Auld Lang Syne

Good Afternoon Traders,

I was all set to throw up some lyrics to the tune of Auld Lang Syne, and then chat about how the year has come to an end and we have 3 whole days to think about the coming year. And you go and ask about futures! Jeff is going to kill me! We're going from "Options Addict" to "Futures Fanatic" (yes, I just reserved the name)!

To be perfectly honest, I fell into it. It wasn't something I sought out. I'm a technical trader. I love price patterns, Fibonacci lines, and I use a few mechanical indicators to tell me when to get in and out. I've spent the last 18 months trying different systems, different approaches and different underlyings. It took me that long to discover a set of rules that I could trust with my money. As it happens, it was my networking that moved me to futures. At every meeting over the last year, one of the members of the user group would present a system to the rest of us. “Rich” made a presentation one day about his system which used futures and peaked my interest.

Frankly, the underlying doesn't matter. It could be a stock, an index or a futures contract. Hasn’t Jeff said over and over that the patterns are the same in any time frame? That if you look for flag patterns on a 1 year chart, they are just as valid on a 15 minute chart? The key is the rules you are using to get you in and out of the trade. What is your system? Have you got a system that you trust 100%? Does your plan tell you when you can and can't trade? That's the place to start. Make sure you have a trading plan and a system that you are willing to bet the house on.

If your system works, it shouldn't matter what you're trading, but until you have rules that you trust completely, I'd recommend staying away from futures.
Here is a part of my trading plan for my futures trading. I have different plans/rules for my other types of trades.

1. Follow the rules.
2. Use one time frame to trade.
3. One market.
4. Trend & Anticipatory B pivot trades only.
5. One contract.
6. Draw risk/reward on charts before entering a trade.
7. Only use bracket (OTO) orders when entering a trade.
8. Record on charts thoughts while in trade, or immediately afterwards.
9. No trading if tired, sick, hung over, or rushed.
10. Spend 15 minutes before trading with focusing exercises.

My rules for each trade are specific. Simple rules for entry and exit, and not many of them. A couple of them are as follows:

1. Enter trade when crossover of moving averages occurs at mid-band. R/R = 1:3 min.
2. Set stop 2 ticks above/below last pivot high/low.
3. Divergence must not be present.
4. Enter on right side of crossovers.
5. 1st target outer-bands or resistance/support.

I have been paper trading the system for 5 months. Literally, 5 months of 7+ hours of trading a day to make sure my system worked. My rules have proven consistent. If I break them, I lose. Period. Are your rules that clear? Now that it’s been announced that the markets will be closed on Tuesday, you have 4 days to get your rules written, and your plan figured out. If you have time, post your goals for 2007 in the comments section. If they are written they are more likely to be realized.

Thank you for tuning in this week while Jeff was away. It was a pleasure to help him, and keep the blog going. I wish you all the very best in the coming year.

Many happy (profitable) returns!



More Jingles, more trades

With apologies to Frosty the Snowman...

Options are Awesome!
What a clever way to trade
Should the price go up or
The price go down
There is money to be made....

Options are Awesome!
Whether trading short or long
But you’d better do
Your research, ‘cause
The market's trending strong


You’d better watch your trailing stops
And how the system works
Once you become successful, there's
An awful lot of perks.... Oh!

Options are awesome!
What a clever way to trade
Should the price go up or
The price go down
There is money to be made....

Thanks for all the contributions to the blog. I’ve laughed a lot at the additional verses to these tunes. Keep on posting those and your trades! There are still 2 days left to this year. Let’s make some dough!


PS Credit must be given to Ev Harlow and Mike Cross for constructing the lyrics and pics this week! Thanks guys!



To the tune of Dreidel, dreidel, dreidel

Arrow, arrow, arrow,
I see that you are green.
Arrow, arrow, arrow,
Profits I shall glean.

Arrow, arrow, arrow,
You all have turned to red.
Arrow, arrow, arrow,
Buy puts and make some bread!

There isn’t any way for me to post something here that will teach you about trading, so I thought I’d stick to what I know. Networking. The day I signed up with Investools, I met 2 other women from my area, and we committed to keeping each other on track during our learning phase of this process. After 18 months, the group has swelled to over 40 members and includes a daily chat for our mastermind group.

I think that personally, the majority of my success has been because I sought out others who had the same goals as I did. My closest friends, even after 18 months of (me) trading and my husband no longer having to work, haven’t shown any interest in what I’m doing. Thankfully, I’m blessed with a very supportive family, but my new “family of traders” has been the best “investment” I’ve made overall.

This blog has been a terrific place to learn and share as well. However, I encourage those of you who have been doing this for a while to seek out others in your immediate area to form support/user groups. Check out the Investools website for user groups in your area. Keep coming here to meet others with your same vision. Keep working towards your goals, tweaking your trading systems, and moving towards your future.

I took a bounce play on AKAM this morning.

On the “news” front, the CBOE sent out an email yesterday saying the following: “the Equity Call Put Ratio was 5.8-3.6 for the call side and Index ratio was 2.7-1.5 for the put side.” Unusual that the market is betting equities long and the indices short....” Any comments on that?

Careful trading all, and Happy networking!


P.S. Feel free to add verses!


Boxing Day

To the tune of Jingle Bells:

Calls & puts, calls & puts,
Options are the way.
Choose my strike, my bid & ask
And Expiration Day.

Calls & puts, calls & puts,
What else is there to say?
I can't wait to see my gains,
Come expiration Day. Hey!

Clearly I had time over the weekend to think up catchy little tunes like this one since there wasn't any trading to be done! Hope you enjoyed it. Fell free to add a verse or two on your own! Or, if you've got a strategy you'd like to share or any trades you're thinking about this week, post those and we can chat about them!

I hope you had a wonderful holiday weekend. I look forward to your posts! I don't have the settings quite right on this, but I should have it down by the end of the week!


