p0wned!!!! - raped and pillaged, here's how it happened

raped

here's how I took it from behind

Yes.
66% YTD returns disappeared to 4-5%.

Yes.
How'd it happen?

#1 - being stupid, yea.
#2 - buying everything with a shotgun, no precision shots, just blind skeet shooting really
#3 - getting out of my circle of competence, wtf was I doing with call options on Tiffany & Co? Trying to strangle medical supply companies AFTER company announcements?

The only good thing I did was calling the peak for silver and doing shorting it when it dropped from $30 to $28 something.

So yea, the biggest losses came from DOG.

DOG correlates with the Dow Jones except in the reverse. I was gonna be smart and do a strangle on the market and milk it going up or down, (mwahaha). Why the Dow Jones and not the S&P? Eh, calls on Dog were cheaper then puts on the S&P ETF.

So that's the start of the problem. Ughhh, for one, I didn't buy at the right delta (rate of change) where if the underlying stock or ETF moves, the option moves with it. Different options move in correlation at different rates and those different rates command different prices.

Homeboy here bought the cheapest possible ones.. Problem #1

Problem #2 - THERE'S NO TRADING ACTION. I failed to look at the "Volume" column. If you glance at the uploaded pic above (2nd one), you'll see there's zeroes going all the way down. No single strike price in any month tops more than 100 contracts. The daily trading volume is soooo little.

This is called, Dante's Inferno, Level 23 or something. You have no demand, no supply, your prices fluctuate literally like wild oats scattered to the wind.

In attempting to sell the losing options, THERE ARE NO BUYERS. Which is why I couldn't get out when the losses first started happening. I was like oh, must be a problem with my trading platform. I didn't see the fundamental reasons and just attributed it to technical problems.

Idiot idiot idiot.

So yes.

Yes. Now that I've had a very nice force-fed helping of Humble Pie, 

I shall rebuild and RETURN to what I know best.. 

Silver. 

Hence, more call options for when it breaks 30 soon. 

Oh my god, yes, I bought as close to 0.60 delta as I could (.55 or something), given my cash situation in my account. 

So yes, rebuild. 

Oh yes, I took the Rich Dad Stock Success Options Course which REALLY helped in setting some good ground rules:

1) always buy at least the first strike price in the money

2) always buy at delta 0.60 or negative 0.60 for puts

3) theta (time decay) kills you, buy at least more than 6 weeks, ideally 2-4 months out

4) to avoid price gaps, you want a healthy trading daily volume of 500,000 shares in the underlying stock/ETF

I failed all of these rules for DOG...

And the kicker? I bought an option called Dog. 

I thought it be funny.

Ahaha.. I'm crying cause it's so funny now. 

j/k j/k, hell hath no fury like a pissed options trader

P.S. [edit]

I realized just now from either a Robert Kiyosaki video lecture that I watched or one of his books, he was talking about derivitatives like how gasoline is a derivitative of oil. Kerosene is a derivivative of oil, etc etc. The further away you get from the original substance, the more unstable you get.

Crude oil itself is pretty harmless. Maybe it'll even douse fires successfully. 

Gasoline itself is harmless, you can put cigarettes in a bucket of gasoline. 

However, in vapor form, it becomes explosive.

So in my case, when you buy the derivativive of a dervitative of another derivitate, you're asking for some deep shit as the final product is wholly unstable. 

Yea, please don't do that. 

That is all. 

Back to work as a property manager.. regulating and filling vacancies 24/7, peace out

Things I learned from the rude awakening of trading nirvana...

