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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?

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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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September 2016 trading, investing, and dividends results


September seemed again to be a slow month, yet it ended very nice with a great income from trading options.

In September, we made $5,083.50 in premiums!

However, many of our trades gave us a hard time and once again we found ourselves in a trouble of being over-invested. Thus October may be slow as we will not be opening any new trades, but mostly managing the existing ones, and attempting to close them for profit. If the market will not cooperate, this may have an impact on our next month revenue.

September dividend income was better than August but not as much as we would like and expect. This month, the dividend income was $80.24 which was higher than the last month income of $59.16 dollars.
 

Options Income = $5,083.50 (account value = $13,873.32 +446.25%)
Dividend Income = $80.24 (account value = $20,329.86 +34.28%)
 

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


 


 
You may be interested in:

 
Should the Fed start buying stocks? Not according to these market experts By Michelle Fox with MFoxCNBC

 
Common Misconceptions about Dividend Growth Investing By DGI with Dividend Growth Investor

 
Day Trading Salary – How much money can you really make? By Alton Hill with Tradingsim

 
Recent Sell – Bank of Nova Scotia By R2R with Roadmap 2 Retire

 
How Things Have Changed on Wall Street in the Last 50 Years By Ben Carlson with A Wealth of Common Sense

 


 

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Posted by Martin September 11, 2016
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Saving deep in the money puts, jade lizards, or strangles


If you follow my posts you remember that I advocate that investors should not be predicting the market or stocks. Such behavior has no place in the stock market. If you base your trading on predictions, forecasts, or magic, you are definitely set for losing your money.

Many times I said here in this blog that you do not need to know what the stock or market will do next, but you need to know what you will do next.

If you are prepared before you enter a trade and know what to do in every outcome and every move Mr. Market throws at you then you really do not need to know what will happen in the market next. You do not need to predict the future. And all available crystal balls were sold out anyway.

This is the number #1 problem investors and traders get into. They know perfectly how to put up a trade but have no clue what to do next, how to manage the trade and how or when to get out. And when the trade goes against them and they lose money, they blame the market, Fed, high frequency trading, market makers, bad weather, or improper constellation of the stars.

Here are a few steps how you can fix deep in the money puts, jade lizards or strangles.

 

 · Step 1 – Opening an initial trade

 

Once I had a trader who asked me a question what do I do when I open a trade and the very next day the stock tanks. How do I predict this and prevent myself from entering the trade right before the stock collapses.

I told him: “You can’t”.

You cannot predict future. There is absolutely no way that you can predict what event sends the stock to abyss or shoots it into the sky. All you can do is get ready for all possible outcomes of the trade, have a plan for each event, and if any of that event happens, execute that plan.

So let’s review step by step what you can do when trading naked puts, jade lizards, or strangles and the trade turns sour the very next day. Remember, the steps described below can be used (in a proper modification) for almost any trade. You can use them with spreads, naked puts, naked calls, or jade lizards. In this post I will show it as if we traded a strangle.

A strangle is when you sell a naked put and a naked call at the same time. It is a high probability credit trade (you get paid for this trade). But sometimes it can turn bad.

 
Strangle defense
 

The picture above shows a typical strangle. Let’s say that a stock XYZ is trading at $100 a share. We decided to sell $90 strike put and $110 strike call (both legs with delta 20). For this trade we collected a premium $4.00 dollars, so our break even prices are $114 on call side and $86 on put side.

Remember, with strangle, you will never lose on both sides. Only one side can get into a danger at a time. If your put gets in danger, you calls will make you money. If your calls get into trouble, your puts will make you money.

Let’s say we weren’t much lucky and some usually unknown analyst you have never heard of before issues a warning that he thinks the company will not do well in the next quarter. Sometimes this is enough to send the stock down.

 
Strangle defense
 

Now, our puts are in danger. What would you do?

 

 · Step 2 – Choose the defense based on time

 

Sometimes it is difficult to choose the proper defense. If you have a plenty of time until expiration you may choose to wait and see if the stock recovers or choose to take action and adjust the trade.

Many times in the past I decided to wait and the stock tanked more making things worse. On other occasions I decided not to wait, make adjustment, but the stock recovered and the adjustment turned against me.

Can you prevent such situation? Again, you cannot. If we knew what the future was going to be, we would be billionaires.

Let’s say we no longer feel comfortable with the trade, take the analyst’s warning seriously and decide to take action and adjust the trade.

