Posted by Martin December 30, 2016
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Predicting the next stock move is just deceiving yourself


People keep asking me questions how do I choose stocks for options trading or what is my expectation, why I chose to trade one stock over the other, what if the stock fails, and what was my rationale behind a trade.

When they ask me for a trade reason, I usually tell them that I had none. Why do I need a reason to trade a certain stock?

I keep telling them that I do not predict stocks movement. I do not care what the stock is going to do or what others think about it.

I do not care what all the stock gurus in the entire world think, predict, or recommend. I trade what I see and not what I think the stock may do.


 


 

Are you Ready to Trade?

If you like results of our trading open yourself an account with OptionsHouse.com and start trading with a low commission rates + free virtual trading tool!

Your new trading account will come with a paper money account and will be immediately funded with $5,000 of virtual money for you to test the options trading and if you join our trading group on Facebook you can get a guidance, ideas, and trading education. Before you commit your real hard-earned money you can use the virtual account to test our strategies, learn, and ask all questions you need to learn options trading.

Once you learn and get ready, start trading live account and earn monthly income similar to ours. And we will be happy to assist you with that.

Seize the opportunity. Open a new OptionsHouse Account Today! Open and fund an OptionsHouse account to receive up to $1,000 worth of commissions on online trades for 60 days.
 


 

I once had a novice trader explaining to me his prediction of the stock’s next move. He spent hours creating his system, charting, oscillators, calculations, data recording, chart analyzing, and at the end he victoriously announced to me that he finally got it and that the stock would reverse at the overbought resistance at a certain price level.

It was a sure thing and there was no other way. His system told him, that it couldn’t go the other way around.

When the stock passed through his resistance and continued up without looking back he concluded that he needed more studying and tweaking his system, and that he wasn’t yet perfect in analyzing it.

Maybe adding a few more tools to his analysis would solve the glitch.

But all he actually achieved was his own deception.

He spent hours over the charts and analysis until he convinced himself that there was no other way around to trade the stock. He convinced himself so deeply that he couldn’t see any other alternatives. To him they were nonexistent.

He simply stopped seeing what I saw as a by-stander with a different perspective that there were no sure things in his analysis, no 100% sure resistances, overbought or oversold reversals or sure calculations with predictable outcomes. I wish there were some magical oscillators or calculations which would point to a trend reversal. But there are none. Nothing he did could ever predict what the stock or market would do next. There still was only a 50% chance that it would happen.

Later, he ended his work up disappointed and he concluded that he wasn’t yet ready to trade options because he hadn’t have the right tool to trade and he couldn’t determine which direction the stock would go.

All the time he was working on building up his own deception and disappointment.

In the past, I was doing the same thing. I too wanted to know where the stock will go and what the stock will do.

But you will never be able to find out. You do not need to know what the stock will do, but you need to know what you will do.

I keep saying it all the time. It is you who needs to know what you will do, not the stock.

And then you need to find a strategy and market (stock) which will allow you to trade around that. You need an instrument which will allow you to execute a trading plan for any outcome the stock or market prepares for you.

To me, this instrument are options. Only trading options allow me to trade what I see and change direction or adjust a trade should the outcome change. No other vehicle does the for me. If I buy and hold a stock and it starts falling in price I cannot do anything about it. I can close it for a loss but that’s it.

Over years in the market I collected enough losses already. I do not need more. Options allow me to adjust a bullish trade into bearish, roll, or do a magic which no other instrument provides.

I met novice traders who were afraid to trade and they kept asking me what would you do if you open a trade and it immediately turns against you? Don’t you want to know where the stock will go so you keep trading with the trend?

I only have two words to this:

Who cares?

It may happen that I open a trade and it goes busted right away. But who cares? I don’t!

I cannot predict where the stock will go.

I cannot predict if the trend will continue or it will reverse the next day.

And because I cannot predict it I do not waste my time doing it. I do not spend hours drawing pictures and marking up all reversals and predicting where the market will go, like this guy from Stocktwits who spent hours drawing this chart and predicting that SPY would go higher to the “rounded topping pattern” with a”exuberance” with “possible overshoots” will happen and then the market reverses and will go down to around 207 level:

 
Jake Wujastyk Prediction
 

None of it ever happened.

The stock market continued up to about 217 level, then corrected slightly to 214 level and continued higher and reached 220 level. I bet the guy continued re-drawing his chart as long as he finally got it right and his bearish prediction got correct so he could get celebrated by all his followers how great job he did. I do not know because when I told him what a futile job he was spending time on and that all he just created was a children coloring book he angrily blocked me. But considering reactions from his followers I can deduct that this was probably happening.

Here is another “great” prediction from another guy who predicted that in September the market would crash to 1860 level (SPX):

 
Stupid Prediction
 

He drew all those green arcs to show that the market worked in some magical frequency waves and based on those waves it is now predictable to see that SPX was poised to crash to 1860 level. I sometimes wonder if these people really believe to their drawings and trade it or they just troll around.