#1 - DO NOT chase yesterday's news.
#2 - item #1 probably wouldn't have happened if I stayed in my circle of competence
    
Some losses stacking up quickly:

-Straddle on the dow jones went ugly instantly, intra-day price fluctuations...jesus christ! i thought those were limit orders, always bid lower on those, ALWAYS, don't just take the first offer, it might be overpriced X-D
-THC - wtf, was chasing yesterday's news and thought the stock would fluctuate still after announcing the successful acquition of a key company, wow, don't do that

Neutral:
-natural gas -- just kinda floating a little

the only winner:
-SILVER!
   yes, my portfolio was built on silver profits, why i went outside what i know well.. i have no idea, i had cash doing nothing and felt the need to put it to work. wow, terrible decision.

so my 66% year to date return over 60 days HALVED basically in 5 minutes. spooky spooky

yea, play your strengths, nothing else, just play your strengths.

the pain...

Mhmm...

(click to enlarge image)

One day, you stare at your account and everything is in the tank.."aite aite."

Another day it goes NUTS and you try to go, "aite aite..."

But hey, silver broke $30 an ounce today.

Biggest gain today in my trading career.. of.. 50 days. 

It is amazing to ride a wave. =)

It is sad as precious metals go up, the U.S. of A. goes down. 

New strangles cast for SLV. let's do this.

an oldie but a goodie

The Buffest Man To Ever Swing a Stock Certificate:

"Mr. Market"

To understand the irrationality of stock prices, imagine you and Mr. Market are partners in a private business. Each day without fail, Mr. Market quotes a price at which he is willing to buy your interest or sell you his. The business that you own is economically stable, however, Mr. Market has incurable emotional problems. At times he feels euphoric and names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. On other occasions he will name a very low price, terrified that you will unload your interest on him and saddle him with unimaginable losses.

Mr. Market has an endearing characteristic: he doesn't mind being snubbed. If you ignore him today, he will show up with a new offer tomorrow. Transactions are strictly at your option, the more manic-depressive his behavior, the better for you. But like Cinderella at the ball, you must heed one warning or everything will turn to pumpkins and mice: Mr. Market is there to serve you, not guide you. It is his pocketbook not his wisdom that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or take advantage of him, but it will be disastrous if you fall completely under his spell.

Mid November Update

So it's been roughly.. 40 days since I started trading options.

Haven't posted each move play by play like I did when I first started. It's amazing how fast you can learn in even such a short amount of time. At least to articulate each move in the beginning, I felt like I sort of knew what I was doing when in truth, it is always in the beginnings where the utmost frailty is. Beginnings are such tender times.

I'm sort of humbled to just kinda wheeze and gag through small trades of 1 contract or wow, lo and behold, a FIVE contract strangle on natural gas..amazing how this is all done in like the the 15 minutes before I walk to work, or during my breaks/lunch.

It's incredibly liberating to know that wow, my investing and dollars is wholly in my own control. It's not quite the same "I earned this" type of feeling as hustling at the Flea Market or working for tips in restaurants or something, but it's like wow, I was dependent on no one else and the whole shebang was just traders selling and buying agreements between each other.  Like I agree to purchase the option to buy this stock at this price in the future. Or I want to buy the privilege of buying this commodity at this future price.

It's nice to go to work with gains that came in from pressures in overseas markets and then New York opening up while I'm still asleep. It's incredible. One fat digital global village.

Even with my modest gains in a little over a month.. let's see... at this very moment, my year to date earnings are 33.03% with only one position active in my account (silver January call option, heheheh). Damn, 1/3 profit. Made safely with delta-hedging and non-directional trades. I didn't gamble, I invested and was positioned to profit no matter which way anything went.

Dang... just humbling how simple this is. A middle schooler could do this, shoot my 10 year old cousin could do this.

And even with straddles and strangles, I haven't gotten into crazy sexy strategies with spreads and range-bound trades...selling options and collection premiums, covered calls, iron condors/butterflies.. just like whoa, there's a long way to go.

