Running a business in the Wall Street is a great adventure. It can also attract people who will play dirty games. It will happen. Manipulation and cheating will be part of the business environment. Greed will push those people and they will go for it.
You as a participant must adapt to it and be aware of it.
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Politically incorrect post.
It seemed today, in the morning, that the stock market finally found some ground and started consolidating. To cool down bulls’ enthusiasm, afternoon trading renewed selling due to the renewed worries about Russian aggression against Ukraine.
I do not understand much how Russian tension can affect global markets so much that investors should be fleeing to dollar or Treasuries. I am not a global economist, but it seems irrational and crazy that the local problem on the other side of the world can spur such a sell off. Will Apple (AAPL) stop manufacturing iPhones and transform into a hand grenades?
Russians do not produce anything besides oil. Any bipartisan embargo will hurt the Russian economy, not the world or US economy (we have Obama and Yellen to do that job for us). Russia needs trading with the world, EU, or the US not vice versa. During the cold war, West didn’t trade with the USSR at all (or very little) and yet it survived. Isolate Russia for a year and it will back off.
The world is in chaos which proves how weak our leadership in WH is. The recent unsolved problems in Iraq got Obama’s approval for an airstrike attack (a Peace Nobel prize winner attacking “innocent” Iraqis?) which sent the e-mini futures to abyss right after his announcement. I wonder if he announced it from a golf course or he managed to get back to WH from his vacation to do the announcement.
The S&P 500 broke above 1900 in May 23, 2014 in a historic all time high move and stayed there since then. Today we dropped back below to this level to $1891.50 (-0.52% for the first time in three months.
Another metric I like to watch is AUD/JPY (Aussie dollar – Japanese Yen) which also would tell you about the trading mood at markets. Usually when institutional investors load up on Aussie dollar, the markets would go up. And on the other hand, when they dump Aussie dollar, market will follow the suit. As of now, the Aussie dollar is down to $93.96 (-0.56%) down from $94.60.
It is still early to say what tomorrow trading would look like, but as of now, we are looking an yet another selling day.
On the bright side, I could see a small improvement in implied volatility in the stocks I hold. I could see some relief and time decay eating up some value of the options I hold. That bumped up my net-lig by 2.18%.
Hold your breath for tomorrow. We will have yet another slide down this roller coaster!
Happy Trading!
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You probably have heard many times that we should treat our investing / trading as a business, right?
I always wanted to treat my trading as a business but never knew how exactly to do that, so I always referred to my investing as a hobby. Whenever anybody asked me “what are your hobbies” my answer always was: “I collect historical military stuff such as uniforms from WWII era, do re-enactment, collect movies, read books, camping, traveling, and investing in stocks.”
Well, not anymore.
If you follow my blog for some time you may have noticed that I was planning on starting business of trading. There are two reasons for trading as a business. One is psychological, the second is financial, more precisely the tax implication reason.
Running trading as a business requires a lot of discipline in order to make money. By separating trading from my personal accounts to a business gives me the right mental statue. Now I have a bigger responsibility in order to make money. The responsibility goes towards the right cash flow management. The business must make money. It is no longer a hobby or just saving money for a distant future as a traditional passive saving in 401k (for example) is.
In order to survive, I must strive to keep my cash flow positive and grow my business every day, week, month, and year.
The idea of trading as a business always inspired my entrepreneurial spirit in me and inspired me to always take my trading more than seriously. My dream of trading as a business is slowly becoming true.
Research in the past performed by Trader’s Accounting has shown that 75% – 90% of new traders fail within the first 16 – 24 months due to lack of discipline approach (treating their trading as a hobby), lack of resources, and bad tax treatment.
Only 10% – 25% of traders break through and continue successfully further. They start growing their accounts consistently over time.
Although I do not expect my business to provide me with money for a living due to a very small starting capital, I have an ambitious plan to reach that milestone in five years.
The second and important aspect of trading as a business is taxes. If you take a look at my income results at My Trades & Income page, I am poised to have $8,884.25 income ($7,825.55 from options and thus short term capital gain), see below:
If I have to add this income to my personal taxes as a short term capital gain, I will end up paying 25 – 30% more in taxes. As a business my taxation will be a lot more favorable under the 60/40 rule. Under the current law (which, by the way, Obama tried to repeal in 2011) a trader can treat 60% of his income from day-to-day trading of options, futures, and forex as a long term capital gain and 40% as a short term capital gain.
Also as a business, trader can deduct all of his losses and expenses which are not allowed for individual investors. Tax savings can be substantial and can easily reach 50% in average.
Trading as a business can provide me with my dreamed financial freedom now. Not 20 or 30 years later, after I save enough for retirement.