Of course, we all know that none of it ever happened.

 
I re-draw his “study” and added a few questions to it:

 
Stupid Prediction
 

He blocked me for bashing his work.

All, these guys ever achieved, was their own false conviction and deception. They just deceived themselves. And if they ever traded based on their own deception they probably ended disappointed with the outcome of their trade and trade analysis.

If you try to predict the market or stock, you are just deceiving yourself and obstructing a clear view of the future. You are just blinding yourself, paralyzing yourself from the next move. And you would end up unable to adjust a trade or get out. Instead, falsely convinced, you will be adding more to the trade, throwing good money after bad ones thinking that your analysis will be correct one day.

So how do I trade then when I do not analyze the stock, do not “study” the stock, predict it’s move, or try to spot reversals?

I trade what I see at any moment in time. One day, I open a trade based on the stock price action and then sit on it.

When the situation changes I change the trade (adjust). And I do it again based on the current price action and not any of my false prediction or expectation. And I keep doing this for the rest of the life of the trade.

I like to trade strangles. I believe they are a great strategy maximizing you profits more than any other strategy. And they also offer a great flexibility in adjusting or converting a trade. Like no other strategy. Well, except single option legs, though (it will always be the easiest to adjust a naked put for example).

It was a long way for me to end up with strangles. You may know, if you follow my blog, that I started with stocks, later added options, naked puts, then spreads, and again puts. Later, I added naked calls and landed with strangles today.

In my next post I will describe how I choose stocks to trade, build a strangle, and trade it.
 
 




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Posted by Martin December 26, 2016
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DIVIDEND CAPTURE – TRIPLE PLAY (ETE)


I am placing a new trade order for the next few weeks using a strategy called dividend capture – triple play with Energy Transfer Equity, L.P. (ETE) underlying.

Normally, this strategy is a buy-write strategy where you buy 100 shares of the underlying stock a few days before the stock goes ex-dividend and sell a covered call against the position. If everything goes well, you capture the premium on the covered call, dividend, and maybe a little profit on a stock if you happen to sell higher then your purchase price.

If you want to learn more about this strategy, I recommend you to join our trading group on Facebook. There are traders using this strategy a lot and they can help you to explain it and trade it. I can guarantee you that you will learn a lot in the group.


 


 

Are you Ready to Trade?

If you like results of our trading open yourself an account with OptionsHouse.com and start trading with a low commission rates + free virtual trading tool!

Your new trading account will come with a paper money account and will be immediately funded with $5,000 of virtual money for you to test the options trading and if you join our trading group on Facebook you can get a guidance, ideas, and trading education. Before you commit your real hard-earned money you can use the virtual account to test our strategies, learn, and ask all questions you need to learn options trading.

Once you learn and get ready, start trading live account and earn monthly income similar to ours. And we will be happy to assist you with that.

Seize the opportunity. Open a new OptionsHouse Account Today! Open and fund an OptionsHouse account to receive up to $1,000 worth of commissions on online trades for 60 days.
 


 

However, in this trade, I am going to add another layer to this strategy and I will start selling naked puts first (if you are in an IRA account, it would be cash secured puts or CSP). I guess, I should call this modified strategy a quadruple play then.

This would be the true strategy of:
“Sell puts as long as you get assigned, then keep the stock, collect dividends, and sell calls as long as you get assigned.”

 

 · ETE ex-dividend day

 

The company hasn’t announced the ex-date yet but from previous records ETE had ex-dividend date every February 4.

Thus we may expect that it will be same case in 2017 and ETE will also have the ex-date in February 4th, 2017. We will however watch this carefully and adjust our strategy accordingly.

In order to participate in the dividend capture play we must purchase the stock BEFORE February 4, 2017 to be able to receive dividends.

 

 · Dividend capture play step by step

 

As I mentioned above, I am adding another trade layer to this strategy and in the next few weeks I will be selling puts against ETE. We will be selling weekly puts capturing small premiums every week until the last week before ex-date. Then, a week before ex-date, we will let the puts to be assigned to us so we purchase the stock.

However, during this period of time, we will also manage our puts to stay safe. We will roll them if needed to play this game correctly.

Here are the steps we will be taking with this trade:
 

WEEK 1 – December 30th expiration

1) We will sell 1 ETE Dec30 19.50 strike put and collect a premium (approx. 0.26 credit).

2) If the Dec30 put expires worthless (we will not be buying it back this time) on Friday, December 30, we will sell another 1 ETE Jan6 ATM put to collect another credit.

3) If the Dec30 put ends in the money, we will roll the put into Jan6 either same strike or lower to collect another credit.
 

WEEK 2 – January 6th expiration

1) Now we have a new Jan6 put which we either sold as a new trade or rolled at the end of the previous week.