Happy Holidays

I am not being lazy, there is just not too much of interest to talk about! I see the traffic is definitely getting much lighter as we approach the weekend. I set up a poll over on the right hand column of the site. It looks like plenty of people want to keep things open for business on the blog to discuss trades. So we will keep things up and running!

Lisa, a good friend of mine has agreed to open up a new post on the blog every day while I am gone. This can serve as a new forum each day to leave comments about trades, news, or whatever you want to talk about. Lisa, a great big thanks to you and we all appreciate your help.

Make sure you continue to visit even though I will be away. Everyone out there can use your help and ideas.

So as of this moment I am completely out of the market and all my trades. Since I will be away from a computer and on vacation, I don't want to leave anything out there to worry about let alone think about. How nice it is to not have anything to watch right now!

Anyway, I am trying to get everything in order for my trip today so it is likely that this will be my last post until the New Year. Rest assured that when I come back, this blog will rock the house into the New Year and we will be ready to find opportunities and learn new concepts together.
Finally I do want to thank those of you who have sent gifts to the office or Christmas cards, I really appreciate them. Most importantly...Happy Holidays to all you OptionAddicts! Have a wonderful Holiday and enjoy the time with family and friends. As always don't think about trading or anything for a while and concentrate on having an enjoyable Holiday.

See you guys next year!!!
P.S- Since I imagine I will have a mountain of e-mails when I get back, if you do have any questions, try to post them to the blog first to see if others might be able to lend a hand until I get back. Thanks!

ATR - Average True Range

I have received a few e-mails and requests to write about ATR. It is a very simple indicator and very simple to use. I have taken a piece off the toolbox that I wrote and will place it here to give you an idea of how to use. Here you go:

Is there a Technical Indicator I can use to tell me where I should place my Stop Order?

After you have completed all your analysis to place a trade, now the fun begins. “Where do I place my stop order?” Setting a stop order is mandatory if you are interested in limiting your losses, and you must limit your losses to be a successful trader. In determining where to set a stop order, a few questions to ask yourself are, how much are you willing to lose? Where is support? Where is a safe place I can place a stop that will protect me, yet not take me out on a volatile day? I occasionally hear people say that they wish there was a technical indicator that could be used to take out all the guesswork of where to place a stop. Guess what? There already is an indicator that can be used to facilitate this! The indicator is called an Average True Range, or ATR indicator.

J. Welles Wilder introduced this indicator in 1978. The ATR indicator is used to measure a securities volatility, not price direction or duration. It was originally designed for commodities since it takes daily price data into consideration, but can be used for stocks as well. The ATR is most commonly used at a 14 day time period. To see this indicator, go into the Interactive Chart and select it from the “Select Studies” drop down menu. When you add it to your chart it will give you a current reading relative to your stock. Keep in mind that a $20 stock will have a lower ATR reading than let’s say a $100 stock. The idea is to see what the indicator tells you now, and what your extreme high points and low points are.
Let’s assume your ATR gives you a reading of 2.0, and a high of 3.5. This means that the stock as of now could fluctuate within a $2 price range. Over time if 3.5 is your highest ATR reading, than historically you can see that even at it’s wildest moment, the stock didn’t swing more than $3.50 during heightened points of volatility. So even if I wanted to use an extreme measure, I could set my stop $3.50 below the stock price and this would be a safe enough place to not trigger my order on a volatile day, yet still protect me from a potential breakout to the downside. You will still want to use support and resistance points to tell you if your stock breaks and one of these points, but an ATR indicator is a great way to set a stop order when you are trying to find where even the most volatile points won’t trigger it.

Hope that helps. Stay tuned...


I Wish There Was More To Say...

This market sucks.

Just my opinion. Things are choppy, mixed signals are being passed around, and if you subtract some of this unusual activity out of a few Dow components we'd see worse conditions like we have been seeing in the Nasdaq. Remember back in May (how could some of us forget!) the Nasdaq starting giving early warning signs of weakness (equal highs, then lower highs) before the entire market place crashed. Keep a close eye on the Nasdaq as it will be a good leading indicator of conditions to come.
Adding to more Dow issues, (Listen Dow Theorists!) the Industrials and Transports are not confirming!!! Looking at the DJT we are seeing short term lower highs and lower lows, while the Industrials are doing the opposite. Just keep this in the back of your mind, trade defensively and perhaps even scale back on the money you have at risk. Better safe than sorry!

Mastertalk is coming up in less than an hour. I better get my game face on. I will talk in more detail about the discrepancies within the market. See you soon...Session 2!


Some mixed earnings reports and traders withdrawing from the markets pre-holiday have us pinned at another unexciting day. As mentioned on my Monday morning post, don't expect the market to do anything throughout this week. I have slowly started to scale back and out of trades as we approach the holidays and the year end. I am not sure if you are all aware of this or not but I will be going on vacation the week of the 26th and returning on the 2nd. I might need to place someone in charge while I am away. If you'd like to volunteer let me know. I'd hate to fully shut down shop for the entire week.

Anyone thinking about exiting CTRP? As we approach the close, today I am watching RL, PLCM and LAMR (again! Remember this trade from 2-3 weeks ago?). Anyone have any hot ones? MLM and RIMM still moving nicely, and IIG taking a beating!!!

What else is out there?

PS- I have a mental block on what to talk about tonight in Master Talk. I will entertain suggestions if you have any to offer. I'll be back in a few.


Trading Index Options

I have had special requests to write about the topic of Index Options. I know that Index Options are rumored to be too risky, too advanced, etc but in reality Index Options are the same as stock options. You can buy them, sell them, and track them exactly the same. Here are a couple core differences between a typical stock option and index option...

Index options are cash settled. This means that there is no underlying stock to deliver or take delivery of. Instead you receive the cash value of the Index at settlement. This is only if you decide to exercise.

Index options are expensive! Since many indices are values in the triple or quadruple range, this means the options will be expensive. For example take a look at options on the Nasdaq (NDX) Front month ATM'zzz.....

NDY AF Bid 38.00 X Ask 38.40 (Delayed Quote)

Yikes! Purchasing a contract is like paying your mortgage. These contracts are very expensive, and require very strict risk management principles, unless your comfortable going all in on one of these.