Trading for a living can be exciting, dramatic, stressful, and fulfilling. It can ruin you or make you happy and free. It took me 8 years to get to this point of converting my personal accounts into business accounts. Eight years of learning, trials and errors, substantial losses, (yes I lost a lot of money) and finally last three years – a success.
If you want inspiration and think of getting yourself to this path, watch the following video below from a Wall Street Warriors, episode 1, Season 1. I recommend you watching all episodes. They are very interesting and inspiring.
What would it take for you to start trading as a business and would it be something you would want to pursue?
Happy Trading!
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This month was one of my best months so far. My options trading delivered the highest income in my relatively short options trading history. But I cannot have it yet.
The entire month was going well, all my accounts were growing nicely and my trading account was growing bigger every day. Until two days ago. On Thursday at the end of this month, markets suffered a big sell off. Dow lost more than 300 points that day and SPX lost 35 points.
Let’s take a look at the chart:
From the chart above you can clearly see how deep and dramatic the move was. Investors are panicking out there. That is typically a good opportunity to be buying stocks (and I may open a new dividend stock position or add to existing using some of my proceeds from options trading).
But when looking at the chart, there are two question coming to my mind. Is this a game changer and we start seeing the end of the bull trend? And the second question is, is this a good time to start buying depressed stocks?
It is too early to answer those question, so I will wait for now and see, how the market develops. I can always jump in when it reverses.
There is another interesting thing to look at. I like to watch the Fear & Greed index on CNN Money website. So lets take a look at a picture of that index:
I do not remember seeing this index that low. Note that last lower numbers occurred in 2011. Since then the depths were not that low and dramatic.
So this again brings up the question: Is this a game changer?
Terribly.
My net-liq (net liquidation) value dropped badly. I lost almost $3000 within those two days. But it is unrealized loss. I closed a few trades with gains and rolled others to safer strikes. Yet increasing volatility keeps those trades in red numbers although they are safely away from strikes and OTM. Rising implied volatility increases the value of my options causing my net-liq going south hard.
Is this unrealized loss something I should be worried about? I believe not. Options are not stocks and when your stock position goes against you, I think you should close quickly as you may end up sitting on a losing position forever. Options on the other hand have expiration day and as long as your stock stays below or above strike (depends whether you are short puts or calls), it will potentially expire worthless and your net-liq value will go up again.
So far I only have one stock, which is giving me a hard time, and that is Amazon (AMZN) which is currently in the money. I was able to roll it down a bit and further away in time. My expectation is that as soon as the stock takes a break from selling, I should be able to get out break even or with a small profit. I just hope we will not see a huge sell off continuation next week, which would drag AMZN down with it.
The trade above reminds me the importance of trading options small and not overdo it. Also trading it against indexes rather than stocks. There is only one big reason why indexes are better: no earnings.
But small accounts and small traders have one big disadvantage. Trading options against indexes requires a lot of cash. Margin requirements in many cases exceed their account (and in many cases mine too). I still cannot afford trading indexes and have to stick with stocks and be vulnerable to earnings and craziness of the crowd who decides one day heavily buying a stock and heavily sell it the other day.
Like TASR, for example. Jumped up one day, sold off the other:
From the chart above, you can see I hold a short straddle. I have naked call at 14 strike and naked put at 10 strike. If the stock ends in between these two levels by expiration, both options expire worthless and I will keep a nice profit.
The next stock which almost killed me was Corning (GLW). After the stock reported earnings, it tanked huge.
Originally, I had 1 put contract at 21 strike. The selloff sent the price thru my strike and I had to act fast. I rolled the 21 strike put contract down and opened a new short call with 22 strike. I collected premium on the vertical roll and I collected premium on the naked call. Now I have a short straddle and again, the goal is that the stock price stays in between those two strikes.
If the stock moves either way attacking any of the straddle’s leg, I will simply roll that leg, let the other expire worthless (or buy it back), and open a new leg in its place.
I had this process in place already with another stock Cliffs Natural Resources (CLF).
The first arrow indicates where I sold my original naked calls with 17 strike. Then a new board selected by an activist investor Casablanca was elected. Investors took it as a great deal (I don’t, since fundamentals of the company didn’t change and the new board will not be able to change it), and the stock shot up thru the 17 strike.
So I rolled to 18 strike (and collected some cash). The second arrow then indicates when I decided to roll again to 19 strike to run away from the euphoria of retail investors cheering the new board. Then the stock started fading away and I believe, it will continue lower.
When the stock shot up I also opened a short put side at 14 strike creating a straddle of this trade and collected another premium. Now the stock needs to stay in between these two legs. I will be rolling any leg which will be attacked by a price action.