2) If the Jan6 put expires worthless on Friday, January 6, we will sell another 1 ETE Jan13 ATM put to collect another credit.

3) If the Jan6 put ends in the money, we will roll the put into Jan13 either same strike or lower to collect another credit.
 

WEEK 3 – January 13th expiration

1) Now we have a new Jan13 put which we either sold as a new trade or rolled at the end of the previous week.

2) If the Jan13 put expires worthless (we will not be buying it back) on Friday, January 13, we will sell another 1 ETE Jan20 ATM put to collect another credit.

3) If the Jan13 put ends in the money, we will roll the put into Jan20 either same strike or lower to collect another credit.
 

WEEK 4 – January 20th expiration

1) Now we have a new Jan20 put which we either sold as a new trade or rolled at the end of the previous week.

2) If the Jan20 put expires worthless (we will not be buying it back) on Friday, January 20, we will sell another 1 ETE Jan27 ATM put to collect another credit.

2) If the Jan20 put ends in the money, we will roll the put into Jan27 either same strike or lower to collect another credit.
 

WEEK 5 – January 27th expiration – assignment day

1) Now we have a new Jan27 put which we either sold as a new trade or rolled at the end of the previous week.

2) This time, we let the Jan27 put end in the money and let them get assigned to us. We buy 100 shares of ETE at the strike price. If the option will be OTM before expiration, we will roll it back into ITM to make sure it ends ITM and we get assigned.

3) When we get assigned, we will hold the shares through February 4th and we will be selling OTM calls.
 

WEEK 6 – February 3rd expiration

1) Now we have a new Feb3 covered call which we sold last week. We want to be well OTM so we will not get assigned early. If the stock moves higher during the week and our calls end ITM, we may choose to use a covered strangle strategy to move our calls higher. Another option will be that in the case of our calls getting ITM we may roll them into the same strike into the following week to avoid early assignment. If not possible, then we let it be and hope we won’t get assigned early.
 

WEEK 7 – February 10th expiration

1) We still should hold our covered calls from previous week.

2) This week, we are safe to liquidate our ETE position as we successfully passed through the record day (we held the stock before the ex-dividend day). We secured a dividend of 0.285 a share.

3) After the ex-date (February 4th) if our calls will be OTM we will roll them from OTM into ITM so we get assigned and sell our stock holdings at the very next expiration (if the stock stays at about the same level as the original assignment – we expect around $19 a share)

4) On Friday, February 10th, we expect our calls to be assigned and we will sell 100 shares of ETE. Our trade will be over.

 

 · Expected revenue

 

If everything goes as planned we will see the following profit estimate:
 
premiums from puts: 1.30 or $130 (0.26 credit x 5 trades) 6.66% profit
dividend: 0.285 or $28.50
premiums from calls: 0.20 or $20
 
Total estimate: 1.785 or $178.50 9.15% profit
 

If we happen to sell our shares at a higher price, we will have added profit on the shares too.

If the stock continues dropping after assignment, we will keep selling covered calls or covered strangles as long as we get out of the holdings.

 

 · Trade order for tomorrow

 

Here is our first trade for the next week:
 

STO 1 ETE Dec30 19.50 put
@ 0.26 credit limit day
 

ETE
 

If you wish to follow this trade live, join our trading group where I will be posting results of each trade week and potential adjustments to keep the trade within the desired range.


 


 

Are you Ready to Trade?

If you like results of our trading open yourself an account with OptionsHouse.com and start trading with a low commission rates + free virtual trading tool!

Your new trading account will come with a paper money account and will be immediately funded with $5,000 of virtual money for you to test the options trading and if you join our trading group on Facebook you can get a guidance, ideas, and trading education. Before you commit your real hard-earned money you can use the virtual account to test our strategies, learn, and ask all questions you need to learn options trading.

Once you learn and get ready, start trading live account and earn monthly income similar to ours. And we will be happy to assist you with that.

Seize the opportunity. Open a new OptionsHouse Account Today! Open and fund an OptionsHouse account to receive up to $1,000 worth of commissions on online trades for 60 days.
 


 




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Posted by Barney Whistance December 13, 2016
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Is Snapchat’s IPO Worth It?

Is Snapchat’s IPO Worth It?

Is Snapchat’s IPO Worth It?

 

Snapchat’s been making waves in the tech world starting with the famous refusal to sell the app to Facebook for an astounding three Billion USD. The gamble by Snapchat’s mastermind Evan Spiegel paid off handsomely when its valuation soared, to the surprise of many analysts. The company’s IPO is planned to be launched in the first four months of 2017 expected to be valued at a prodigious 20-25 Billion USD. This is the biggest IPO from an American tech company since Facebook which was valued at 81.2 Billion USD and more recently, the Chinese e-commerce giant Alibaba Group Holding Ltd, which was valued at a record USD 170.9 Billion just 2 years ago.

