Bankster Quotations
by OptionSage - January 17th, 2009 1:47 am
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"If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered." Thomas Jefferson
"I sincerely believe that banking institutions are more dangerous to our liberties than standing armies. The issuing power should be taken from the banks and restored to the people to whom it properly belongs" Thomas Jefferson
"History records that the money changers have used every form of abuse, intrigue, deceit and violent means possible to maintain their control over governments by controlling money and its issuance" James Madison
"Most americans have no real understanding of the operation of the international moneylenders…the accounts of the Federal Reserve System have never been audited. It operates outside the control of congress and manipulates the credit of the United States." Sen Barry Goldwater
"Neither a borrower nor a lender be" (Shakespeare)
"The Federal Reserve definitely caused the Great Depression by contracting the amount of currency in circulation by one third from 1929 to 1933" Milton Friedman
"If our nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good make the bill good also. The difference between the bond and the bill is the bond lets money brokers collect twice the amount of the bond and an additional 20% whereas the currency pays nobody but those who contribute directly in some useful way" Thomas Edison
"It is absurd to say that our country can issue $30m in bonds and not $30m in currency. Both are promises to pay, but one promise fattens the usurers and the other helps the people" Thomas Edison
"We have come to be one of the worst ruled, one of the most completely controlled governments in the civilized world – no longer a government of free opinion, no longer a government..by a vote of majority, but a government by the opinion and duress of a small group of dominant men" President Woodrow Wilson
"The Federal Reserve Board has pumped so many billions of dollars into Germany that they dare not name the total" Senator Louis McFadden prior to
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DiggStrategies To Hedge Your virtual Portfolio
by Phil - January 16th, 2009 6:51 pm
Warren Buffett’s Rule #1 of investing is: “Don’t lose money” and the integral part of succeeding at Rule #1 is hedging one’s virtual portfolio. The question then is: “How do we hedge our virtual portfolios?”
In order to set a context for explaining strategies let’s briefly revisit the Golden Rule of Investing.
The Golden Rule of Investing
“The more uncertain you are about a position, the more you should hedge your position!”
This might be worth sticking right next to Phil’s favorite post-its that state:
“It is NOT my Job to Save the Market”
and:
"When in Doubt – Sell Half"
Before we figure out how to hedge, let’s evaluate how certain we are of the current direction of the market. On Monday Phil raised concerns over the pending $2Tn Deficit that is predicted that the energy sector would take us down this week (it did) even while calling a bottom on oil at $35 and looking to pick up stocks on our Buy List on the way down. Obviously the market itself is all over the place and, while we may guess well, we simply can’t be sure of the direction.
The VIX is a testimony to this, finishing the day at 46.11, still historically way above average and indicating tremendous amounts of market uncertainty. And we got the drop we were looking for this week and Phil extolled people to buy off THE LIST during both Wednesday and Thursday’s very scary sessions. When markets drop precipitously, traders generally fall into one of three categories;
[1] Panic Sellers [2] Knife catchers and [3] Hedged traders.
Panic sellers usually attain instant relief as fear…
Profiting from Short Strangles – Part 1, the Basics
by Phil - January 15th, 2009 3:57 am
Sell SPY Feb 70 PUT (20% downside cushion) and Sell SPY Feb 105 CALL (17% upside cushion) for $0.81 credit. For safety reason, we should have a stop in place for when SPY reaches the strikes that we sold.- The margin requirement ATM is $8.9 for the SPY closing price of $89, meaning we need $8.9 in cash to be able to sell the Short Strangle above.
- The margin requirement increases to approximately $24.2 if SPY rallies to $105 the
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Danger + Opportunity
by OptionSage - December 20th, 2008 2:19 pm
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Danger + Opportunity
by OptionSage - December 20th, 2008 2:16 pm
As 2007 drew to a close, Phil predicted ‘Asian-style’ moves in US indexes and I wrote an article projecting 2008 would be a very difficult year to trade due to ‘unprecedented volatility’. As 2008 draws to a close it looks like both predictions were realized but pleasure does not necessarily accompany vindication. As John Maynard Keynes wrote:
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A MUST Read!
by OptionSage - October 3rd, 2008 11:06 pm
"Life will teach you the lessons, it’s up to you to learn them"
Don’t read any further if you are happy with your trading results this year.