 
Strangle defense
 

If the stock tanks and the price goes and touches your naked put side or goes even lower but stays above your break even price, then you roll down your call side.

You buy back your almost worthless calls and sell new calls close to the current price or same delta (in our example it was delta 20). For this, you collect additional premium. That premium will further lower your break even price from the original $86 to $85 dollars.

But what if you do this adjustment and the stock recovers and continues higher? Your naked calls will now be in the money.

Many people and novice traders have a panic fear of naked calls in the money. They immediately see it as a huge danger to their portfolio. Many stay away from naked calls because they have no clue where the risk is.

What would you do then when your calls go in the money and your broker is telling you that now your risk is unlimited and you can lose everything and even what you do not have?

You can:

1) roll the calls up
2) buy stocks and make it a covered call
3) convert the calls into puts
4) or use an inverted strangle (see below)

 

 · Step 3 – How rolling calls saves my ITM puts?

 

It doesn’t make the ITM puts to go away. If you do the above described adjustment you still may end up with an ITM put and OTM call. So you may ask, what’s the point of such adjustment?

First of all, you collected more credit which may help you offset the price of the put should you buy it back at a loss. Or, if you are like me and do not want to take a loss, you may decide to roll the put lower into the next month (or week) get more credit and improve the outcome of the trade.

When you roll your put away and down, you collect a new small credit, make the puts OTM again and you may decide to sell a new OTM call against the new rolled puts making your trade a new strangle, collecting even more credit. The new strangle with lower strikes on a stock which went down has now a lot better chance to be bought back for 50% credit than the original one. Or even expire worthless. You will be out of the originally losing trade as a winner.

But if this doesn’t help and the stock continues giving you a hard time you may choose more defensive steps.

 

 · Step 4 – When all is lost invert the strangle

 

Sometimes you end up rolling the trade, making adjustments but it doesn’t help in the end. Sometimes the stock tanks and smashes through your puts side without a mercy and your puts end up in the money.

Now it is a time for an exciting adjustment – inverted strangle.

 
Strangle defense
 

Let’s assume the stock didn’t stop at $90 a share and the very next day after you adjusted your original trade it smashed down below your break even price. You now know that there is a very little chance that the stock would move back up above your original $90 strike put. For example, you only have two weeks to expiration and the stock would have to move a lot to get back up above $90 strike and such move is highly unlikely.

You have again a few steps you can choose:

1) roll the puts down and away in time (but this will need more margin and more time blocking your buying power)
2) accept assignment and buy the stock (this may lock your money in a stock for a very long time)
3) convert the puts into calls (you would have to go near the money, most likely at the money or in the money to make this adjustment)
4) or use an inverted strangle (this will cost you no time and no margin/buying power)

 
Strangle defense
 

How do you invert a strangle? You buy back a worthless $110 call and sell a new in the money (ITM) call at e.g. $78 strike. For this adjustment you collect another large credit. You now have in the money puts and in the money calls.

 

 · Step 5 – What now?

 

Now I can see many investors freaking out. In the money puts and calls? Are you crazy?

No, I am not crazy. It is not an end of the world and there is plenty of ways how you can further work with those options. Let’s review what outcomes can happen and how to deal with them.

First, your inverted strangle must always stay in the money in order to finish this trade as a winner.

 
1) Two days before expiration

Let’s says the stock stopped its selloff but it is staying down low right in between your in the money strikes. If we let it expire we will see the following to happen:

Our puts and calls will be assigned against each other. At expiration, we will buy 100 shares and sell 100 shares at the same time and realize either a loss or gain from the difference.

In our example, we will see this:

$9,000 ($90 strike put assigned) – $7,800 ($78 strike call assigned) = $1,200 loss

We collected the following credits:

1) initial trade = $400
2) first adjustment = $100
3) inversion of the strangle = $300
Total = $800 credit

Then the result will be $1,200 – $800 = $400 loss

This result will vary based on the trade and situation. I had a trade against LULU for example where I ended with $313 loss, but I had a trade against WYNN where I had only $65 dollars loss.

 
2) Roll inverted strangle

Two days before expiration you roll the entire strangle into the next week or month. You must roll the entire in the money strangle. Doing this you will collect another credit, e.g. $2.50 or $250 dollars. That would lower your $400 loss down to $150. You can choose to take the loss and move on or roll again and end the trade with a small gain of $50 for example. Or roll once more and end with a $300 gain (note the numbers are examples only).

You can also choose rolling to a lower put strike to improve a chance of getting a better outcome.

