative trades i.e. SKF +100%, AAPL +100%, NKE and FDX Put and so on. Some of these free trades and also the SKF smiling, BAC Trade, and AA Earning play were shared for free with the registered members. You may want to sign-up for the Basic Membership (Free until Dec 2009) that I use to share free trade alerts for registered members.

    Net, a great month and looking forward another one. We have already started May income portfolios and are positioned to take advantage of market moves. If you would like sign-up for OPNewsletter, pls click her e for OPN Waitlist.

    Profitable Trading, OP