If you know in your heart you could have done better trading this year then you MUST learn a lesson from your trading performance. You MUST or are you are destined to repeat it again. And if it feels painful the first time, it will feel much more painful next time around! The lesson you MUST learn is simple but immensely powerful; it is truly a paradigm shift in trading.
You MUST learn to adjust your trades to the market trend. That’s it. If you understand what that means and how to successfully execute, read no further.
What does this ‘adjusting’ really mean? It means no longer buying and hoping, it means no longer is a binary trading system appropriate; binary meaning no longer will you win if you are right and lose if you are wrong. What if you could screw up on picking the direction and still win?? Well, you can when you know how to ‘adjust’ to the market trend.
The power of knowing how to successfully and competently adjust is immeasurable. At the very least what it accomplishes is ZERO fear and ZERO greed. When you pre-define your risk and reward levels prior to every trade AND know exactly what Contingency Exit Plan you should execute EVEN if you are wrong, you reach a trading level few will ever conceive of - let alone reach.
You can learn how to do this from the masters but the knowledge is guarded by most and the cost to learn is usually very expensive because you will rarely be told everything at first (and will be charged more to learn the rest!).
So, why am I telling you all this? Because I paid the price. I learned a most powerful trading system of adjustments which I am confident is truly the last trading system anybody needs to know. I learned it so well, I was invited to start hedge funds and teach around the world. But as the days went by this past year and I realized how tough trading was for many friends and how they were losing their shirts I decided I had to get the knowledge to everyone without them paying crazy fees.
And then BAM! Like lightning the idea came to me and I started Stock…
How to lower your break-even point without increasing your risk
by Optrader - September 30th, 2008 3:02 pm
We all know that averaging down is a losing proposition: you throw good money after bad and increase your risk. Also, cutting your losses short is one of the most important rules of trading.
However, there is a strategy, using options and vertical spreads, that allows you to lower your break even point on a position that went against you. And to do it without increasing your risk.
If you own a call option and have an unrealized loss in this position, you can improve your chances of breaking even by "rolling down" into a vertical spread. You do it by selling 2 of the calls that you are currently long (the one that you own plus another one), and buying one call at the next lower strike, ideally for even money.
Let’s see how it works through the use of an example:
AAPL is at $114 and you buy Oct $115 call for $3
Stock drops to $112, you now need a $6 move before expiration to breakeven. You need the stock at $118.
Now, let’s say that at that time the Oct $115’s are trading at $1.50 and the $110’s at $3. You then sell 2 of the 115’s (the one you own plus another one) and buy one of the $110’s for even money.
You now own a 110/115 vertical (Long the $110′s and short the $115′s). And your risk is the same as the original risk ($3)
Let’s say the stock goes to $113 at expiration. The $110’s will then be worth $3 and the $115’s will be worthless, leaving you with a net $3.
You just lowered your breakeven point from $118 to $113 increasing significantly your chances of turning a profit on this trade.
But more importantly, you did not increase your risk.
Of course, some potential reward had to be sacrificed. Your potential profit is now limited to the stock going to $115. But if it goes to $115 by expiration the 110 call will be worth $5 and the 115 will be worthless, and your profit will be 66%. Not bad for a position that was first going against you! Also, if you are very bullish and the stock starts going up fast, you can always roll the $115′s to $120′s.
This strategy is a great strategy to include in our swing…
Wednesday Wipe Out
by Phil - September 17th, 2008 10:27 pm
Can the VIX top 37 for the first time since 2002?
This was a very painful day. Thank goodness for gold, that hedge was working today even as the trusty SKFs were up a relatively dull $15. As I expected in the morning post, oil took off as well, closing up near $97, up 5% for the day (less than gold) after a fairly large net draw of 9M+ barrels in the inventory report. They’ve been telling us high oil prices were good for the economy on CNBC but we’re not seeing it today.
Copper made relatively no move, indicating the jumps in both oil and gold had nothing at all to do with improvements in global demand, just a search for something that would retain some value as the market collapsed and not even money market funds were safe (Reserve Primary Fund is down to .97 on the dollar).
Cramer says "Don’t push the panic button" but it seems like someone already gave it at least a nudge with even GS dropping 19% on the day. The Dow is down 7.1% for the week and all 30 components were red today led by AIG (-45.3%), JPM (-12.2%) and C (-10.9%). The Nasdaq finished down at the 5% rule at 2,098, not a good thing at all and the S&P was down 4.7% at 1,156, down 7.6% for the week. Things were bad enough that the SEC issued rules to curb short selling but they did little to cheer investors up and we closed at the lows of the day.