 
3) What if the stock continues falling?

This may of course happen. You make an adjustment two weeks prior to expiration and two days to expiration the stock slides to $68 a share. Now your puts are deep in the money ($90 strike) and your calls ($78 strike) are now OTM. What to do?

In this case we will let our out of the money calls expire worthless and we will roll our deep in the money putsinto the next period and down. At the same time we will sell new in the money calls, e.g. at $60 strike. For this we will collect premium. If the premium is large enough to offset the spread width loss, then in the next expiration we will let both options offset each other. If the spread is too large, we will have to roll again and try to get the options legs closer together and for credit (when rolling into the next month or week we attempt to roll calls higher and puts lower but still keep them in the money.

 
3) What if the stock recovers and goes up?

This is a similar situation as described above. Now our puts will be OTM and our calls deep ITM. You take the same approach as described above but reversed.

 
3) What if I get assigned?

First of all, remember that 90% of all options expire worthless and are used by traders. Only about 10% is used by investors as a hedge when they are actually interested in buying or selling stocks via options. So your chance of getting early assigned is low. But it can happen. We are in the money after all.

What happens if your puts get assigned?

Buy the stock, start collecting dividends, start selling covered calls, and sell a new in the money puts. This is not a big deal as we like selling puts against dividend stocks, so buying the stock is a part of our strategy anyway.

What happens if your calls get assigned?

This would be unfortunate as we end up with a short stock position while the stock is rising in price (when the stock is declining, no one will exercise your calls early). In this situation we have two options to do:

1) immediately buy the stock back with a minor loss and immediately sell new naked put (or strangle) to offset the loss
2) keep your in the money put to assign at expiration (if it is still in the money and you are close to expiration)

 

 · Conclusion

 

This is pretty much all about defending puts (or calls) using inverted strangles. As I mentioned above, you can use this strategy with any option structure.

If you only have naked puts and they get into trouble, add a naked call to your trade and then work with it as a strangle.

If you have a jade lizard (which usually consists of a call spread and naked put) then use your short options only, treat the entire structure as a strangle, and let your long call expire worthless (or buy it back if it still has some value in it). There are ton of possibilities of what you can do with your trade.

Just keep enough money (buying power) in your account, stay calm, evaluate all your options before taking a step. If you are not sure what to do and expiration is approaching, then just roll your trade as is into the next period (month or week) to gain some time to make a decision. It is not difficult to do.

Good luck!




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Posted by Martin September 09, 2016
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Will Yellen raise rates? We do not know but sell everything, just in case

Will Yellen raise rates? We do not know but sell everything, just in case

Friday trading was a carnage. I consider this quite funny.

Since FED’s chairman changed the policy of transparency some time ago now any Mr. Fed Unimportant can talk about FED policy publicly.

But what they do is not expressing the policy or what FED will do or will not, they rather express their opinions. Any Fed’s Governor, President of the Fed’s bank can now open their mouth and say whatever they want.

Unfortunately, their opinions, speculations, and guesses caused more confusion and frustration among investors and the entire world than transparency.

We now have an even bigger mess and noise of what will, should or may happen as far as the Fed’s policy. And so any Fed’s schmuck now-a-days even a Fed’s janitor can express his opinion about Fed’s policy and spook the markets as happened today morning when one Fed official Eric S. Rosengren, who was historically dovish suddenly changed his mind and expressed his opinion on the low rates and a need on raising them.

jackson_hole_cartoon_08-25-2016_large

Yet, they are not united themselves on what they want to do. One says raise the rates and two others oppose it.

And, as is typical, in the today’s stock market, investors without judging and thinking sold off. They do not know whether the rates would go up or not. There is no sign and there is no economical need for it. It will actually hurt the economy. Yet they sold off.

And they sold everything.

There was no instrument which was saved or spared.

2016-0909-spxtrend

They were rushing into bonds which bear even less interest than what you can get in the stocks. And the more they are buying the bonds and pushing them up the lower interest these bonds will carry. And when FED raises rates, what happens to the bonds?

Indexes fell about 2.5% in average.
Gold erased about 3/4 of a per cent.
Silver lost 2.78%.

There is no way Yellen would raise rates before election in November and disrupt the whole world and the markets.

We know that Yellen wants to keep the market going so the Obama Administration can boast about it.

We know that Democrats want to make Clinton’s chance great pointing to Obama’s policy continuation.

We know that economy isn’t as rosy as they try to tell us. Until today, higher interest rates were always used as a breaker for overheating the economy.