There is a substantial amount of leverage trading Index options, in fact this is the biggest leverage you can get out of options, and this is why they are so heavilly traded. Some of the more popular vehicles would be the SPX, NDX, DJX, RUT...and other industry specific indices like OIX, XAU, SOX, etc. Or perhaps you don't want that much leverage? Try the Mini's! MNX, XSP, RMN, or DJX (not relly a mini, but a smaller value than the underlying index). This gives you the capability to track the underlying index, not at the same pace, but at a better pace than an ETF option (QQQQ, DIA, SPY, etc.).

I guess the next best item to cover would be strategy. I find these products bode real well with spread traders. For me personally as a directional trader, I have traded directionally with index options, but only when it is obvious to do so. For example, in a trending market like we have experienced over the last several months this is a great time to trade index options. However, I would prefer just trading the futures contract instead.

Looking at that option premium, and how expensive it is, we could say at such a high premium it would make more sense to be a seller (as long as you do not expect big directional movements!). Like I said earlier, these are great vehicles for high probability spread trades. Verticals, Butterflies, Iron Condors, etc. Occasionally I will trade spreads on the indicies, even though I hate to admit it, but normally only in a bearish environment where I can trade call spreads. Since the market tends to correct, I prefer to sell calls than puts. Plus, calls are priced higher than puts which makes more sense.

The market is one of the hardest vehicles to predict directional movement in, so I suggest that if you are going to trade an Index, do it with a non-directional trade like some of the spreads I mentioned. I also would suggest starting small. Try a mini index first, and work your way up. For example, if the market starts to break support levels, lets try an index spread as a group activity.

Anyone out there title themselves as an Index Option trader? Any insights you would like to contribute or strategies you find that work well?

A Weekly Dose of Price Patterns

Here are the patterns I discussed in my presentation this morning. Many are starting to move, grab em' while they are HOT!

FFH- Pennant, watch this stock, look at the moves it has made in the last few months!

DVA- Bull Flag, but in a very short up-trend.

GOOG- A Head & Shoulder top...unfortunately.

XLI- A nice pennant on a ETF.

IGV- Ascending Head & Shoulders Top. Right at the neckline.

LUFK- Has this finally confirmed?!

LOGI- Head & shoulders top perhaps?

SOHU- Pennant, might have moved too much already.

RATE- May form another flag here. Nice trade on the first one!

TWGP- Getting close to confirmation!

I'll be back after a while!


Don't Set High Expectations

I doubt you'll see anything worthwhile out of the market this week. Keep that in mind as we move forward. However, since some of use still need to make a living out of this, and have Holidays coming up to pay for, let's talk about what is out there....

Watching for a bounce (market permitting)

VIP- Turning slightly higher today, watch for a better confirmation
PCAR- I was stopped out last week, but watching for another ride. If it goes too much lower, forget it.
ATI- Might try to use old highs as new lows. We'll find out very soon.
GS- Took this down this morning.
MLM- I might have jumped on this a little too early, but I am in.
BIDU- Hmmm...doesn't look all that pretty, but if it gets a quick makeover, I like the moves it makes.

Patterns (forthcoming) I will add them tomorrow morning.

My pattern list is three times as long, but I noticed if I release these prior to my Tuesday morning class, the attendance suffers. Someone is calling my name to get this MarketCast recorded, duty calls.

Is It Monday Already?

I am in the process of the weekly watchlist diagnosis. I can't think or anything I'd rather do. Since it will take me a little while to get this done, and I have another Dr. Appt in about an hour, feel free to post anything you are watching to this post. I will have a full on list prepared later today with some trade specifics.
Talk to you soon...



What a long week. I hope the posts have been sufficent. I know one thing...they sure have been exciting! Glad to see some emotion finally flowing through here.

I still have your post ideas jotted down, tomorrow I think I will dedicate most of the posts to trading rather than strategy. I might mix in one or two educational posts, but we'll flush through trades for the most part.

Im off right now for some italian dining and then to the Jazz Kings game tonight. I hope each of you have great things planned for the weekend. Please don't forget to download the Forbes Podcast or listen to the radio interview this weekend (assuming you have nothing better to do).

Let's pat ourselves on the back for another profitable week. I will catch up with you all on Monday.

Exits, Exits, Exits...

This happens to be one of many posts on the topic, but one of the most important topics we tackle as traders. Maybe I might say something different this time that lights a fire? Or perhaps I might even talk myself out of my own preferences. I counted 22 e-mails or comments within the last couple weeks that requested a post on this subject. Since I solicit requests...I will fulfill them... even if there are plenty of archived articles that have covered most of this.

Let me start by saying that if there were some secret ingredient as to when to exit a trade, would trading be a challenge? There are so many different methods and theories as to how to work this magic, not to mention all the technical indicators that offer help. I will try to comment on several of them, but make sure you know up front that I am not going to tell you how or when to exit your trades. This is why trading is an art and not a science. There is no right or wrong way or even a "best way" to do this. I will write on a few "OptionAddict Approved" methods and hopefully this will provide some pointers.

Exit strategy is mostly dependent on the style of trader. Short term traders will have different objectives that the intermediate or long term trader. Option traders will have different methods than the stock trader. Mechanical traders will have a different approach than discretionary traders. So on and so forth. As I write this I will try to mix and match methods with trading style....and by the way, I will focus on exits where you are taking profits, not losses (taking losses is easy!). This material will be a close duplication of my last Master Talk presentation.

Signs of Weakness- This is such a subjective terminology. What is considered weak? Price moving against you? Small daily price range? Indecision? Using this as an exit will be a totally discretionary observance on your part. What I normally recommend is using candle patterns. Remember my post a few weeks ago titled "What is Weakness?" Click Here if you need a refresher. The idea was to give some insight to a few candlestick patterns (which are towards the bottom of my importance checklist) and used these confirmed patterns as signals of weakness in the short term trade. These will be slightly ahead of the oscillators in the "speed" department.