Europe dropped about 2% today and Russia, who’s market is in massive decline (57% off highs), halted trading for the second day in a row, just 90 minutes after opening so the rise in gold is not a US-only issue, everybody in the World is scrambling to find something that isn’t failing. "Forget about retail investors, all the pros are scared," says one broker. "People have no idea where to put their money."
"It’s unclear who is going to be a credit provider going forward, and if having fewer credit providers means higher costs of borrowing going forward," says Basil Williams, chief executive of hedge-fund managers Concordia Advisors. Investors tried to reduce their exposures to two more big players in the market, Goldman Sachs and Morgan Stanley. That sent the cost of protection on…
TradeLogic – SKF Double Diagonal
by Phil - September 17th, 2008 4:39 am
This will be the first in a new series in which we will examine potential plays and follow them through in discussions attached to the post.
Hopefully it will be a good exercise in trading mechanics and help members to understand the goals of a trade, the logic of a trade and how to manage it through the process. A double diagonal is an extended form of a butterfly spread in which you buy long puts and calls in a longer month than the short puts and calls you sell. Our primary goal in this type of play is to gather premiums from our shorts, we are fairly neutral as to direction.
In yesterday’s (Sept 16th) market excitement, Chemistry said: "The premiums on SKF are so huge, there must be a quick play on that premium with opex so close." That led us to decide to look at the following play:
| Buy 1 SKF JAN 2009 135 Call (.SKFAT) | $26.40 | $2,640.00 |
| Sell -1 SKF SEP 2008 130 Call (.SKFIU) | $8.60 | ($860.00) |
| Sell -1 SKF SEP 2008 130 Put (.SKFUU) | $10.30 | ($1,030.00) |
| Buy 1 SKF JAN 2009 125 Put (.SKFMR) | $26.50 | $2,650.00 |
We had been discussing the SKFs as covers since last Monday, when it opened at $97.30, to offset losses by concentrating on the ultra-short finanical ETF (the sector we thought was in most trouble) while the maket shook itself out but yesterday, right at 9:41 I said: "SKF – Well below the $140 line now, good protection that seems to have run its course for the moment." During the day we kept watching different levels and we finished the day close to my lowest target ($115) that we were looking at from 11:07.
The above play came up at 1:35, ahead of the Fed where we expected a volatility crush on the short options so we wanted to find something that sold the most possible premium. This trade puts $3,400 at risk and, since the longs are $125 puts and $135 calls, if the play runs out to January between those…
Trivia Time!
by OptionSage - August 18th, 2008 11:37 pm
Let’s say you decide to deposit $100,000 into a brokerage account. You decide you will check your virtual portfolio on a weekly basis. Now let’s further assume that the first week has passed and you are about to log in to your account. But before you do, you are told that one of two things has happened in the past week.
[1] Your virtual portfolio went up $10,000 and then dropped $10,000
[2] Your virtual portfolio went up 10% and then dropped 10%.
So, the trivia question is: In case [1], what should you expect your account value to be and is that the same figure as in case [2]?
If you answered $100,000 in case [1], you would be absolutely correct! If you answered that this is the same as in case [2] you would be absolutely incorrect! Why? Well let’s take a look at what happens when the virtual portfolio rises 10% first; it goes from $100,000 to $110,000. But then we’re told it drops 10%. 10% of $110,000 is $11,000. So the virtual portfolio drops from $110,000 to $99,000.
Now how can this help us in our trading decisions? In its simplest form, this tells us that if we were to simply buy stocks that over the long run had a tendency to rise up substantially and fall down substantially ie starting at 0% and rising up and ultimately falling back to 0%, the volatility is impacting long-term returns. In statistics, that percentage swing would denote variance, which in turn is often equated with risk. Another term for risk is beta. High beta stocks tend to move more than the market and tend to have greater variance.
So, if you are in the market for the long-term, you should certainly pay close attention to the impact of variance. Over time the impact to the $100,000 virtual portfolio is not just a drop of $1,000 as in the period shown above, but that virtual portfolio erosion continues over time to the detriment of overall wealth. Unless….
Unless, you know how to take advantage of such volatility. Buying and holding stocks is about as advanced a trading technique in this day and age as owning a cell phone that simply operates as a phone. Why accept bare functionality when you can combine the basics with so much more. In the stock market, this means using options. (In cell phones we…
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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