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Locked: What did you buy? What might you buy??

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red_skittles wrote: How do you quantify the chance of a successful trade based on the formation of a pattern? Aren't things like implied volatility and "the greeks" based on Black-Sholes formula which is just a theoretical model of option pricing?
Classical patterns have an expected resolution more often than not, so higher odds on a given side. Plus standard deviation combined with resistance / support from TA gives you a quantifiable probability. That's enough info to buy / short a stock. Options just increase leverage. The IV and greeks are just options tools to confirm specific ranges since you have the option to profit on anything but that amount, where a stock must go up if i'm long or must go down if i'm short.

The probabilities / higher odds are determined on how classical patterns resolve, regardless if stocks or options are used.

Rod
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BTW, I understand the controversy on this topic, since a pattern X expects price to go up (or down) and that implies predicing the future, which is not possible.

However, based on statistical data, these patterns resolved more often on one side than another, making it expected and reliable.

If you want speicifics, there is a white-paper published in 2000 by Dr. Andrew W. Lo, director of MIT Laboratory for Finance Engineering, where he proposes a systematic and automatic approach to technical pattern recognition using nonparametric kernel regression, and apply this method to a large number of U.S. stocks from 1962 to 1996 to evaluate the effectiveness of technical analysis. He concludes that that over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value. The paper is called Foundation of Technical Analysis: Computational Algorithms, Statistical Inference and Emperical Implementation, published on Journal of Finance (http://www.nber.org/papers/w7613).

Rod
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Why would anyone ever take the lower probability end of an options trade? Maybe there are a lot of inexperienced traders playing with options but I would think based on the analysis required that institutional traders would dominate the options market. Wouldn't the end result be a majority of players taking the high probability end of trade? How do you profit?
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red_skittles wrote: Why would anyone ever take the lower probability end of an options trade? Maybe there are a lot of inexperienced traders playing with options but I would think based on the analysis required that institutional traders would dominate the options market. Wouldn't the end result be a majority of players taking the high probability end of trade? How do you profit?
There's a strategy for every situation.
Probability is always related to hitting that price by expiration day. If I'm selling calls or puts and it has a low probability of hitting that price (making the trade itself with high probability of success), then it means it's very likely to be profitable. The downside is that my profit is low and there's a big risk if it goes wrong (although unlikely). On the other hand, if I'm selling calls or puts and it has a high probability of hitting that price (making the trade itself with low probability with success), then it means it's unlikely / risky to be profitable, but my risk is lower comparatively and my profits are huge if it works. It all depends what one is looking for - higher risks, higher returns. Also, there are times that it's worth to place such a risky trade - if VIX just spiked up in a bull market, it's very likely to retreat next day, bringing volatility low and therefore, higher profits if one wants to cover to exit. This can even be used for investments - One can sell LEAP puts to buy a stock at a lower price, and if the stock never hits your low price, you got some income from the premium. Combinations with LEAP calls selling weekly options also are good to generate income on trades with low probability.

Just look at how many Open Interest a high liquid stock has with its options and you'll see all kinds of prices and probabilities that one can trade. It's a matter to choose the strategy and risk that suits the person accordingly.

Rod
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sunshinemoonlight13 wrote: Can you post charts or screenshots for your technical analysis work?
You can see the chart that I used for my analysis at http://img545.imageshack.us/img545/5951/sccs.jpg.

The red line is EMA(200), so since Gold is trading below that line, it's in a long term bear market.

The purple line is the descending wedge, which is classically expected to resolve up. However, I wouldn't be surprised if that doesn't happen, because in a bear market, bear rules apply. Expectations is that it will keep going lower. We had recently a mini-rally in a bear market for Gold from July to September, so it might happen again, and the descending wedge might be spark to ignite such formation. That's why I'm waiting - short term wants to resolve up, long term wants to resolve down, I don't like these conflicts, so I wait to see which one materializes. By materializing I mean price breaking out of the up purple line or breaking down of the down purple line. Staying within the range means we have to wait longer.

The dashed green line shows August's low which were expected to hit. We hit them already.

