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Posted by Option Addict at 12:22 PM | Permalink | Comments

I think the worst investment I ever made was being a Warriors fan. Thousands of dollars in merchandise and ticket sales and at the end of the day, I am still left wondering why.

In case you didn't hear, the Warriors traded superstar Jason Richardson to the Charlotte Bobcats in exchange for Branden Wright (UNC). If you know the teams track record with being able to hang on to talent, then this comes at no surprise. Chris Webber was traded in his prime for Tom Gugliotta, Latrell Spreewell traded for John Starks, Chris Mills, and Terry Cummings, and who can forget leting go of one of the top 5 players in the world Gilbert Arenas!?

Speaking of, as I go to ESPN, take a look at the banner on their website... Ironic, don't you think?
So aside from this piece of new ruining my day, my only hope left for a good day is the release of the iphone. If I can get my hands on one of those, I will hold a ceremony to execute my Treo on YouTube.
The only thing holding me back is contributing to Apple's bottom line. I am considering shorting the stock soon thinking that the train has stopped and investors are going to quit paying a premium for the hype. Don't you think a 10-15% correction is due? I'm probably talking out of my a$$, but I am still going to go get an iphone.

Now on to more relevant news, the market seems to be posting some gains today. The big question is whether these gains will hold or not. Amidst all the action I see one gem and two stocks that have redeemed themselves...

PCP

BSC

Was there any doubt?

AHM...finally!!!

In the meantime, I am going to be selling a few items on eBay to pay for my gas to get down to get my iphone this morning.
Recommendation: Check back for better posts later.

Long: JRich

Short: The Warriors

Posted by Option Addict at 8:44 AM | Permalink | Comments

All the intra day chart reflects here is the market digesting lunch. The outcome makes perfect sense after watching the market for the last several days. The outcome is FLAT.

I guess the real question is, if we have a counter Fed day tomorrow, what will that entail?

PS- I have the answer to the question of which show was better, A-Team or Knight Rider...

Recommendation: Well, it was either that or the Fall Guy.

Long: Retro

Short: Metro (except my shorts... the plaid ones of course.)

Posted by Option Addict at 2:02 PM | Permalink | Comments

Recommendation: It is multiple choice, but I'd appreciate your opinion. Not eveyone likes the "addict" color theme, and I am open to making changes.

PS- You can also leave a comment in the "other" field.

Posted by Option Addict at 10:43 AM | Permalink | Comments

Easy like Thursday morning. It is a sin to enter trades ahead of events you don't know the outcome to. So I decided I would day trade this morning to keep my mind occupied. Speaking of which, have you seen the price of oil? Back above $70 and likely to keep climbing. Of course if we go back three months, energy analysts told me I would be paying $5 per gallon of gas I purchased right now. Looks like I really didn't need the Vespa as a hedge afterall.

I would refrain from making any major decisions until after the announcement today. Like I mentioned yesterday, it can be a fairly volatilie ride. If you are looking to trade after the announcement, which can be some great price action, trade small and trade mechanically.


The market will be listening to the statement looking specifically for a hawkish or dovish stance to decide whether they buy or sell stocks. Instead of trying to interpret the mess yourself, wait and interpret the price reaction.


For those students that participate in Mastertalk, sorry about the difficulties yet again.

Recommendation: Patience makes the account grow stronger.

Long: Lionel Richie

Short: Nicole Richie & Mastertalk

Posted by Option Addict at 10:07 AM | Permalink | Comments

I just rolled into work and saw tons of questions about what to do in a situation where you have a position in a company that has just been bought out. These types of situations don't occur all that often, so here are a few ideas to consider.

First: Celebrate. Pat yourself on the back. A win like this covers all the years small losses, and then some. There is no skill here to determine this news before it is released, but as luck would have it you have been given a gift. Accept it.

Second: Sell the position.