 

· Confidential IPO

Since Snapchat has registered revenues of less than 1 Billion USD this year, it has used its right under the U.S’s. “Jumpstart Our Business Startups Act” to secretly file for an IPO to test its waters while keeping its financials strictly confidential. Regardless, the IPO is going to be huge as Bloomberg reports that it can quite possibly reach upwards of 40 Billion USD. At this point, it’s safe to say that the possibility of it being a massive IPO is inevitable.

 

· Playing it safe

Even if we consider the worst case scenario, the company will be well worth over the three Billion USD which was offered by Facebook initially. Private funding and other vital factors currently value the social network at around 18 Billion USD already, proving the company’s stock to be immensely in-demand right now.

 

· Twitter and Facebook

Back in 2011, Twitter and Facebook had revenues valuing 108 Million USD and 3.7 Billion USD respectively. Twitter is experiencing loss recently and Facebook has been experiencing its net income ascending. Facebook’s effective innovative decisions have led to its success in the stock market constantly. Its strategy of literally buying all of its potential competitors has worked wonders. While the same can’t be said for Twitter.

 

· Fierce Rivalry

Unless you’ve been living under a rock, you would know that Facebook and Snapchat have seen some fierce rivalry in the past months as Instagram and Snapchat have been fighting head on to exceed its daily active user base. Instagram has a daily active user base of almost 300 million, which is double the user base of Snapchat. Snapchat is undoubtedly a threat for the big fishes in the realm of social media. After rejecting the Facebook’s buying offer of the platform, Snapchat is going head to head with Facebook.

 

· Snapchat’s secrecy policy

Secrecy is almost second nature to Snapchat’s way of doing things. All the news about its daily active user base and other important details only have been brought to light due to leaks. To gives you an understanding of its extent of secrecy, the employees working in Snapchat for years have never had a glimpse of their leader, Evan Spiegel. Augmented Reality World Lenses were launched recently without the knowledge of its own employees.

 

· The verdict

Snapchat’s IPO will definitely be worth it for investors as it has the potential to overtake tech giants by introducing a completely different form of communication to the masses. The way this app has retained its loyal daily active users and continues to innovate and bring new filters daily, it will most probably soar in revenue and pose to be a great investment opportunity. Snapchat looks like the next Facebook in the making.  Evan Spiegel has proven to the world he is an entrepreneur deserving our attention.

 




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Posted by Guest December 08, 2016
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Understanding The Basics Of Trading Psychology


If you’re interested in getting involved in trading, there are quite a few things to think about. You’ll need to find a good broker, find a strategy, think about risk management, and more. However, one thing that seems to go unconsidered by many beginners is psychology. The truth is that psychology plays a big role in your ability to profit in the market. Today, we’ll talk about the basics of trader psychology and why this is definitely something that you want to think about if you’re ready to start trading.

 

 · Human Beings Are Emotional Creatures

 

The truth is that we are all human beings, and as human beings, we are all emotional creatures. Love, fear, greed, and more are the primary forces that seem to drive our everyday lives. However, these same emotions can lead to big losses in the market if you’re not careful. At the end of the day, before getting started in the market, it’s important to understand basic emotions that the average person may not think about.

 

 · There Are 2 Driving Emotions In The Market

 

At the end of the day, there are only two emotions that will generally drive movement in the market. Those emotions include…
 

  • Fear – First and foremost, one of the emotions that tends to lead to big losses or lost opportunities for big gains is fear. Ultimately, we live in a world that is driven by money. When trading, you are putting that money at risk. So, it is natural to have a fear of losing that money. However, letting this emotion dictate your trading habits is a bad move. We’ll talk about how to avoid letting fear get involved later.
  •  

  • Greed – While greed doesn’t generally lead to missed opportunities in the market, it can definitely lead to big losses. As mentioned above, in a world led by money, our quest to get our hands on as much as possible can end up hurting us.

 

 · How To Avoid Letting Emotions Lead To Losses In The Market

 

For me, there has been quite a bit of success in a simple three step process. That process includes…

Step #1: Follow A Strict Trading Plan

In the world of trading planning is key. At the end of the day, by writing your trading plan down and following it to the T, you are keeping emotions completely out of the process. Your plan dictates when you enter and exit trades, not your emotions. So, before you get started in the market, make sure that you have a strong trading plan drawn up.

Step #2: Check Your Emotions At The Door

Never walk into the trading process in an emotional state. If something is going on in your life that’s leading to heavy emotions, it’s best to deal with what’s causing the volatility in your emotions before trading. After all, if you are already overwhelmingly happy, sad, or otherwise, these overwhelming emotions can cause you to stray from the path to profits as you trade.

Step #3: Know When To Walk Away

If you start trading and you notice that your emotions are getting the best of you, it’s probably time to walk away. Start by getting up and going for a walk around the block and trying again. If that doesn’t work, give yourself the day off. It’s better to not gain than it is to lose!