The dashed orange line is the next support that I expect to hit from a long term perspective (June's low). That would be likely to happen if the this bullish formation (descending wedge) doesn't materialize.

Rod
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The more important question is: What is your gain over the years?

How come no TA is willing to conduct their trades and show how much money they made?
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techcrium wrote: The more important question is: What is your gain over the years?
My total portfolio is $435K today. From that, $335K is from investments (long term), and around $100K is allocated for trading. I've been cashing profits every month to spend, unless my trading portfolio drops to $90K, then I'll wait until it's over $100K again. I do 4 types of tradings, so I allocate around $25K for each type of trade. I changed jobs in July, so I'm only using 2 types, rest is in cash since July. With the new job, I'll switch to 3 types only, putting $50K on 1 type and $25K on each type remaining. The Gold trading is the momentum / directional type of trade, and I allocate $5K to $10K per trade (I might use other securities / indexes, $5K to $10K at the time, and no more than $25K on it). YTD, the whole trading portfolio is up 17% (I had $100K in January, I have $100K now and I withdrew $17K so far). Some years are better or worse than others. This is a never-ending learning experience. 2008 was my best year. 2010 was the worst one, with losses. I'm not using the same strategies from those years, and being busy with work, I'm likely to do less trading (except the one that I'll have bigger weight, where the "research" is automated).
techcrium wrote: How come no TA is willing to conduct their trades and show how much money they made?
Sorry, I didn't understand this question. I've posted some of my entries, most recent ones are XIV and GLD. I posted some of the pre-earnings and post-earnings trades I did as well. I mentioned in a previous post that I'll be more diligent to post every entry and exit, if someone cares about the logic / progress. By "willing to conduct their trades and show how much money they made" do you mean post entries / exits / profit or loss so that one can follow their performance?

Rod
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rodbarc wrote: There's a strategy for every situation.
Probability is always related to hitting that price by expiration day. If I'm selling calls or puts and it has a low probability of hitting that price (making the trade itself with high probability of success), then it means it's very likely to be profitable. The downside is that my profit is low and there's a big risk if it goes wrong (although unlikely). On the other hand, if I'm selling calls or puts and it has a high probability of hitting that price (making the trade itself with low probability with success), then it means it's unlikely / risky to be profitable, but my risk is lower comparatively and my profits are huge if it works. It all depends what one is looking for - higher risks, higher returns. Also, there are times that it's worth to place such a risky trade - if VIX just spiked up in a bull market, it's very likely to retreat next day, bringing volatility low and therefore, higher profits if one wants to cover to exit. This can even be used for investments - One can sell LEAP puts to buy a stock at a lower price, and if the stock never hits your low price, you got some income from the premium. Combinations with LEAP calls selling weekly options also are good to generate income on trades with low probability.

Just look at how many Open Interest a high liquid stock has with its options and you'll see all kinds of prices and probabilities that one can trade. It's a matter to choose the strategy and risk that suits the person accordingly.

Rod
I guess what I'm trying to get at is that in every options trade for you to make money there has to be someone on the other side of the trade losing money. You are saying there are certain indicators that suggest a certain outcome is more or less probable than another. If this is known to you it must be known to others and it must be known by institutional traders. How can there be money to be made if everyone in the market knows what the probable end of the trade is?
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red_skittles wrote: I guess what I'm trying to get at is that in every options trade for you to make money there has to be someone on the other side of the trade losing money. You are saying there are certain indicators that suggest a certain outcome is more or less probable than another. If this is known to you it must be known to others and it must be known by institutional traders. How can there be money to be made if everyone in the market knows what the probable end of the trade is?
Sorry, I think we're mixing apples and oranges here.
Speaking of TA only (so forget options). These have well known patterns and expectation to go one direction or another. You can buy (or short) stocks based on what the expectation of those patterns. However, if using stocks, you must be right on the direction - it has to go up if you are long or it has to go down if you are short. Options allow you to profit if they go up, stay flat, or go down (with certain limits). Then you can use the expectations of TA signals to tailor the trade.