Support & Resistance- A very simple minded methodology. Use this in the same manner that we discussed Apple yesterday. When entering trades on a trending stock, get in as close to the floor/ceiling (depending on your trade) and use this trend line to dictate when the stock has ceased to trend and when exit your trade. This is one of the very best methods for your intermediate term trader and a very definitive method.

Using the Oscillators- Another way to take confirmed exits is through a direction change on your oscillating indicator (MACD, Stochastic, RSI, CCI, etc). For example, you take a bullish trade when the indicator turns up and you exit the trade when it turns back down. The biggest problem I have with this is that the default indicator is usually lagging price by quite a bit. I would recommend shortening the time frames used to calculate this indicator (Disclaimer: shortening the time frame will make it move faster, which might result in more whipsawed trades). An example would be taking the stochastic which is calculated using a 14-5 time period, and changing it to a 7-3 making twice as sensitive.

Using Specific Exit Indicators- The other night I discussed two technical indicators I have used in the past to exit trades. They are...

ATR- (Average True Range)
This is a stocks daily volatility indicator. In fact I have a post that covered this in my archives somewhere. Anyhow, it will give you an average daily range. For example if your stock has a tendency to fluctuate (up or down) an average of a dollar, you would arrive at an ATR of 1. Since some stocks will fluctuate enough to stop you out intraday use this indicator to see how wild the stock may be, and set your stop outside this value. Another example... if my stock has an ATR of 2 perhaps I set my stop to trail the stock at a $2.50 value?

Parabolic SAR (Stop and Reverse)
This indicator is calculated similar to bollinger bands and is based on the individual stocks deviations. If you add this to your interactive chart, there are lines drawn on the chart that will somewhat represent support and resistance lines. Once these are penetrated, this is when you close the trade and reverse it (Ex. Sell your calls, buy puts).

Using Daily Price Movements- An easy way to use daily price bars as a sign of weakness is to see a closing price below the prior days close.Or perhaps a close below the prior days open. Personally I would prefer candle patterns but I know others who use methods like this and swear by it.

I would have liked to have provided more detail, but feel free to open a dialogue here if necessary. I still want to talk about the market and next weeks watchlist, but time has escaped me for the moment....


Master Talk Follow Up

Last nights presentation was dedicated to exit techniques. If you missed the presentation, or tried to access the recording that had sound issues, here are the trades we followed up on and discussed...

AXP- Watch for a break of resistance

CSH- Breaking higher, great trend

TS- Huge break yesterday

$XAL- Airline Index Options


VIP- Nice call!

SRE- Still chugging

MVSN- Not the fastest mover yet.

LAMR- Strong move

CTRP- Amazing

FDX- Good thing it didn't give us the signal!

SMG- Maybe it was luck?

Thanks for all the great trades that were provided today. I must add the retail sector to the list since all of my favorites...KSS, AEOS, PLCE, PVH, etc are all moving really well today. Who said the market was bearish? Smells like a breakout!

Trading Support Bounces

Amanda sent me a post the other day about how to trade support bounces. I don't recall designating a specific post on the topic, so let's start one today.

I think one of the best trading signals one could use is a support or resistance bounce. If you can see a stock consistently retracing to a certain point, or moving higher to another specific point, and this has been a repeatable process, this is the first and foremost indicator I use when placing or exiting trades.

Think about it. S&R is a leading indicator. You can use it to predict many outcomes. Same thing with trend and volume. These are all leading indicators so make sure these are the first things you focus on. In fact as many of you know these are the only indicators I use to trade.

Back to the support bounce techniques, let's look at a chart of AAPL...

Keep in mind that support represents a stocks "floor" right? And resistance is termed the stocks "ceiling." One of the easiest methods of trading is to buy a stock at a floor, and sell it at a ceiling. With all the hundreds of indicators and other tools we tend to forget that simple logic. I have drawn a support line connecting the dots (lows) on Apple over the last few months. Lets strategize on how to trade this and consult our indicators.

1. Trend- trend is obviously in favor and thus we like the stock and continue to look for additional signals.

2. S&R- As soon as the stock TOUCHES support I try to buy. Please note that this is mildly aggressive (for a confirmed entry), but at the same time it is extremely low risk. Why is this? If my stock closes at support and I enter the trade, as soon as it closes below support, I exit. This results in a small loss for the potential of getting into the trade at the bottom!

3. Volume- To be honest, volume is only an important element when I am trading a breakout. In a bounce play, typically I don't check it. Volume is normally in a contraction as the stock pulls back anyway.

What about confirmation. Perhaps you don't like to pick bottoms and would prefer to wait and see if the stock reacts to this support level. If I can see this level of support has only been tested two times or less, I might feel better to wait for confirmation. Here are a few you might consider.

1. A move higher- Simple, yet effective. The stock has spent time moving lower to this support level, and when it finally hits this level, and happens to start moving higher, great confirmation.

2.Confirmed candle patterns- We talked about these a while ago but hammers, inverted hammers, engulfing, harami, morning star patterns, etc would all be useful confirmation tools at support.

3. Use an indicator- After all, this is what they are for. I know many complain of the indicators being too slow. Make them faster! Last night I presented on how to modify a stochastic to make it give signals a lot faster. We changed it to a 7-3 rather than a 14-5. This might require backtesting, but are great tools for confirmation.

Hopefully this post was helpful. It is a simple, low risk, and high reward strategy to trading trends.

Let's Put This Topic To Sleep

I didn't mean for the interaction this morning to get taken this far and my objective is definitely not to run people out of here. You would be amazed at the hackers that try and post websites to check out, outside resources that charge fees for services, hot stock picks that are only pyramid schemes, etc. To re-iterate I am not trying to keep other services hidden from you. I could care less about which websites you are members of, where you trade, where you get your charts, etc. I am only trying to tell you that most of this stuff you don't need. An I am especially trying to keep away the resources that want to sell you stuff. There is no need to purchase any additional services. You have already paid enough!