I feel lucky to at least be a part of volatile market and have the experience to recognize as such. Like, wow, thank you Robert Kiyosaki for all the philosophy and education to do all kinds of business stuff, investing, and commodities. I'm obliged to all the coin dealers and bullion brokers I've met and done business with. Huge props to my man Greg for being one of my first friends to go into options and wow, without Jan, I'd probably have signed up for some uber expensive options education class and spent all the capital on a lecture that I could've read in a book. =P

Alright, for my next number..

Go back up and check out the uploaded pic of my account, on the right there's a chart of UNG, natural gas. Check out that pattern and tell me if it looks like the picture below. =)



This is a head and shoulders pattern... typically it indicates an impending downward movement..

ahh.... =)

Mhmm...

Been trading faster than I can post.

Um, wow, silver is going nuts.

Thank you Ben Bernanke and President Obama for making this possible with your inflation crazed monetary policies.

for trade #2, the targets are:

= 20% gain on the call or put option that is riding the trend

=15% loss on either call or the put due to time decay or stagnation, unless the winning side has been sold for an excellent profit and the losing end is held strictly as a free (paid for) lottery ticket

Happy Halloween yo! Love this holiday, prob. favorite. =)

      Orders Placed - Pending the opening of the market in the next couple hours

Options Strategy = Strangle on Silver ETF's (December expiration)

      More in-depth info coming after orders are executed, stay tuned!

Still looking to go short the Nasdaq, just in case anyone was wondering why I left it out still.

No Rest for the Idle

So there's $559.64 sitting idling since 10/07/2010. That's almost three weeks of no activity. Major weak-sauce. If there's anything worse then buying mutual funds, bonds and other fixed-income securities, it's sitting on idle cash. 

Looking at a couple of ideas:

-Another Silver Straddle [Still volatile, especially with much currency uncertainty]
-Straddling MCO (Moody's Corp) - their triple A ratings are garbage, the USA is gonna be IOUsa no matter how many golden stars anyone bestows
-Shorting the DOW - remember the dead cat bounce? it's going downnn
-Shorting Oil - no clue, there's so many different oil stocks... but like the DOW, I think prices are going down
-Shorting Natural Gas - oil/gas. tchyea
-Platinum ETFs? I think there's a few ETF's that trade platinum. I just hope there's an options chain to play with
-More physical gold and silver - can't go wrong there, just stacking up the physical gold and silver, ETF's is fool's good, they may or may not have the actual holdings, just read the prospectus and prepared to be freaked out

While I say I'd short many things, I'd still straddle my positions by buying options on both the call and put side in case I'm wrong. Essentially it costs twice as much, but I have two exit strategies in either direction. So long as something moves, I'm okay. If it moves a lot, I'd be very happy. If it idles too long, I'm willing to take up to a 20% loss and move on.

I gotta make a decision soon..

This sounds horrible, but I really want some serious volatility, something crazy.

9/11 crazy. World War 3 Crazy. Currency Melt-Down Crazy.
The stock markets goes freakin ape-shit and always overreacts to such bad news. They are hardly pleased with good news to begin with, nothing gets prices yo-yo'ing like bad news.

If nothing else, hell, I'll trade silver ETF's up and down till the U.S. empire falls apart.

As cool as straddles & strangles are, I need to learn some directional trades (bullish or bearish).

Cheers~

Trade #1 - DONE - Virginity Deflowered Profitably

Popping your cherry tends to have a consistent pattern:

      You have no idea what you're doing.

            And... it's always over way too soon. 

~ ~ ~ ~

So I sold my positions to finally conclude my first options trade. 

I'm thrilled cause the first step is often the hardest. Little logistic problems for setting up accounts, getting them funded, and learning the buttons on different brokerages actually stops so many people. It's amazing. Investing in general is awesome and everyone should absolutely just dig in. 

But hey, they don't and they let fear run their lives--which is ridiculous. 