The question lies in the fact that the offer was for $63 per share, and right now the price is at a discount at $60 per share. However, since the options have all but collapsed down to intrinsic value, there is really no reason to hold these options over the next several months waiting for another few points in the stock.


Here is the last acquisition we traded in front of. Armor Holdings. Notice that the stock has traded in a very narrow range. In fact for a few days after the acquisition, you can see the stock price dropped quite a bit.

Best thing you can do is nod to the trading gods, offering your utmost respect and gratitude and exit the trade. There isn't much more you can do here.

Oh yeah, I don't think I'll get asked the question, but if you are wondering...

No! Never buy a stock after it has been acquired.

Posted by Option Addict at 12:16 PM | Permalink | Comments

It's nice to wake up to another acquisition. Not only for the sake of the market, but it is lovely to wake up to it in you account! This has been the 4th or 5th acquisition we've been in front of! That made my day. Thanks GTRC!

Speaking of today, it's Fed day tomorrow so make sure your safety belts are fastened. Things get fairly volatile intra-day so make sure you have predetermined stops in place. What has me so interested is that there is a lot more volume ahead of this announcement that there is typically. Not sure what to make of it yet.

Here are some things I'll be watching towards the close...

FCX

FUL

MLM

WFR

Recommendation: Get ready to trade!

Long: Phoenix Suns (if they close the Garnett deal)

Short: Minnesota Timberwolves

Posted by Option Addict at 10:18 AM | Permalink | Comments

Here is a chart on KIM. I mentioned shorting this shortly before it broke support. For those that entered the trade, what were you looking to accomplish? For the most part, you will not be able to always accurately predict a top or bottom of a trend. Here is an example of why you might just aim for a quick move in the stock, versus trading with the trend.

Figure 1 shows a great move in the stock, and how profits can be captured by reasonable entries and exits based on support and resistance. I watched a lot of traders start off with great profits in this stock (stock lost about 10% in 2 weeks) then watched those profits dissipate as the stock rallied back towards old resistance.

I talk about this specific event in a trade as the difference between the trend trader and the swing trader. Forget all that for a moment, what are your thoughts? How do you like being up triple digits on your option, then feeling obligated to give it all back knowing that the stock is going right back up to where it came from?

FIG 2: Uhhh...why did I let this happen?

You have probably heard me discuss this same topic many times on the blog, and heard me tell you how I trade it. I hold on during this re-test, but I wind up with a few more losing trades than the swing trader. However, in the long run, I wind up with bigger profits. That's the incentive to trade with the trend. If you are more emotional than the next trader, or uncomfortable with having more losses than the swing trader, why do you allow yourself to go through it?

Decide on the path of least resistance. In many cases I find that individuals are trying to mix and match both strategies, or are trading a strategy that doesn't fit them very well. Remember that in trading, no system is one-size-fits-all.

Fig 3: Various exit strategies

Having the right trading system, exit strategy, position size is the difference between a winning or losing system. I hope we can open a good dialogue on the topic. I have written about this numerous times in my archives, but another post was due. Especially now that we are seeing some turbulence in the market.

That's it. I am done rambling. I am going to bed. See you tomorrow.

Recommendation: That was way too long to hold your attention, wasn't it?

Long: Post

Short: KIM

Posted by Option Addict at 8:59 PM | Permalink | Comments

Posted by Option Addict at 9:02 AM | Permalink | Comments

Recommendation: Have the pause button ready. I had to move quickly on the first one.

Posted by Option Addict at 8:59 AM | Permalink | Comments

Here we are sitting right at those very important levels we've discussed. Oh yeah, one more thing...

Time to sell options? I think there might be a trend brewing here....

Posted by Option Addict at 1:16 PM | Permalink | Comments

This market is bipolar. I won't complain over it though. I guess a solid day like this is a great way to start off the week.

I wanted to get a new thread started here early. I am in the process of doing this weeks research and putting together my watchlists. If the market is able to hold onto these gains, there are going to be a lot of great bullish set-ups this week.