Today, low rates are supposedly overheating the economy. Yellen was dovish, hawkish, dovish, hawkish, dovish… always saying that she was data dependent. If data is what matters, then apparently only data which matter to her are a bogus unemployment rate and stock market at all time high.

Last time when Yellen raised rates into slowing economy, the dollar got stronger (which hurts our already minuscule export) and the stock market plummeted. She wouldn’t risk upsetting the market again before election!

And investors apparently freak about it.

At least we can see an action on Wall Street, finally.

Many are taking gains of the table prior to election. I think if Trump wins, Democrats let the bubble burst so they can point finger on him telling the nation “see we told you so, he can’t manage the economy”. And there will be plenty of people who will believe it.

As of now the market dropped more than 2.40% in an uninterrupted downtrend. There was no single buying attempt to stop this selloff.

2016-0909-spxtrend2

It is significant because the Bollinger Bands were quite tight until today for a period of a month. That always signals a calm before a storm. It only won’t tell you which direction the storm is heading. Today, we know. It is downside.

Now, we need to wait and see if it spills over into the next week (and I think this will) and how big the damage will be.

However, I think that due to a political demand on keeping the economy look rosy this downtrend will not last for long (maybe a few days or next week) and we will see a quick recovery again when bargain hunters and algos step in and buy the dip. Ultimately, this may be good for the markets as it refreshes the standing waters of our Wall Street pond.

Now the goal is to survive it and if it doesn’t reverse be ready to reverse your trading direction from bullish to bearish. I do not think this will be necessary though.
 




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August 2016 trading, investing, and dividends results


August was a bit slow and my investments stalled. Many of my trades turned against me and I had to wait longer for them to end or expire than expected.

However, I expected August to be slow due to consolidating my trading. In July I made an all time high revenue when I pocketed $5,734.00 dollars in premiums. But such trading was a stretch as my account was not yet big enough to achieve such level of collected premiums. I was taking riskier trades, more trades than my money management allowed, and at several times during July I didn’t feel comfortable with my extended trading. The collected premium was nice but I didn’t like the way I did go for it.

In August I didn’t want to trade that way and I wanted to have my trades easy. I wanted to trade and feel comfortable with my trading. I think, I was successful with that plan in August although I had a few trades which made me uncomfortable. I still have too many trades open, in the money, and unable to get rid of them. I need to find a strategy how to prevent this situation and how to end my trades faster without taking a loss. So, in September, I will be working on consolidating my account, lowering the amount of trades open and improve my money and trade management.

In August, I made $2,528.00 in premiums trading options. It is however well below my original expectations as I planned on reaching at least $3,000 premiums this month. For September I am thus adjusting my expectations down and plan on making $3,000 in premiums.

August is a weak month in my dividend portfolio. My dividend income this month was lower than in July. But it was bigger than other weak months such as May and February. The dividend income this month was $59.16 vs. $86.21 last month.
 

Options Income = $2,528.00 (account value = $10,270.17 +304.38%)
Dividend Income = $59.16 (account value = $19,997.26 +32.08%)
 

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


 


 
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Posted by Barney Whistance August 31, 2016
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Why an economic revolution is appealing to the US


To a lot of mainstream media, Bernie’s victory is just what it might appear to be: a one off without too much significance. But the ones propagating that message are the ones refusing to recognize a deeper reality of American politics that Bernie is effectively trying to counter. As a few sources say, though, Bernie’s appeal does not lie in upheaving politics but the way the US society works as a whole. Even now a lot of us have trouble understanding the rhetoric that Bernie is employing and it might help if we take a basic look down at a few things.

First of all, there is little doubt surrounding the fact that the US is in one of its worst financial eras and while there are plenty of ways in which the reasons for that can be discussed, it validation is without question. Despite Obama’s efforts, the college fees keep going up and loan figures keep increasing. Employment still is a question mark for many enterprising graduates whilst healthcare is still a contesting point. Bernie’s rhetoric for removing wealth from the “1%” seems idle at times but it’s important to note that it is not without its reasons.

 

 · Tax returns

 

One thing that many Americans misunderstand is the impact of the tax. Economically, it makes sense that your welfare and other government duties are pretty much carried out through effective tax collections. The current debate is whether those tax figures should go up or not. An effective plan would detail how that tax allocation is supposed to help and we will discuss that length a bit further. The problem is being unanimous about increased taxes. Though Americans agree that the government needs to be more active in healthcare and education, they are unwilling to give further taxes to have that.