My one and only stock trade from back in the day... uh... 2008.. May or April. I bought Starbucks shares cause I read "It Becomes with One Cup" or something, by Howard Schultz and I became enamored with the Starbucks model and story. I loved it. Schultz grew up in Brooklyn dirt-poor and saw his dad really suffer cause he got hurt at work which put the whole family in financial hell. Schultz never forgot it and when he turned to business as an adult, he looked at Starbucks as his vehicle to take care of his employees. He was the first retailer to offer benefits of like healthcare, dental, vision, insurance, etc etc for PART-TIMERS. His shareholders were NOT excited. 

So I was like wow and bought some 17 shares or something at 20 bucks a share I think. 

I proudly shared my new acquistion with a homie and he was like, hey, what's your exit strategy? My response? 

Thusly, you are probably already guessing what happened.

I didn't pay attention to fundamentals or technical indicators. I just read the book, loved the idea and was like, hell, I like it. You could almost call it a "Warren Buffett" move like how he bought the Clayton company from Jim Clayton after reading his autobio. But I was a fool to the game and wasn't in the long-term enough for the marketplace to catch up with the intrinsic value of the shares. 

Alas, no exit strategy. My comrade said I wasn't investing, I was speculating. I was gambling. 

I didn't employ safety nets such as stop orders. Let's say my $20 shares dipped to $15. You can set a stop order at $18 where your shares are instantly sold at $18 if the price goes that low. You can set built-in safety mechanisms that react to protect your position from castastrophe. (Wish you had that in your 401k/IRA huh??)

So my first trade with options though? 

I loved it. Newb as I am, as expensive as this turned out to be, I played to win no matter if the market went up or down. I would've only lost if it went no where and stayed sideways. I was willing to take that chance cause I knew shit was happening in the world with governments going berserk printing money left and right.

So the strategy was great, execution was poor. I butchered a gorgeous profit because I..

--held on to the losing side of the bet (it lost more and more value)

--didn't really have an exit strategy, I didn't set a goal in terms of a specific % gain or anything

--maybe I even sold too soon considering the options didn't expire for another 30 plus days

That said, the one sole thing that I did right that made compensated for everything else and still came out highly profitable was:

--I rode the winner! (most people strangely enough tend to cut their winners and ride the losers)

   Next time:

I definitely must draft up a written plan that specifics my strategy, goal, execution, breakeven points, maximum profits & losses, and EXIT strategy. 

On my last post where my SLV values were the highest they've ever been in the last 30 years, I was like wow, that's awesome. This is so cool, I'll let it it ride some more and I think I'll sell it in the morning. WRONG, when it's already PERFECTLY BREWING you need to cash out at the crest! I let greed take over rather than rational discipline. i was already making like 80 bucks on 200 dollars in 20 days. That's already freakin 200-300% return on investment in a year. 

Greed. 

So I let it "incubate." Hopped online before work and my 80-90 bucks shrunk to 40 bucks from a small pullback. I was like damn. I sold it anyway. 2 days later, the prices recovered and my profit would've been in the 75-80 range if I held.

Then again, market timing is super tricky to time perfectly.

I just feel like an idiot albeit a profitable one since I write this beautiful blog post of my all these awesome indicators telling me to sell sell sell at this beautiful beautiful profit margin and fat gain. Instead of putting in an order to sell RIGHT THERE, I post pretty pictures in my blog and go to sleep. 

~ ~ ~ ~

So I resolve to do better next time. A lot better. Disciplined better. 

All in all, I'm thrilled to just pop the cherry and still GIDDY that it's profitable. It's not about swinging home runs, but lots of singles, doubles and some triples will make you a fortune alone. As this first foray shows, if your winner is the right one, it'll really compensate for any shortcomings. 

Like all arts and sciences, it really goes back to philosophical truths that all disciplines ultimately seek truth and simplicity. 

As an investor, you need to see through the smoke and just play your strengths. 

It's like playing poker and you already have a full house on the flop. F'ing take down everyone that wants to play testosterone over rationality. Just play your strengths and ride that cowboy. 