I'll post some charts here on the next post. If you have any good looking ideas, feel free to share them.

Be prepared for a great week. I can feel it, this week will be a great one.

Posted by Option Addict at 9:15 AM | Permalink | Comments

A couple requests came in for me to talk about the topic of exiting profitable trades. Uhhh....Ok. I guess if you want to exit a profitable trade, let's discuss it.

Let's travel back in time to a post I wrote up a few weeks ago...

http://optionaddict.blogspot.com/2007/06/monday.html

Take a look at the two trades I highlighted back then. SLB and GMCR. A great stock trade and a great option trade (so far). Enough time has passed to where you should be looking at some great profits on these and must be so tired of making money on them that the only reasonable action would be to sell them.

So to make it simple, here is what you do...

Push that button. Anytime you are fed up with the gains, or that money could be spent better elsewhere, just hit that button. Anytime the stock hesitates, punch that button. Whenever the stock has a lower open, kick the button. Whenever you need to set your mind at ease, jump on the button and sell.

Hopefully you got the point.

I was just having some fun...I'll produce a quick video on the topic later.

Recommendation:

Long: SLB and GMCR :)

Short: CMG?

Posted by Option Addict at 10:00 AM | Permalink | Comments

I like the idea of dipping into the reader mailbox, Each time I get a good e-mail (good or bad) I will share it with the group. This might stir some controversy from time to time, and hopefully this will act as some good defense for my truck load of hate mail.

Today, a good success story:

Hey man - How are you?

Man, I don't know what in the hell is going on - my account, since last Monday is up over 60%. That is total account value. Granted, my account is small, but I am sticking to my rules and things are going amazingly. Can you believe that? I keep reading everyone on your blog saying these days like today are really hurting them and things of this nature, so I don't really want to post anything about the success I have had the past 8 days. I just wanted to tell you because you have a lot to do with my success and I wanted to thank you personally. I guess I will try to continue to ride out this wave of success and just stick to my rules.

Jeff, I hope you are well and I will talk to you later. Maybe someday ill get to shake your hand or buy you a drink or something.

Your friend,

Stephen

Great job Stephen. I am proud of you. We have exchanged a few e-mails and had a couple quick phone conversations, and apparently things are looking up. He was hesitant to share this out of respect for those that are still finding their way, but I wanted to use this as motivation that it can be done, and it will be done.

Recommendation: Congrats Stephen...recovered addict 6/07

Long: Reader e-mails.

Short: Reader e-mails.


(Follow up)
Jeff, you can post it if you feel like it is worth posting. I am so pumped about trading right now. I honestly used to fear opening the computer to see how much I had lost for the day, and now I am so thrilled at 9:29 a.m. I am not screwing around wondering if I should enter or exit a trade. If it meets my rules and I have enough money to buy, I do. I have an exit and I just exit when I am supposed to without getting attached or convincing myself tomorrow will be different and it will rebound. After a trade is done, that is exactly what it is and I am on to the next. Thanks for teaching me this.

Also, if you want to know any of the trades I took and the profits or anything, just let me know.

See ya.

Stephen

Posted by Option Addict at 9:57 AM | Permalink | Comments

I was fairly excited that I had found a solution to my technical issues yesterday. Apparently not. I was on the phone with Webex last night for a half an hour and they didn't have any real bright ideas that I haven't already tried on my own. The e-mails and complaints are starting to filter in now since this has happened every week for about a month. I am in a real pinch here with stuff like this because it has effected attendance big time, and many think I am partially at fault. Anyway, thanks for letting me vent.

So here is the skinny on last nights presentation...

I spent some good time talking about the market. The technical set up in the indices, rising rates, rising VIX, Emerging Markets, etc.


I like to use the VIX as an option trading metric. As many of you know, when the VIX tops out I start talking crazy. I rationalize being an option seller. Yikes!