I am not sure if you realize this or not but there are thousands of hits here per day. Which many people might see as an opportunity to advertise. Since I have never sold out and used this site to sell services, websites, etc. I don't think it is a good idea for others to do it either. For those out there who have seen the movie "Clerks" and remember the Chewlies Gum salesman that starts an anti-smoking riot to sell more gum...
Don't Be The Salesman

Keep in mind that sales pitches are the only comments I delete. Please feel free to say whatever you want on this site. Especially comments like I read today "Is this really a trading community or an ego stroke combined with generating sales for investools?" If you feel I have an ego to check, tell me. Think one of my picks suck? Tell me. Think I am an undercover salesman? Hilarious. I hope you all feel comfortable enough to speak your mind. If you really feel there is a site or service (that requires a subscription) you want to share, e-mail me ahead of time, let's talk about it. Until then let's take what we have and make ourselves successful traders with it.
Enough of this crap, let's get some real posts going.


I pulled up the blog this morning before I left to work and could see a very interesting dialogue opening up about using other websites, etc. Normally when I see a comment come through that advertises a site or encourages people to subscribe to anything, I have deleted these comments (please don't be offended) because someone always has something to sell or has an underlying motive to get into your wallet. Either that or you are taking advice or recommendations from someone who might not be a profitable trader or have a usable methodology. In my eyes everyone already subscribes to a website that can be used to trade successfully (the toolbox) and I don't see the need to pay for any additional services. Plus, INVESTools does not want me to be involved in advertising anything that they have not approved. You can do very well in the market with what you have. The only money I would recommend spending are on books or on commissions.

What are your thoughts? Everyone okay with this going forward? If there ever is a topic you need help with, just ask!

Time now to pop a few pills and go get the MRI done. I'll be back later this afternoon.


Mastertalk Tonight

Good Evening OptionAddicts! I apologize for the lack of posts (again) but time has been something I couldn't capture today. I am trying to prep for Master Talk tonight, so this post will be limited also. Like I said, I have two posts in the "draft" process. They will come out tomorrow and hopefully will shed light on exit strategies and techniques for trading support bounces.

If you care to listen tonight I will be in Session 2. Hope to see you there!

Better Late Than Never

Happy Wednesday! Like I mentioned last night, today would be a long day. I saw a specialist and it looks like I have torn my meniscus. I have an MRI scheduled tomorrow, and after that it looks like I am going to have to get my knee scoped. I have a big phobia when it comes to needles, doctors, and especially surgery. If any of you have any recommendations on how to get over it (besides intoxication), please share.

I had my radio interview just a few minutes ago. It was fast paced...and was a drag not knowing what he was going to ask next. Hopefully I didn't botch it too bad. If any of you feel in a supportive mood the interview will air this weekend. Click here for a PDF that will give you all the local radio stations, or even better you download this by adding Forbes to your podcast feed. To do so add this address to your podcast http://www.forbes.com/media/radio/rss.xml Thanks again to all of you for all of your support.

I have seen a few e-mails fly by telling me what is hot and what is not. AAPL has made a nice move today, and my favorite is TS. I took this trade as a breakout in early November and was hoping to take it as close to resistance as possible. It has broken out again, so make sure you have this added to your watchlist. What else do we have out there?

I have a couple good posts lined up for later today. I will try to throw them out as soon as they are done marinating.


Another Whipsaw Day in the Market

Don't take any offense to what happened today. Some trades (ATI) obviously worse than others (SMG). Overall ended up only slightly down. I don't think this is a reason to scream "Bears" yet, but be on the lookout. I would hate to see you switch sides right before a counter-fed rally.

I am halfway through another post on exits. It is a hot topic and apparently I cannot post on this topic enough. Let's read more!!!

I need to go home and get my beauty sleep tomorrow. I have an appointment with an Orthopedic specialist in the morning, and tomorrow I am being interviewed on the Forbes radio show! I guess they have a radio program and they wanted to spend an 8-12 minute segment with an OptionAddict! Why in the hell would they want to do that?

A big "Thank You" to all of you for your traffic to this article. This was likely to be a big part of the reason that they chose to interview me.

You guys rock! See you tomorrow.

Want To Talk About Exits on Credit Spreads? Me Neither.

I received a few comments about exiting credit spreads prior to expiration. A few comments include how Implied Volatility changes the pricing on the options, how losses are worse buying back early, violation of a break even point, daily fluctuations showing profits/losses, exits based on greeks, etc.

The credit spread strategy is used to withdraw option premium out of the market at a low risk area. Basically selling these at places the market is not likely to hit. If you find yourself struggling with exiting spreads early, it is likely that the exit is not the problem. The problem is probably your entry or how aggressive you are playing spreads. Remember that the main objective is to get these spreads to expire worthless and keep the initial credit. Here are a four rules to consider...

Rule #1: Do not sell time.

Try to aim for front month expirations. Even if they expire in a week or two, this is a good thing!!! Don't sell lots of time since you have a higher probability of the stock moving against you over this time.

Rule#2: Don't forget rule #1

Rule#3: Sell these spreads at a strike that the market/stock will not hit!

This is one of the most important aspects. If you want to keep the credit, keep the trade away from the price of the underlying instrument. Beyond key support/resistance levels, way out the money, etc.

Rule#4: Timing is everything.

Perhaps your timing is lousy? I know when I first started trading I was so furious that I couldn't get my exits right. After doing further research, I found that my entry was horrible. As I fixed this it made exiting these trades so much easier. Make sure your entries get you in the issue as early as possible.

Now that I have issued the rules, let me retort to a few of the comments I received...

"Implied Volatility effecting the options"... Yes, both options will increase in value if IV rises. This would make the spread more expensive to re-purchase....BUT...this should not offset the decay of time. If you keep these options short dated time decay should be able to over-rule this factor. More importantly, if you keep these spreads away from the stock price it won't matter. As long as you are not in danger of gaining intrinsic value they will expire worthless.