~ ~ ~ ~

Looking forward to the next trade. My goal was to have 4 profitable trades completed last month. Ha, we'll shoot for it this month. 

Ah, and the cavalry arrives from the nearest hill:

Hells yea, stay diligent everybody

Perhaps it's time to sell Trade Numero Uno - Here's Why

A quick update on the status of today's bull run on my silver:

Continued uncertainty over the future of the dollar serves to buoy the safe haven amongst currencies aiming for bankruptcy. 

First came Portugal, Ireland, Greece, Spain.. [the PIGS] and there was Dubai. Hints of problems coming from Singapore, the UK, and the last house of cards to fall..? the USA..or as many know it infamously as, IOUSA.

So what is an options playa to do? 

Let's look at the recent chart for silver. 

If you examine the trend lines I drew out, silver has a nice upside down head and shoulders pattern previously. 

In this example of technical analysis where we look at the moods and attitudes of the marketplace rather than say, the fundamentals such as ratios, hard numbers and other financial data.

A head and shoulders pattern elaborated looks like:

Walah! 

Did I see this pattern when I made my initial trade (NO..), I got lucky.

"Damn Warren, you just got lucky." 

No, I knew the fundamentals anyway too but hell, being in position to be lucky is awesome too. 

Typically, the strength of the trend that follows a head and shoulders pattern is equal the distance of the "head" to the rest of the "body" in the pattern.

If you look at the trend lines I drew previously on the silver chart, it shows the vertical height that has been duplicated in the recent bullish trend of silver.

I've been waiting for an indicator to sell because, hey, it's great to see nice big fat green precentanges in my profit/loss column, but till I sell my options, the trend might reserve and suffer a pullback in a overheated market. 

Other awesome indicators are MACD and the RSI.

What Does Moving Average Convergence Divergence - MACD Mean?
A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.  
   With MACD, you're looking for a convergence of the slower moving average and the faster moving average. It'll converge at low points and re-converge at overheated points.

What Does Relative Strength Index - RSI Mean?
A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula:

   Just look at how a low RSI tends to correlate with a low price.

   Notice how high the RSI is currently...

~ ~ ~ ~

Um...

Yes. Selling in the morning. 

^^

Trade #1 - Continued

The beauty of a straddle play?

You take bets on both sides. Up or down, just go to town either way. =)

~ ~ ~ ~

Edit:

I just realized the profit gain is drastically understated. the almost 10% gain year to date is on the total value of the portfolio to net the $50.18.

Checking my figures, I only invested $203 to earn the $50.18. Plus commissions.

Dude, options. Where have you been all my life?

Preview for Next Post - Shit (Will) Happen

A quick Preview of Seemingly Innocuous Fotos

Nothing New Under the Sun:

First Trade - Explained - Non-Directional Straddle

As a quick intro, just what are options? 

If you found my blog randomly and your reaction is, "What the hell?!" Then this was written for you!

So you probably heard about "buying low, selling high" to make money with stocks. Some stocks even pay out money called dividends per quarter. Some stocks split in half to create more shares. Some stocks go bankrupt.

Yet overall, stocks either go Up, Down, or No Where. 

Most people only know how to make money when stocks go up and that's about it. There's an entire wealth of strategies to profit healthly when the markets go sideways or no where as well as when it crashes! In fact, more money is made in really bad times of doom and gloom, *cough cough* google: Joe Kennedy *cough cough*.

Thus, options are derivatives of stock. They derive from the underlying asset of the stock shares themselves (or exchange-traded funds, explained later).

Essentially it's an agreement, that's it. Really. People buy and sell agreements all over the world at every hour of the day with stock options.

Example:

Apple stock is... at $286.86 today.

If I felt bullish about Apple and thought it would increase in value, I could buy a call option.

A call option is an agreement to purchase apple stock at a given price at a future date. 

   So instead of forking over two hundred something for one share, let's say I just buy the call option.