By doing this I collected a whopping $4,602.44 in premiums. Unfortunately I cannot use them or withdraw them, as they are now blocked by those same trades, which are losing value due to increasing volatility (the option is gaining value, I am losing value). All I can do now is wait when the panic ends and the options mature and time decay eats them all away.
Although my net-liq value got hammered hard this month, I didn’t close any trade with a loss and I am optimistic that I will be able to navigate remaining trades successfully towards the end. Then I will be able to call the premium mine.
Here are the month results:
| January 2014 premiums: | $156.10 (1.55%) |
| February 2014 premiums: | $139.26 (1.38%) |
| March 2014 premiums: | $746.62 (7.41%) |
| April 2014 premiums: | $421.63 (4.19%) |
| May 2014 premiums: | $803.32 (7.98%) |
| June 2014 premiums: | $230.21 (2.29%) |
| July 2014 premiums: | $4,602.44 (45.69%) |
| January 2014 dividends: | $25.87 (0.26%) |
| February 2014 dividends: | $167.02 (1.66%) |
| March 2014 dividends: | $68.77 (0.68%) |
| April 2014 dividends: | $25.91 (0.26%) |
| May 2014 dividends: | $168.51 (1.67%) |
| June 2014 dividends: | $68.81 (0.68%) |
| July 2014 dividends: | $25.96 (0.26%) |
| Total 2014 income: | $8,376.40 (83.16%) |
| 2014 unrealized premiums: | $4,759.01 (47.25%) |
| Account Equity: | $28,451.04 (00.00%) |
| Account Net-Liq: | $18,525.92 (-23.97%) |
| December 2013 balance: | $10,072.25 |
You can see my dividend and options income on My Trades & Income page.
What about you? How was your July 2014 and the entire year so far? Post a link to your website or write down your results to encourage other investors!
Have a great August 2014!!
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When I was a kid I always dreamed of a life of trader. When I was 15 I dreamed of having money working for me and not me working for it. At that time I didn’t have means to fulfill my dream. Today, it seems I can reach that dream. Trading makes me feel happy and makes me think that I can live my life the way I want it and not the way I have to live it.
Have you ever dreamed of such a life? Wake up in the morning knowing that it is another beautiful day which you may spend with your family, trading a few hours a day and then spend it doing your hobbies?
What do you like? I like to travel. Can you afford it? It is easier when you are single, but it can be boring. It is difficult when you have a family of four, but it is fun traveling.
I believe, trading can make this happen and enrich your life. Although trading is not for everybody. Where I feel happiness and joy, others feel uncomfortable and in jeopardy.
We have another week in front of us. I wish you all that it be successful and fulfilling.
Happy trading!
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What was about to be an easy money trade a week ago is about to become a disaster. A week ago I sold a bull put spread expecting Amazon (AMZN) to go higher. Well, I must admit I didn’t expect Amazon would miss it’s quarter the way it did.
Right now, AMZN sold off -10% after hours and fell thru both of strikes of both legs of my spread.
Right now the stock is at $320.52 a share. My upper (short) strike is at $332.5 and the lower strike is at $322.5. So it is not that bad as it could be, thanks to my original Delta of that trade. The entire trade delta was 0.07 or 7% chance that the trade ends OTM.
That was at the beginning. Now everything is different and we are in the money. Fortunately not deep in the money, so the trade can be managed and rolled.
I will roll this trade further away in time, but I will do that tomorrow later afternoon. There is still a chance that investors will not panic and stop the madness selling off the stock and it will go slowly higher. Although I do not believe in it too much.
However, the implied volatility skyrocketed and I will try to take advantage of it and sell a bear call spread tomorrow morning against AMZN.
I plan to open the following trade the first thing in the morning. I cannot say whether I will be able to open it. If so, it will be a great trade. If not, I will be sad, but OK.
STO 1 Jul4 14 345/355 call @ $4.75
This trade consists from the following legs:
SELL 1 Jul4 14 345 call
BUY 1 Jul4 14 355 call
I will see in the morning and report this trade tomorrow if it happens. Nothing is easy. Even the trades which started like easy money.
Happy trading!
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Karen the Supertrader re-joins Tom Sosnoff and Tony Battista in 2014 for a tastytrade exclusive follow-up interview! Karen the Supertrader breaks down the strategies she used in 2013 to earn $50 million on $196 million.
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Time to roll this stock lower and farther away in time. TASR started its consolidation in these couple of days when it bounced from 10s back up to $11 level.
It also reports earnings on July 30th before market opens. How will investors react to it? Will they like earnings or not? Will they send the stock lower?