 

 · Final Thoughts

 

While we don’t often think of emotions, if we do sit back and think of them, we tend to find that they dictate some of the most important decisions we make in our lives. While emotions do have their place, they don’t have a place in trading. So, before you get started, make sure you’ve got your emotions in check!




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November 2016 trading, investing, and dividends results


November is over and we are approaching the end of the year. This turned to be a successful year and I hope the next year will be even better.

However, our November trading returned mixed results. Something I haven’t experienced for the entire year and I am still baffled on what actually happened.

This month we reached our monthly income goal but our account net-liq got a severe hit.

I honestly do not understand why it was happening. Almost all our positions are safe and deep OTM (except a few exceptions in MNK and ESV), yet we saw a huge, almost 50% retreat from the last month account value! Below I am providing you with some details on the account numbers and explanation of what happened.

For November 2016 we planned an income of $3,800 dollars.

And we made $3,818.50.

I am happy about this result. I am not happy about my net-liq large drop though.
 

Our November dividend income was low. November is our dividend income weak month. The dividend income was $57.10 this month which was in line with other weak months. However, after a few months of dividend income annual drop (due to some dividend reductions) our annual dividend income started rising again.

We are now focusing on ensuring income for our ROTH IRA account which can be then invested into dividend stocks. That’s why we are not opening new dividend stocks trades and just reinvesting dividends. All other cash deposited in the account or generated by selling options is held in cash and waiting. In the next section of this post I am also explaining further in detail what my strategy in the ROTH account is.
 
 

Options Income = $3,818.50 (account value = $7,674.72 +202.19%)
Dividend Income = $57.10 (account value = $20,069.40 +32.56%)
 

If you wish to see details about each account, continue reading below.


 


 

Are you Ready to Trade?

If you like results of our trading open yourself an account with OptionsHouse.com and start trading with a low commission rates + free virtual trading tool!

Your new trading account will come with a paper money account and will be immediately funded with $5,000 of virtual money for you to test the options trading and if you join our trading group on Facebook you can get a guidance, ideas, and trading education. Before you commit your real hard-earned money you can use the virtual account to test our strategies, learn, and ask all questions you need to learn options trading.

Once you learn and get ready, start trading live account and earn monthly income similar to ours. And we will be happy to assist you with that.

Seize the opportunity. Open a new OptionsHouse Account Today! Open and fund an OptionsHouse account to receive up to $1,000 worth of commissions on online trades for 60 days.

 


 

Read More


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Markets closed at new all time highs. What’s next?


It is sort of hard to believe. Bears were convinced of an imminent market crash and with any decline they loaded up their portfolios with more bearish trades.

Yet it was apparent that we are no in a bear market and all reversals showed up to be just bear traps.

The Brexit was a bear trap.

And the recent pre-election decline was just another bear trap in play.

SPY

We broke up also on Trump optimism. Before election, market participants were skeptical on trump and when FBI came out with a new investigation on Clinton, markets crashed. When the investigation was called off, the markets rallied.

We could see the same when Clinton lost Florida. The markets also tanked.

However as soon as Trump won the election the markets reversed and rallied since then. Consumers’ optimism rose in the last few weeks fueling more optimism in the markets. We are entering into a shopping season and it will tell us a lot about consumers’ confidence.

As of now, as Financials, Steel stocks, Semiconductors, Regional Banks, and Transportation stocks all broke up in a very strong rally and based on Trump promises about re-building America, we have no way to go than up. There is no resistance, no game changing event! Only Trump optimism, promises, and great expectations.

 

 · Will the Trump rally continue or will markets crash?

 

But how long will this rally last?

I personally believe that this rally will continue.

There may be a few breaks and minor pullbacks but we are heading higher. Although I do not make predictions and will never do, my expectation of the next level is 2280 level of SPX (S&P 500). It is a next measured stop from Brexit to consolidation. Take the same magnitude and project it from the recent break out.

This bull market is not over yet, it just got started, and it will go higher.

I believe we will see this rally until late January or February as we will see the effect of Trump promises, later Santa Claus rally and then we may see fading as the reality kicks in.

 

Broken Promises

 

I believe that Trump will not be able to deliver on his promises (in fact he is already breaking many of them) and that may come as the awakening point to investors who may realize that they were overly optimistic and the rally will fade.

However, as of now, we do not have any force yet in play which would send this market lower. After all, new highs are historically a bullish event. So expectations are higher.

 

 · What to do next?

 

First of all, stick to your plan.

No matter what type of investor you are you must follow with the plan you laid down for you. If you have no plan, then I urge you to make one.

As a dividend investor, there are no changes to my dividend investing strategy.

I continue to hold my shares and reinvest dividends using DRIP program. As the stocks go higher, I might be buying less shares than before when reinvesting the dividends, but that is OK. I have it on autopilot and it is all fully automated.

I keep depositing my small amount of money every months and once I save enough I buy new shares of dividend stocks I like.