The argument is not entirely without reason. If the government is supposed to give basic needs such as healthcare and education on taxes then it should do so without charging taxes that are astronomical. Unfortunately what many fail to realize is that tax collection becomes correspondent to the income of the people within the country. Without getting into the complicated economics of it, when the wealth concentrates amongst too few a number of people, the tax collection becomes steeper if it’s uniform. Even with a constant rate for income, it becomes impractical to keep collecting taxes and expecting the same level of return by the government.

 

 · Education and healthcare

 

This is the critical aspect of the US society currently. You know why there is an anti-immigration sentiment in the US because the narrative of “they’re out to steal your jobs” is running rampant. Interesting to note that this narrative would not exist if unemployment was not as high as it has become so you cannot ignore the problem. The issue is that the singular narrative fixates the problem on the wrong root. It is a no brainer that as education becomes more expensive in the US, the employment rate within the locals is steadily declining. Remember how we talk about the need for the middle class to exist otherwise, the country slides down the developing country’s line of growth.  That is the danger that modern America faces.

The effect is easy to see: tuition becomes more expensive so the unemployment rises and debt figures subsequently rise for those who are trying to get themselves a college degree. A new policy that seeks to make education more affordable is obviously a welcome gesture but for it to succeed, the people must also understand the narrative of why higher skilled workforce requires better education.

Similarly, with healthcare, there is this void that needs to be filled due to the polarizing views surrounding Obamacare. Even though figure wise the policy has done well around the country, there is the need to invest further in healthcare around the US.

 

 · In simple terms

 

A lot of factors surrounding the US can be boiled down and linked to its economic conditions. The whole need of redistributing wealth around the middle class has become a rallying cry amongst political activists and yet the pragmatic agree that a policy that includes more Americans in the educational process is vital for the US’s economy to become healthy again. Unfortunately, such efforts will always be in vain unless an active effort on rehabilitating student loans and decreasing the tuition fees is made.




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Posted by Barney Whistance August 23, 2016
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ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

ESOPs Create Wealth and Encourage Job Dedication for Millions of U.S. Employees

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In the U.S. there are an estimated 10,000+ Employee Stock Ownership Plans, or ESOPs, making business owners out of some 11 million employees. Not only do these companies tend to outperform other comparable companies that aren’t employee-owned, but their workers are able to build up retirement savings at rates far surpassing the national averages.

 

 · Just ask Aaron King

King is a 60-year-old truck driver for Lowell, Arkansas-based Central States Manufacturing Company. In the 23 years he’s been driving for the Central States he’s seen the company steadily weather the recession, grow rapidly, and become solidly profitable for its employees. Additionally, King’s been able to save up about $1.25 million in his company retirement account.

Because of the ESOP model, and desire to maximize profits, King, known as the millionaire truck driver, has observed that much of the common wasteful and dangerous behavior is minimized by employee self-policing. “We hold one another accountable,” he says. “Somebody leaving a bundle of metal where it could be run over – a $3,000 bundle – we go and get the guy and talk to him. It’s going to come out of all our paychecks.”

Another employee at the Central States, 33-year-old production supervisor Marcus Hedrick, has worked with the company since he was 17. He’s already amassed $250,000 and is well on his way to an Aron King-like early retirement. Hedrick says of his friends doing similar work, “most of them don’t have anything for retirement.”

Central States’ open-book management approach does more than just turn workers into owners, “We teach people to be business people – what capitalism is,” says Rick Carpenter, chairman and former majority owner of Central States.

Business models like these and employee-owner stories like King and Hedrick prove that the so-called “retirement crisis” in America is manageable – if companies are willing to profit-share with their employees. However, what it will also take is a collective interest in making businesses benefit everyone long-term – including the employees.

Lakeland, Florida-based Publix Super Markets, a well-known grocery store chain and the largest employee-owned company in the world is far surpassing their competitors by creating a corporate culture of respect and advancement from within. With an annual voluntary turnover rate of only 5% – they are certainly doing something right.

ESOPs are the answer to our country’s retirement woes and can help fight high turnover in industries known for their quickly burnt out employees. The trucking firms are good candidates because employee turnover at some firms is as high as 100% – well above the national average of 16.4 percent across industries.

When employee-owners have a say in important company decisions, like whether to open a new store or close an underperforming branch, or even whether to purchase used trucks or new for their transportation needs, they feel more engaged and connected to the day-to-day workings of the business and more dedicated to their jobs and missions.




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