So after my market analysis, I talked about a new search feature on the toolbox. It is called Prophet Patterns, and is a very useful tool developed by Tim Knight and his staff quite some time ago. It used to be available as a premium tool, but now it has finally graced the toolbox (since competitors are now giving it away for free). Here are a couple photos I took for your viewing pleasure.


Some of you might not have access to it yet. I just started becoming available late last night. I tired to tell this to everyone, but I bet several calls have come in bitching about the fact that some don't have access to it yet. If possible, save those phone calls for later. I'm already in some heat as it is.

I think this tool will help traders learn to identify price patterns, target prices and time targets without any thinking. I think it can put a lot more trades on your radar than before, and that could be a good thing, right?

Anyway, before I go back to bed, take a look at last nights trade of the week...

Here is this weeks example of how one day does not make a trend & an example of patience paying off...




Here is one more I have been touting for months, great to see a move like this today...


Last but not least, they caught me on film after my technical issues on Mastertalk last night, Take a look...



Recommendation: It's therapeutic, you should try it!

Long: Teaching

Short: Anger Management, Webex and Mastertalk

Posted by Option Addict at 8:15 AM | Permalink | Comments

It's Wednesday, and if you've tuned into my blog long enough, you'll notice I am nowhere to be found during the day on Wednesday. Sorry I let the comments drag on forever without starting a new thread. I try to stay on top of it, but can only do so much.

I appreciate all of your suggestions. A lot of the suggestions made are things I am thinking through or have plans to modify.

I am teaching Mastertalk tonight, and I think the technology issue has been tinkered with. I am hoping I have a fix to the problems I have been having. BTW- if you have a topic of preference, let me know.

Check out a few of these charts to add to the watchlist. I might duplicate these in my session tonight, so be prepared.

Posted by Option Addict at 1:08 PM | Permalink | Comments

Posted by Option Addict at 8:53 AM | Permalink | Comments

What a great fathers day weekend it was! I love to get spoiled by my kids. I hope all of you had great weekends as well. Did anyone watch the US Open? I kept waiting for Tiger to make a put, or hit a fairway, but it never materialized. Oh well, can't win them all.

I also spent more time this weekend making some adjustments on the blog. There are more to come, so brace yourself. A few ads, a book store (my reading list) and various logos are just a few of the changes you'll notice. Don't be threatened, they won't impact your visits. Feel free to look around though if you'd like.

I am looking for a few ideas this week, so leave a suggestion if you have one. I have a deadline to meet this afternoon, but I should be back later in the day.


Recommendation: Find me the next US Steel please

Long: MLM and loving it

Short: Realty and airlines

Posted by Option Addict at 10:38 AM | Permalink | Comments

Did anyone watch the NBA finals? I mean, did anyone enjoy the NBA finals? I enjoy watching the Spurs operate. They are mechanical, unselfish, and think in terms of team goals. They don't approach the sport from an individual perspective.

Speaking of individual, can you imagine what this young guy must be going through? As a trader do you ever wear this look as you sit in front of your account? Thinking, what could I have done better? If only I... Shoulda... Woulda... Coulda.

If you are a fighter, you learn from these experiences, because you don't ever want to feel this way again. For a warrior, this is ammo to take you to the next level. I can't wait to see how he (LeBron) will grow from this experience, and hopefully make whatever changes are necessary to insure that he will never feel this way again.

On to the next topic....

I would have posted sooner, but I was having issues getting my video to post. I wanted to get something out there to talk about, and also wanted to follow up on SYNL from yesterday.

Speaking of SYNL, this was a very calculated example. A stock that isn't optionable, questionably over-extended, and something that obviously the market liked yesterday.

Here are the facts...

Since it is a stock trade, you don't necessarily want to treat this like an option. The stock has a good trend behind it, so rather that get in and out, perhaps you treat it more like an investment?