The consolidation started on Friday by a heavy reversal trade. Today, it continued up again after erratic trading in the morning. Is the selling over or is this a dead cat bounce?
The outlook for this stock is negative in my eyes and what my indicators are telling me. The stock may still resume the selling in a couple of days. Many investors out there are expecting bad report this month which would send this stock to new lows.
I decided to roll this trade lower to protect it. I can roll it farther away in time, and as low as to $10 strike.
I can roll the trade down to 10 strike, into March 2015 expiration month, buy back 17 contracts and sell 30 new contracts, collect $98 credit in premiums and, the most important thing is, I will spend no maintenance cash. This roll will have absolutely no effect on my options buying power.
I will have to just wait longer for this trade to finally end.
A positive thing is, that naked calls and puts I had open a few weeks ago, which I closed last Friday offset my current loss from this trade entirely. I collected around $725 in premiums from naked calls and long puts while this trade is showing a loss of $833 as of this writing. No matter what happens, this trade should end as a winning trade.
If I roll this tomorrow morning, there will be three outcomes.
One, the stock resumes selling after the bad earnings report and I will be in a good shape. Even if TASR falls to $9 a share, I still will be in a good shape ready to roll further when time comes. It will be cheaper and affordable roll.
Two, the stock will not react negatively to the bad earnings report since all negative impact is already priced in during the recent sell off. Then the stock remains in this 11-ish level, I will be OTM and it will be a waiting game for the put contracts to lose value and expire worthless.
Three, the report will actually be positive, the stock jumps up again and will continue growing. Then my put contracts will start losing value faster and I should be able to unwind them earlier.
In any way, this trade is heading towards a winning trade after a long struggle to manage it. It however happens sometimes that some stocks will not behave and will make you crazy. The goal is to be able to sustain it. If you do not have enough cash, patience, or even knowledge, it is better to close a trade, take a loss and move on.
I am not that kind of person. I like a philosophy of Karen the Supertrader, who has a motto to defend premiums. I believe in it, I like it that way, and I will defend already collected premiums at all cost. I will not give it back.
And yes, if the stock reacts negatively on earnings or resumes selling, I will sell new calls to help offset my losses from puts even more. At this time it is too early to open these trades, I will wait for a new, resumed weakness.
This trade consists of two legs of a diagonal put spread:
BTC 17 Dec19 14 12 put
STO 30 Mar 20 14 10 put
for CREDIT 0.98
Trading TASR was quite interesting over time. I started last year with this stock opening a total return covered call trade when I bought the stock and sold call against it. I made money. During the course of that trade the stock fell from $9 a share to $6 a share so I bought another 100 shares and sold another call against it. Both trades ended with great gains as the stock went up above $10 a share.
It continued even higher. So I started selling puts and collecting more premiums. The stock went even above 20 dollars a share and I collected nice premiums all the way up.
Then the stock collapsed. And again I rode it all the way down and now it looks like that I will and this relationship with TASR at $10 a share level. Exactly where I started a year ago. The good thing is, I made money and although it was a dramatic ride, I didn’t lose. So far.
Happy trading!
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I am not into penny stocks. I do not understand them, I do not know how to evaluate them, where to get information, etc. It is a foreign thing from another planet for me.
Here is a video of Timothy Sykes’s student, who studied his strategy and invested $1500 which he borrowed from his parents. In three years he finished with $1 Million in his account.
Even if you do not plan on trading penny stocks or investing in them, it is a great inspirational video.
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Here is another new trade I plan to open tomorrow morning. It will be a bull put spread against Amazon (AMZN). The stock shows a great push up at the beginning of a new breakout trend. I believe it will repeat the previous cycle when it broke up from a squeeze.
If it repeats the same swing, the stock should go to $380 a share or even break up thru it.
The chart above indicates what I am looking at and what my expectations are. If you look at the squeeze indicator, you can see that the stock broke up recently. Since markets are rhythmical I expect it to repeat the same or similar pattern (of course the trend may lose steam a lot earlier than the previous one, but I hope will be out of the trade by then).
With that said, I decided to open a new trade on Monday by selling a weeklys bull put spread. It is a credit trade and I should receive $130 for this trade. It is set to expire this week this coming Friday (Friday, July 25). If that happens I will collect a full credit.
STO 1 Jul4 14 322.5/332.5 put @ $1.30
This trade consists from the following legs:
SELL 1 Jul4 14 332.5 put
BUY 1 Jul4 14 322.5 put
The trade will end in 5 days and it will have a max profit, if the stock ends above $332.5 at expiration day, which is July 25. Max loss of $870 will occur if the stock drops below 322.5 at expiration (and I hope this will not happen).
Happy Trading!
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