"Losses seem to be worse buying back early"...This can be the case, especially if the price moves too much against you. Keep in mind that spreads will fluctuate in value all over the place. What is important is that you focus on the chart, and not on the gain/loss balance in your account.

"Breakeven points"...Don't tell anyone, but breakeven points are meaningless. At expiration you can use this for some reason, but even then it won't matter. When trading spreads never use a breakeven point for an exit unless it correlates to support, resistance, or some other predetermined exit.

"Exits based on greeks"...Never use a greek as an exit.

Leave additional questions in the comments section. I will try real hard to supply answers.

I Guess We Were Supposed To Sell ATI...

I guess this was the post Cramer sell-off this morning. Do you remeber the study I talked about on my "I Hate Jim Kramer post?" I still talk to a few fund managers that believe and actively participate in the "Post Khraymer Depression" theory. I am going to try and hold back the expletives throughout this post... I won't guarantee anything, but I will really try. I really hate to see a good winner die.

I saw a few comments flying around about SMG this morning. I can't believe it finally broke. For all the Master Talk participants that took this trade after our meeting a couple weeks ago, congrats! It took forever, but we knew it was coming!

I'll be back after I find a way to vent.

P.S. I spell Kramer (Craymer, Kraimer, Chraiyhmer) wrong for personal resons. Don't ask.


Closing Time

Is it me or have we picked the only few "Hot Stocks" out in the market!!! From the comments section, and from the accounts perspective it appears we have a lot of movers working for us right now. Kings to you ____(insert your name here)____.

Fed announcement tomorrow, so tread lightly. That could be a reaction that stirs the breakout, or pulls the chair out from this consolidation. You have all seen my watchlist, let me see yours!

If we left anything out, feel free to add them here.

Its been a long day, I am turning in. Sorry for the anti-climatic finish today, but please stay tuned...

OptionAddict Upcoming topics include...

Index Options & Mini Index Trading

Exiting Spreads before expiration

When to add to existing positions

When should I break my trading rules?

Psychological round number pricing

Living In a Bull Flag Paradise

Hope the weekend treated you all well. Now it is time to get back in to business.

Watching my movers this morning...ICE, BIDU, WYNN, all seem to be working well. Its the ATI, VIP, and a few others that are threatening to slow down. Good thing I don't negotiate with terrorists.

What about the watchlist this week? I have an enormous list so lets get started!

As you know I break them down into two categories. Bounces and breakouts. This is the list of stocks that looked interesting from the thumbnail view...and I have jotted them down for further research. If you find something on this list that you don't like...just remember I haven't looked all that closely either.

Watching For a Bounce

FFIV- Remember this post...click here. I threw this stock out there as an example for a flag trade. The end result is obvious, flags rock. Friday it made a nice bounce after consolidation...keep a close eye on it.

COGN- Getting close to trend support.

AIG- Turning up off trend support today.

AEM- Same thing, sitting on trend support.

CAL- Beautiful bounce off support, might qualify as a breakout by the end of the day.

CTSH- Great stock, waiting for an add point.

VIP- Might be flagging? Would love another ride on the VIP train.

Price Patterns

BJS- Bull Flag. Just waiting for a break.

XTO- Bull Flag, likely to test old resistance at 48 first.

THE- I hate this stock (if you want to revisit why, click here) but I am watching the recent bull flag. Waiting for some "get back" on this stock.

OIS- Hmmm. Another energy stock and another bull flag. It is in the running for "longest flag pole of the day award."

CRDN- Its early...but its flagging.

TALX- I felt like mixing in a symmetrical triangle to keep things interesting. I drew this guy from late October until recently. Friday's candle moved about .20 cents outside my support line, but my crayon approach counted it anyway.

SLG- For anyone that knew me from back around June...I promised that this one would hit its $10 target eventually. This an important lesson for the longer term traders that price targets represent MINIMUMS. Anyway, yes this one is also flagging.

TGT- Symmetrical triangle. Waiting for a break.

SEIC- Symmetrical triangle. Might have to use line charts for this one, but it works.

SLB- Flag


CPA- Flag... Might confirm today

TWGP- Symmetrical Triangle

Bon Apetit'


Kiss This Week Goodbye

What a busy day! First I want to thank those of you that sent e-mails today or left a comment wishing me a happy birthday. I thought I could keep that under wraps...but thanks to my wonderful wife, she apparently let the dogs out (love you honey).

I turned 28! This means I am likely the age of some of your kids, or the age of a pair of Karen's shoes (hilarious Karen!). Hopefully my young age doesn't make you think of me any differently. Being the youngest instructor (by a long shot)I have had to work twice as hard and twice as fast to get to where I am. I hope the experience and the content speaks for itself.

I thought today would be an easier day, but meetings have eaten up a lot of my time. Therefore, I will try to post on all the topics you have each mentioned from yesterday throughout next week.
Since it is quitting time and I am just now getting around to post, I will apologize for my lack of interesting substance and promise a make-up next week. You guys are all the greatest. I appreciate the community that we have, your support and contributions are appreciated. Have a great weekend!!!

Blogging Each Day...Makes The Pain Go Away

Hopefully I didn't scare everyone away last night. Sorry for letting true emotions shine through. A public thank you to Mike and Danuta for your e-mails. They really helped me this morning to get past yesterdays blow up.

I am getting a lot of e-mails over the last couple days...THE BEARS ARE EMERGING!!! I am shaking in my boots! True the market failed to make a higher high, but cue my broken record..."It's too early to tell." "It's too early to tell." "It's too early to tell." By the way...that is not a picture of me getting eaten by the bear (I hope :)

Last time the market did this (Oct/Nov), we still came through with the higher low and eventually broke out. What makes the current scenario any different?

Many are wondering how to make money when the market is slightly sideways. In a directionless market make directionless trades! We talked about credit spreads a while back and this might be a great opportunity to use them. Personally I am not subscribing to this method, but this might be a good way to bring in some income during times where you are uncertain on the market direction. As for me and mine...I have been buying and continue to buy calls.