I always remember my dividend strategy and my time horizon. I invest for the next 25 years, so any mini-Trump-rally today which may last a few more months only won’t derail me from the plan.

And if the market fades and crashes? Well even better as I will be buying for cheap. All panic and selloffs are welcome in my dividend investing plan. The lower the stock goes, the more shares my DRIP buys and the more shares I buy with my saved dollars.

So no selling of stocks because of high valuation, stock market crash predictions, or gurus talks. Stick to the plan.

As an option trader my plan is also same and it doesn’t need any changes.

Options give you a great opportunity of being flexible. When the market goes higher I can be selling more puts. When it reverses, I start selling more calls and if needed reversing my puts into calls.

When the market drops enough so the buyers step in and it starts going up again I do the opposite – start selling puts again and eventually reverse my calls into puts.

However, caution is justified in this market. As a trader, trading on margin, I have to be always careful to watch my positions and do not over trade, because any fast and large in magnitude rallies in the wrong direction can destroy your account without any chance of reacting properly.




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Posted by Guest November 13, 2016
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Here’s Why Most Traders Lose Money


It is a well known fact that most investors lose money in the stock market. The numbers vary from 80% to 95%, but the fact remains. There are many reasons why people lose in the stock market. But the main reason is related to human emotions.

 

 · Role of Psychology in trading

 

Dr. Van Tharp is known for breaking down the trading process into three categories that affect traders. He categorizes them by importance as follows:

 
• Trading strategy (10%)
• Money management (30%)
• Psychology (60%)
 

According to Dr. Tharp, the psychological outlook and an individual’s way of thinking towards trading is the most important factor for success. The fact that the actual trading strategy is ranked the least important by Dr. Tharp, suggests that regardless of how successful a strategy is, psychology is the key to being successful.
 

This article from IAG Wealth Management explains things very clearly.
 

Recent study by DALBAR shows that investors consistently underperform the broad markets by significant margins. For the 30 years ending 12/31/2013 the S&P 500 Index averaged 11.11% a year. A pretty attractive historical return. The average equity fund investor earned a market return of only 3.69%.

To put this in perspective, if you invested $100,000 in 1984 in the S&P 500 and earned 11.11%, today (30 years later) you would have $2,358,275. If you started with $100,000 and invested it over the same time period at 3.69%, you would have $296,556. That is a difference of $2,061,719. It should be clear from these numbers that individual investors have a problem.

 

 · Why Investors underperform the markets?

 

Fidelity Investments conducted a study on their Magellan fund from 1977-1990, during Peter Lynch’s tenure. His average annual return during this period was 29%. This is a remarkable return over the 13 year period. Given all that, you would expect that the investors in his fund made substantial returns over that period. However, what Fidelity Investments found in their study was shocking. The average investor in the fund actually lost money.
 

The main reasons for the poor performance of individual investors are:
 

• Human Psychology: Individuals make decisions everyday with their emotions assisting their judgment.
 
• Performance chasing: Investors who chase performance are highly likely to lose money over the long term.
 
• Casino Investing: Many people think they can make money by winning the lottery.
 
• The “me too” lemming investment strategy: This is a common strategy of people who don’t know what they are doing with their investments.
 
• Fear and Greed Investing: Those are the most powerful motivations for investors. Unfortunately, investors tend to alternate between these potentially destructive emotions.
 
• Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.
 
• Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees.
 
• Traders with up to a 10 years negative track record continue to trade. This suggests that day traders even continue to trade when they receive a negative signal regarding their ability.
 
• Profitable day traders make up a small proportion of all traders – 1.6% in the average year.
 
• Among all traders, profitable traders increase their trading more than unprofitable day traders.
 
• Investors tend to sell winning investments while holding on to their losing investments.
 
• Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss.
 
• Individual investors trade more actively when their most recent trades were successful.
 
• Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.
 
• Investors overweight stocks in the industry in which they are employed.
 

Investors returns
 

The last one is one of the biggest reasons for individual investor under-performance. The study done by Fidelity Investments should highlight this. Investors in one of the most successful mutual funds lost money during a period of time where the fund made 29% annually. According to Fidelity, investors would pull their money out of the fund during periods of poor performance, and send it in during good periods.

 

 · It’s all about expectations

 

Another big issue is expectations.

Before one get to a earn say $5-$7k/month an engineer need to go through 4 years of professional education including one or two summer projects before he is allowed to be even called an Engineer Trainee. Medical professional is required even much more rigorous training before one is allowed to even touch knives for first surgery. Then why do people think trading is any different if it were to give you $5-7k/month to start? It doesn’t take long before one starts to realize that trading is not easy as it seems on the surface (sadly after either account is wiped out or suffered a major loss.

Setting realistic expectations is very important. I’m a big fan of the “slow and steady” approach. Aim for many singles instead of few homeruns. Be patient. Be prepared to lose for a while – set your goal as capital preservation instead of doubling your account. Think about the risk first. If you take care of the risk, the profits will come.
 