   The price goes up, I sell the agreement back to the marketplace and bank the profits. 

      Options are controlling interests on stock without the obligation. I can own the option to execute the agreement. I can buy the shares in the future at the lower price I lock-ed in before or I can sell the agreement to someone else. It's pretty flexible. It's also CHEAPER. 

On the flip side, if I expected prices to go down, I could buy a put option to benefit from dropping prices. 

That said, here's what I did:

Let's say I'll be really smart (or dumb) and buy both a call and put option.

This strategy is called a "straddle" where I essentially straddle both sides of the bet. 

(For all you buffs out there, this is also called a non-directional trade as it's not skewed towards a bearish or bullish from the onset.) 

So Warren G, what did you straddle?

Silver! 

I like silver. I like gold, I like silver a lot more. I like the government printing money like there's no tomorrow and spreading inflation throughout the world like a STD. I love the information age which means, everything from the computer you're reading this on to your cellphone, remote control, headphones, ipod, tv, or just almost any electronic item you can name--all needs SILVER.

Ag - Silver - it has the highest electrical conductivity of all metals (more than copper), shighest thermal conductivity and is one of the most reflective metals known to man. 

That said, it's very valuable for electronics and the 21st century Westerners. 

What you may not know is that silver is consumed all over the world in huge quantities that end up..in the landfill in microscopic amounts. For the last several years, silver has been trading below mining cost for chump change before at like $3-4 bucks an ounce. In high school I could've literally walked off campus to a coin store and bought silver with my lunch money. 

If I did that then, I wouldn't have to write this now and you wouldn't have to read it. My apologies, back to options!

So silver prices have been blowing up the last few weeks and I expect more volaltility. I don't want to play a guessing game so I'm playing both ends of the bet with a call and a put option for a combined straddle play. 

Yes, this is more expensive as one side will obviously lose hopefully. This also sucks if the price goes no where with this specific strategy. 

So Warren, how's it working out so far? 

Since Sept 17th when I bought it, why look yourself:

Description	Qty	Price	Mkt Value	Cost/Basis	Gain/Loss	Pos Dly Chg	Pos Val Chg
SLV Nov 10 20.00 Call	1	$1.70	$169.50	$121.00	$48.50	$0.19	$19.00
SLV Nov 10 20.00 Put	1	$0.41	$41.00	$82.00	-$41.00	-$0.09	-$8.50

Account Value: $510.18

Daily P/L:         $10.50     [+2.1%]

Year to Date:    $9.82       [-1.89%]

The slight loss on the YTD is due to commission costs to execute the trade. 

What's the exit strategy?

Well as we near the break-even point here, I'm hoping for the bull run to continue. I still have over a month to go before the life of the option expires. 

I'll keep you posted!

I'm a newb, but hey, we'll keep learning in real-time as this progresses. 

Thanks for reading!

Godfather recipe =D

1 1/2 ozScotch whisky

3/4 ozamaretto almond liqueur

Pour ingredients into an old-fashioned glass over ice and serve.

First Trade!

First Trade Options Trade Executed!

SLV Nov 10 20.00 Put	NBBO
Quantity 1 Type  Limit Create Time 2010/09/17 13:55:25 Duration Day Transaction Buy to Open	Bid Size Bid Ask Ask Size 10 $.81 $.82 709

Fills	Fill Time	Fill Price	Bid Size	Bid	Ask	Ask Size
1.0	2010-09-17 13:55:26.115905	$.82	10	$.81	$.82	709

SLV Nov 10 20.00 Call	NBBO
Quantity 1 Type  Limit Create Time 2010/09/17 13:55:53 Duration Day Transaction Buy to Open	Bid Size Bid Ask Ask Size 288 $1.19 $1.21 20

Fills	Fill Time	Fill Price	Bid Size	Bid	Ask	Ask Size
1.0	2010-09-17 13:55:55.148692	$1.21	288	$1.19	$1.21	20