Keep in mind that your success in the market will not depend 100% on market direction. If you have been doubting this trend that goes to show you that we don't always get it right. I have doubted the market or was too optimistic about the market at many points in my trading career...but I never placed too big of bets on my intuition. I continue to keep finding stocks that break out regardless of market direction.

Speaking of breakouts, I only got a few responses on AKAM. Probably because I was a J.O. last night. Anyway, a few responses included market conditions...which is a very rational thought. Perhaps this is why it is only slightly higher today? It is just like every other trade we have highlighted in this blog...after a breakout it's likely to re-test and at that point we will know just how potent this trade might be.

Anyone liking the bounce on AAPL? Another question...anyone heard of this company SIAL?


I can't seem to shake this horrible mood that I am in. It is bringing on a headache. I caught some feedback internally that is such a load of crap. You have all been there, right? Someone on high disagrees with your vision or questions what you do. I hate that. Anyhow, rather than spill my guts here I will get on with the show.

I have been meaning to write this for some time, but sometimes I misplace my priorities. I have received lots of e-mails asking questions, offering suggestions, providing feedback (all which I appreciate) on topics we have already tackled. I hope that most of you have at least thumbed through the archives of the hundreds of posts I have written on various topics...such as why I trade the way I do, what I trade, when I trade...even educational posts on topics like risk/reward, implied volatility, various strategies, concepts, etc. The best of the best is in my archives so make sure you have thumbed through some of them so we don't duplicate topics too often.

Anyhow let's analyze this chart....

AKAM. First...who took this trade today besides me? I talked about this stock in my price patterns class this week and questioned the validity of calling this a triangle. If you look close enough there are some areas where the stock does not correlate to the support or resistance levels. I like to call these "white spots." Too many white spots in a pattern and I question taking it. With AKAM whether you call it a triangle or not, a breakout is a breakout.

Who's gonna trade this?

What's On Your Mind?

It has been a busy morning for me this morning...sorry for the lack of posts. I know there are plenty of stocks posting gains this morning, but overall a pretty quiet day in the market. Tell you what...I will solicit topics from all of you today. Post an idea in the comments section so I can survey what you all would like to hear. In this instance first response doesn't necessarily win... but throw me a few interesting topcis and I will try to pick a few from your requests.

Feel free to post trades as well ;)


The Mysterious Falling Wedge Pattern

I received a few e-mails about having CME in my list as a falling wedge. As always not every trader out there has heard of the pattern, understands it fully, or has ever seen a confirmed one in existence. That's what I am here for.

Funny, but my wife just walked by and asked me what I was writing about and I asked her if she'd like to contribute to this post on falling wedges. She said "Falling Wedges? Look Out!" This is a common misconception (don't make fun of her, even though she's a washed up stock broker!).

Here is a chart of CME that will show the pattern highlighted and show the formation within my support and resistance lines. Since blogger is not uploading photos this morning...

Looks like a falling wedge now, right? As you can see it is triangular in shape, but both support and resistance are sloping downward albeit not at the same angle. Resistance will have a steeper angle than support.

Where the confusion lies is that this pattern is a Bullish Continuation Pattern. When I mentioned that it confirmed yesterday that is because it broke resistance with fairly active volume. Once it does this it confirms the pattern and now the stock will be working towards its price target. As with any pattern, measure the width of the triangle (535-555) and CME has a price target of $20 which should put the stock at a minimum of $555. To determine how long it will take to get there measure the duration of the pattern. Looks to be about 2 weeks long, so I would expect CME to reach $555 within two weeks. Keep in mind it won't get there in a straight line, and don't send me an e-mail on a down day asking if it has failed. With all patterns we have discussed, failure is achieved when the stock breaks below it's breakout point ($535).

With wedge formations, falling or rising wedges, remember that they will rise or fall against the trend and they are continuation patterns. Here we saw an example of a falling wedge...a rising wedge would appear within the context of a downtrending stock. When confirmed, the downward trend would continue.

Hope this post was able to clarify and provide a better insight to this pattern.


The Market Forecast

If you have not learned about this tool yet, bookmark this article so you can come back to it at some point in the future. For those who have already learned about it, let's make sure we understand it correctly. I will use a couple example to help illustrate my points.

What is the Market Forecast?
The Market Forecast is a proprietary technical indicator/oscillator which is found on the strategies page of the toolbox. As you look at this indicator you'll notice it has three different colored signal lines, and is plotted on a scale of 0-100. It's very similar to a stochastic indicator.

Why is the Market Forecast Helpful?

Just as a stochastic is helpful for identifying points where a stocks trend is overbought/oversold, the Market Forecast helps us identify when the overall market is overbought/oversold. A very helpful feature is the fact that there are three signal lines. I classify them as a daily, weekly and monthly time cycles. For example I treat the red line as the daily indicator. If I want to supplement daily market trends (which I don't) I would use the red line to determine when the market is perhaps overbought or oversold. If I wanted to supplement weekly trends (still not interested) I would use the blue line for confirmation, and finally if I wanted the monthly (overall) trend of the market (which I might) I would use the green line. Each line should be treated individually since each will likely give a conflicting signal in comparison to another time frame. For instance...the market being in an overall uptrend the green line has been pegged in the overbought territory (which is part of being in an uptrend) while occasionally when the market has a down day, you will see the red & blue lines move up and down a little more frequently.

How Do I Interpret it?

I would strongly encourage that this indicator is used to supplement your analysis of the market rather than determine your analysis of the overall market. As we have watched the market continue this lovely trend over the last several months, the green line has warned us that the market is overbought. See below...
What has most traders up in arms about this tool lately is the fact that the green line has crossed out of this reversal zone for the first time since August. Here is what the tool shows as of today...

Based on the fact that the green line retreated from the overbought zone means its time to get bearish right!!! Sell it all!!! Look out below!!! In reality the biggest problem I would have with the Forecast signal is that the market is not confirming it. You'd think if this signal was such a bearish event the market would have at least gone down more, broken support, etc. It never happened. This moment right here reminds me of this picture of a young lady...