Here’s a quick list of some things to consider as you write down your expectations and goals.
 

1. More traders lose more money than they make. The figures are a little off depending on who you talk to, but it is 80% to 90% (maybe more) who end up losers and leave the business altogether.
 

2. Only a small percentage of retail traders are profitable. The numbers get even smaller if you look at a 3-5 year average which measures consistency. Don’t get discouraged, we all fell off the bike before we learned to ride it right?
 

3. Paper trade first with a small amount of money. I always recommend members to paper trade everything first. This way you learn how to enter orders, adjust trades, and more importantly learn you’re your mistakes without losing real money. Then when you are ready to invest real money, keep it small. Prove yourself that you can make money with 10k, then increase it to 20k and so on, but do it gradually.
 

4. You will have losing trades. Too many people quitting after a streak of few losing trades. Losing money is part of the game, the trick is to keep the losses as small as possible.
 

5. Don’t expect to become financially independent. Don’t you think it’s completely unrealistic to expect a small account, say under $5,000, to generate consistent income to replace your regular job?
 

 

 · What is your timeframe?

 

Peak to valley, from June 1998 – March 2000 Warren Buffett’s Berkshire Hathaway lost over 50%. In the same period, the S&P 500 returned over 45% and the Nasdaq 100 returned over 315%. A new client said to me the other day “I’m in this for the long term, but if after a couple years I don’t see any gains then I’m going to tell you this isn’t working.”
 

That feels logical, as two years can seem like an eternity for clients that tend to check their account balances almost every day. On a separate side note, I believe this behavior is rooted in an investors tendency to not completely trust their advisor which is legitimate in a field chock-full of conflicts of interest and bad advice which can largely be eliminated by a fiduciary standard.
 

But historical and statistical evidence suggests that even the most efficient strategies and portfolios are almost guaranteed to have a period of losses or no growth that last at least a couple years during any investor’s lifetime. Nobody can predict when that will happen. Does the fact that Warren Buffett underperformed the S&P 500 by almost 100% and the Nasdaq 100 by more than 350% for almost a two year period matter, or does this matter?

 

 · Conclusion

 

Most retail investors get greedy and panic at worst possible times. This is due to the basic fear/greed mechanism. People (professionals included) tend to over-project their optimism when things are good. And people tend to get depressed, bipolar when things hit the fan, leading to irrational actions. And they let their emotional state project itself onto their investing decisions, leading to missteps.

Kim Klaiman is a full time Options Trader and founder of steadyoptions.com – options education and trade ideas, earnings trades and non-directional options strategies.
 

Read more from Kim on his Options Trading Blog.
Twitter: @SteadyOptions_
 




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October 2016 trading, investing, and dividends results


It looks like time is moving faster and faster every month. I feel like I have written a September report just yesterday and it is already time to write it again for October.

I was busy trading (besides my other less loved activities) and dealing with violent markets struggling to find direction. People in Wall Street are torn apart on who has a bigger influence on the future market direction – Fed, Trump, Clinton, weather, or oil, and many pay a little attention to macro and micro economic data coming from the economic and earning reports.

At least, I am slowly progressing to a state of being independent from the market direction. It is a beauty of trading options that a trader can make money in any market. You won’t get such privilege with stocks only.

October 2016 options trading was successful again. We made money as per the plan. I planned to make $3,500 in premiums in October 2016 and we made $3,446.50 in premiums!

Of course, according to the Wall Street earnings obsession we missed earnings this month. If I had a publicly traded company, investors would be spooked and selling our shares like crazy as of now.

I am happy for October results. Income wasn’t as good as last month, but within expectations and goals. And that’s what counts.

October dividend income came out as a surprise to me. I noticed a few dividend cuts on my MLPs and oil companies (AGNC and COP seemed to lower their dividend), yet my dividend income came larger than previous month. This month, the dividend income was $85.75 which was higher than the last month income of $80.24 dollars. I still have dividend investing a bit dormant as we are now focusing on reaching our options goals which would greatly pay for our dividend investing.

That was my plan from the start. Trade options and reinvest income into dividend paying stocks. And we are successfully reaching that goal.
 

Options Income = $3,446.50 (account value = $14,762.53 +481.27%)
Dividend Income = $85.75 (account value = $20,237.26 +33.67%)
 

If you wish to see details about each account, continue reading below.


 


 

Are you Ready to Trade?

If you like results of our trading open yourself an account with OptionsHouse.com and start trading with a low commission rates + free virtual trading tool!

Your new trading account will come with a paper money account and will be immediately funded with $5,000 of virtual money for you to test the options trading and if you join our trading group on Facebook you can get a guidance, ideas, and trading education. Before you commit your real hard-earned money you can use the virtual account to test our strategies, learn, and ask all questions you need to learn options trading.