Based on the pattern the stock would have a $7 profit target over the next 7-8 weeks. REMEMBER, PRICE TARGETS SHOULD ALWAYS REPRESENT A MINIMUM. This price target should be forward projected from your resistance level, not projected from within the pattern. On SYNL, resistance would be at $41ish. Add on the $7 target and we are talking $48 as a minimum. With the stock at $44, and you are only factoring a move to $48, this means you are looking at a mere $4 move. That's not the problem, it is the risk to make that money. With support being at $41, this means you would have to risk $3 to the downside.

Survey says...

However, the reason I went with this example is to talk about setting targets. If you are going to hop into an uptrending stock, how do you really know when it will stop uptrending? If you had set short term targets on any of my longer term trend trades (X, MLM, PCAR, ETC :) the risk reward wouldn't have sounded so great at the start of these trades, and you might have missed out on some great opportunities.

If you treat SYNL as a strong trending stock without a top, the R/R could be a lot better than we are limiting it to.

Just a thought.

I have said it before, but don't focus too much on picking tops. Focus on managing your risk first. Let the gains run.

I am off to get started on the weekend. Well, after I record Marketcast of course. I hope you all enjoy the time away. It was a good week on the blog, keep it up!

Recommendation: Have a great weekend.

Long: Chicago (updates on the conference coming next week)

Short: Cleveland

Posted by Option Addict at 1:31 PM | Permalink | Comments

Posted by Option Addict at 1:29 PM | Permalink | Comments

Let's do another case study.

Check out the chart on SYNL. What do you see? Would you take this trade? If so, why?

I figured I would strike up a conversation since it seemed to have moved elsewhere.

Posted by Option Addict at 2:01 PM | Permalink | Comments

I get asked the question fairly often about what time of the day I trade. I think this is a good question, but I hate to see that all other traders use my answer as a blanket approach to determine when they trade, and not really understand the reason why. I want to cover this really quick, and then I will change the topic. I know I have answered this for the majority of folks that read, but this will give me the opportunity to have a link to forward to others when I am asked the question.

Posted by Option Addict at 9:29 AM | Permalink | Comments

I am hearing a buzz about adding or taking a new entry on X. It looks pretty low-risk to me... although that recent M&A activity has left the options over valued and under appreciated.

I drew a faint trendline to try and show the equilibrium for option premiums over the last year. This is why you see historical and implied volatility both pegged at 40%.

What does this mean? If the market continues to discount a potential merger, you could likely see a decrease in implied volatility. If you are going to be an option buyer, go easy on the vega.

Recommendation: Go X yourself.

Long: X, but a reduced position.

Short: vega

Posted by Option Addict at 2:09 PM | Permalink | Comments

Posted by Option Addict at 11:06 AM | Permalink | Comments

Guess how many e-mails I got today over this chart? Actually, I am not telling. To revisit the initial idea it was more of an intermediate term trade/investment with great downside potential. In fact, I had a price target of $28 by October.

News is a part of trading that is unpredictable. It can surface at any time and can leave a mark like it did to PAY today. If you want to protect yourself from this in the future, use a stop order. My line in the sand back when I discussed this trade was that if it closed above the $35 range, I would have no interest in the trade.

If you feel like you have been robbed of unrealized gains, go back to some of my posts about mentally booking unrealized gains and/or watching your account balances throughout the day. An unrealized gain is a form of emotion and doesn't really exist unless you take it. So my vote is to avoid watching it. Stay focused on your plan because it doesn't include watching prices fluctuate.

If you look objectively at this action, it is just a re-test! It is textbook!

Recommendation: It's just a trade. There are thousands of them ahead of you in the future.

Long: Puts on PAY. It will hit $28 by October...unless it doesn't.

Short: KIM...realty stocks are money.

Posted by Option Addict at 9:36 AM | Permalink | Comments

Posted by Option Addict at 12:35 PM | Permalink | Comments