Do you all recognize this picture? Sure, there are two pictures here. One of an old woman, one of a young lady. If you had not seen this before, as I mentioned "young lady" you might have noticed the young lady right away without seeing the old woman. Since many were so scared of the market being bearish last week, they might have been so focused on looking for anything bearish that this might have caused them to misinterpret the validity of the trading signal on the Forecast?

To wrap up this post you can see that this tool does not literally Forecast what the market will do tomorrow. What it does do is tell you what is likely to happen soon and does a great job of re-confirming what the market has already done. As you use this tool, make sure it supplements what you see on the chart of the major market averages. Next time you get a bearish signal on the Forecast, make sure it correlates to a bearish signal on the charts.

Price Patterns

Here is the weekly list from this mornings price patterns class. Last weeks list did very well...(thanks to the market) here are a few patterns that were discussed this morning. Bon appetit'!

NBL- Bull Flag
HYDL- Bull Flag
RATE- Bull Flag

CME- Falling Wedge
COGO- Symmetrical Triangle
ASN- Ascending Triangle

They Underestimated Me....

OptionAddicts are starting to spread their wings into overly professional atmospheres! This morning I was able to penetrate the Forbes.com website and leave a footprint. If you would like to take a peek, click on the link below....


The article I wrote was on the topic of covered calls. If you have some time, give this link a hit for my sake. I would greatly appreciate it!!!

The "Orlando Head Fake"

Did you like that! Apparently I found out I am scheduled to speak, but when a ton of people call in to reserve a seat....JUST KIDDING!

In all seriousness, I apologize if you did attempt to call and the representative was not able to get you scheduled. Apparently, these new changes to the Orlando schedule have not been released for scheduling yet. How about I post again when I know for sure that you will be able to sign up? That might have been a better time to announce the news.

If you are wind up without a seat to my presentation, I won't take it personal. I will be out front of the resort scalping tickets if you don't get any.



Many weeks ago I promised a post that would clarify the upcoming Mega-Event in Orlando. The instructor and topics list have now been finalized. At the upcoming event I will be giving a 1-hour presentation on the topic of "Technicals for Stock Analysis." The topic of Price Patterns has already been spoken for, and this was the counter offer. I signed up and I am very excited to travel out there and to be able to meet most of you. Hopefully I will be able to make a good presentation out of this topic.

Congrats to everyone who has been patient with this market. Today was another pay-off day. I have fielded a ton of e-mails about the recent trades we've discussed...VIP, ATI, LVS, WYNN, the exchanges, retail, etc. I hope all of you had a great day in the market.

Tomorrow I want to address the Market Forecast. I have received a TON of e-mails expressing that people were actually BEARISH on the market because of this! If this was the case, we do need to talk.
I am off to record the Marketcast and after that I need to go have the knee looked at again. Let's plan on meeting here again in the morning (as always).

ATM Machine

The market is in the "Print Money Mode" this morning. I appreciate the comments left for those who watch Kramer. I may not watch his program, but I know when he drops a reccomendation what happens. Even if they don't normally sustain these gains, the gains will happen. So again, thanks for the heads up! I bought a boatload of ATI Dec 95's at the open for $1.10. The VIP profits continue to swell and it looks like our good old gaming stocks WYNN and LVS are on fire this morning.

So I guess this means the market is still bullish? Go figure.

I'll be back after I go wrestle the market for awhile.



Before I run off and celebrate the weekend, I wanted to leave you all a note.

Alright....I.....(state your name)... am a confessed option addict. Because I have this rare condition, there will be days (like today) that cause me emotional unrest and worry. To deal with this in a healthy manner I will.... (go out with friends, relax, get smashed, etc) do whatever it takes to create balance in my life this weekend. This weekend will be an opportunity to refresh my soul.

In all seriousness it was a very turbulent week in comparison to the last several months. Plenty of intraday volatility, market retracements, indecisive footing with most traders, and quirky economic reports. I am sure some stops have been triggered, losses have been taken, and some gains have been "misplaced." What is important to realize is that this is all part of the game were are participating in. This is not the first nor last time we will see these conditions happen. For those that are really upset, try and learn something from this. Whether it be a revision of trading rules, exits, emotional discipline...always ask yourself at the end of the day/week...

"What did I learn?"

As option addicts we solemnly swear to become successful at trading. Through the motivation, education, and experiences we are becoming the best of the best. Even with your struggles, I can guarantee that you are head & shoulders above 90% of the retail investors out there. I must applaud all of you... I see the comments, I see the e-mails and I see the trades you throw at me. I know first hand that we all have a lot in common and we are developing a trading methodology that elevate us to where we want to be as traders.

I hope you don't think I am going soft on all of you. In fact I am still the same hard-a$$ I was yesterday. But I am here to help you, to educate you, and to hopefully make a difference in what you are all trying to accomplish. (sniff, sniff...)

With that said, get the hell out of here and go have a good weekend. We will beat the crap out of this market on Monday. Until then...Have a great weekend.

Deer in "Red"Lights

Hmmmm. My quotes page is almost entirely red lit today. Does this change your outlook on the market? I must say, today is the first time I am questioning the market. However, I am not bearish. Worst case scenario in my opinion, we trend flat for a week or two. If this is the case, the choppy nature can stir emotion and trigger stops.

Speaking of stops being triggered, my worst case scenario ($4.20) was hit on ATI. Which I think was a good thing. The stock might move lower to retest old resistance. If it does... I would love to take another trade at support. We'll see how it shakes out.

In essence this was a crap way to end such a great week. However, as a whole the trades that I have thrown out between the Trading Rooms, MarketCast and Master Talk has been just about the best string of winners I have ever had. I hope some of them have been able to help you get those accounts up to satisfactory levels. As we get more definitive about the market we'll devise a strategy that will still keep this streak alive despite what the market is doing. Either that or we'll just keep picking winners.

I have a meeting to attend and the MarketCast to dub and then I will throw another post out there. Hope everyone is keeping their cool on a day like today!


About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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