Once you learn and get ready, start trading live account and earn monthly income similar to ours. And we will be happy to assist you with that.

Seize the opportunity. Open a new OptionsHouse Account Today! Open and fund an OptionsHouse account to receive up to $1,000 worth of commissions on online trades for 60 days.

 


 

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Posted by Martin October 30, 2016
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GME – fixing a deep in the money put trade


Recently, in our trading group on Facebook, a trader asked a question:

 
“Whats your suggestion to manage my GME Short 3 Jan20 31 put @5.65. GME Trading now @23.8”
 

I posted my answer to that question but then realized that my answer was just a part of the overall fix of this trade. I decided to describe my complete view on the entire fix if it was a trade of mine.

The trader has an initial trade of 3 contracts, $31 put strike with expiration in January 20th, and he collected $5.65 credit per contract (total $1695 premium). Here is the contract:

 
-3 GME Jan20 31 put @ 5.65 credit
 

The stock is now trading at $23.80. The trade is deep in the money. Here is a chart of this trade:

 
GME trade fix
 

Looking at the chart above I do not see this stock positively. It may of course change but it recently broke through its support at $25.50 and I can’t see any support below.

The stock may still continue lower, a lot lower.

I think this trade was supposed to be fixed a lot earlier than now but many times it is difficult to say what is better – wait, or start adjusting. Since it is now deep in the money and there is not much optimism in this stock, I think it is time to start fixing this trade now rather than wait for later. Below I will list a few reasons why I think it is important to start fixing it now.
 
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Posted by Christina Moore October 22, 2016
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Here’s Why Consumers Make Terrible Stock Analysts


One of the most important rules for an amateur day trader to follow is never invest in a stock in which you are emotionally involved. This is the fastest way to bankruptcy. It is like betting on your favorite sports team simply because you bleed those colors. The competition does not care what color your soul bleeds. It is all about how the talent on one team matches up with the talent on another team. Betting any other way is foolish.

Tech fanboyism may work for deciding your next smartphone. That is because for the most part, they are all good enough. It is hard to find one worth being a fan over that is truly disappointing.

But it is the worst way to determine stock value. Amateur investors put money on things they like, or on companies that are aligned with them morally or politically, or religiously. None of these things have anything to do with whether the investment will make you money.

If you are having a hard time understanding why your favorite company’s stock is not doing as well as you think it should, here are three indicators that might clear things up:

 

 · It’s Not Just About the Numbers

 

One of the big mistakes non-professionals make is that they only look at the numbers divorced from even more important factors. Mastering analytics is about more than just the profit/loss column in the quarterly report. The professionals go to school for a long time before they are qualified to publish an opinion. Shortcutting the process doesn’t make you smarter than the analysts.

Besides the amount of money they made year over year, a company’s stock can also be affected by:

• The weather in the region of a major supplier
• Political uncertainty
• Scandalous behavior of a C level executive

There are more things than poor sales that can negatively affect a stock. You have to analyze more than the numbers on the balance sheet.

 

 · Decreased Brand Value

 

Samsung may well be the most powerful brand with regard to Android phones, possibly even more so than Google. But Samsung has a problem. Their latest flagship product: the Galaxy Note 7 has a tendency to overheat and explode for causes unknown.

They have suffered an unprecedented product recall in the US. One of the new phones offered as a fix post-recall caught fire on a Southwest Airline plane, compounding the problem even more.

Despite these setbacks, Samsung earnings have not suffered. But it is a critical mistake to confuse short-term earnings with long-term stock price. The reputation of Samsung has suffered a blow that the trial vs. Apple never delivered.

It is going to take a lot of business intelligence using big-data analytics to sort out the aftermath. And it may be several months before the real fallout becomes apparent. Brand value assessment is a vital part of the analytics toolbox. A loss of brand value over time will negatively affect the stock.

 

 · Expectations and Forecasts

 

Analysts make predictions about earnings. In gambling terms, these predictions are like the line. The stock market treats earnings as a game of over/under. When the earnings are better than expected, the stock price usually gets a temporary boost. When it underperforms, it has a temporary setback.

These analyst predictions tend to only have a temporary affect either way. The other prediction comes from the company itself. On the same earnings season Apple announced their billionth iPhone sold, they also forecasted decreased financials for the following quarter.

The downgrade may not have anything to do with lower sales expectations. Apple recently lost a major fight against a patent troll regarding FaceTime. They will have to pay up. Even Apple is not immune from the impact of patent trolls.

The stock market is not really the black box consumers think it is. It works by a predictable set of rules. To follow it more successfully, you have to do the analytics beyond the balance sheet. Factor in the gains and losses in brand value. And pay attention to how well the company meets expectations.

Christina Moore is a part time blogger and full time learner! Originally from the east coast, she now resides in San Diego. She enjoys writing about business, finance and whatever else peaks her interest.
 
 




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