There are several ways of doing it. For example, let's say GLD is at $122 today. If GLD in short term is expected to go up (because of the descending wedge), I could sell a monthly $120 puts to profit from the premium. After all, the expectation is for the price to go higher by the time it expires next month. Greeks can help to quantify that probability today (it will change tomorrow as the price moves), but the choice is based on the technical analysis that suggests a bullish bias. As long as GLD closes about $120 when it expires, it doesn't matter where, I profit. It could go down around 2%, it could stay flat or it could go up. Now if I want to be more conservative, I could sell the $115 put, since there's a chance that it might not resolve up (due to the long term picture), but $115 is a major resistance. Higher odds for me to profit (therefore, premium and profit is lower), now it can go up anywhere or stay sideways or go down over 4% to be profitable. Well, if I sell these puts at these prices, it means someone will buy it. They would buy for 2 reasons: they are already long on GLD and they want to hedge, or they are bearish on GLD and simply want to bet on the ride down with the least possible amount of capital (1 option contract is cheaper than buy 100 shares). No necessarily they lose.

One has to buy for me being able to sell and vice-versa. Not always that means one side losing money. There are several examples:

- When I sell covered calls I have the obligation to sell the stock at a given strike price. If it expires ITM, it means I`ll sell them lower than the market price. I`m ok with that because my cost is lower than that, and I`m happy with the premium paid for the uncertainty of being able to sell the shares. The other side will certainly be happy to get the shares cheaper than market price. No one loses.

- When I sell puts, I have the obligation to buy the shares at a given strike price. If it expires OTM, I got the premium for free. If it expires ITM, it means I`ll buy them higher than the market price. I`m ok with that because that`s the price that I wanted to buy to invest or do a short term trade (I do that all the time with stocks that pay dividends higher than interest rate; keep selling puts to collect premium; if they tank and you are forced to buy, use the dividends to pay the interest from borrowing it; sell covered calls to collect extra premium (strike price higher than your cost); keep collecting dividends until you sell the stocks once you have enough profit; it cost you nothing to do this, and you got free money. No one loses.

- When I buy puts, I`m hedging. That`s the price of insurance to be exposed to the market and cap your losses. Another way to get free money with practically zero risk is to do the dividend collar trade on a high yield dividend paying stock. You basically buy 100 shares before the ex-dividend date, sell a call and buy a put (usually the premium for the call pays for most of the premium for the put), so your hedge is free. That allows you to collect the dividend for free and sell the stocks at same or higher price that you paid for, while the free hedge protects against losses. There`s a book on Amazon covering that strategy alone.

My point is that instead of saying "for every winner there`s a loser", I rather see it as "for every buyer there`s a seller". Sure, sometimes that means one losing for the other one to win, but the examples above shows that's not always the case.

Rod
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rodbarc wrote: Sorry, I think we're mixing apples and oranges here.
Speaking of TA only (so forget options). These have well known patterns and expectation to go one direction or another. You can buy (or short) stocks based on what the expectation of those patterns. However, if using stocks, you must be right on the direction - it has to go up if you are long or it has to go down if you are short. Options allow you to profit if they go up, stay flat, or go down (with certain limits). Then you can use the expectations of TA signals to tailor the trade.

There are several ways of doing it. For example, let's say GLD is at $122 today. If GLD in short term is expected to go up (because of the descending wedge), I could sell a monthly $120 puts to profit from the premium. After all, the expectation is for the price to go higher by the time it expires next month. Greeks can help to quantify that probability today (it will change tomorrow as the price moves), but the choice is based on the technical analysis that suggests a bullish bias. As long as GLD closes about $120 when it expires, it doesn't matter where, I profit. It could go down around 2%, it could stay flat or it could go up. Now if I want to be more conservative, I could sell the $115 put, since there's a chance that it might not resolve up (due to the long term picture), but $115 is a major resistance. Higher odds for me to profit (therefore, premium and profit is lower), now it can go up anywhere or stay sideways or go down over 4% to be profitable. Well, if I sell these puts at these prices, it means someone will buy it. They would buy for 2 reasons: they are already long on GLD and they want to hedge, or they are bearish on GLD and simply want to bet on the ride down with the least possible amount of capital (1 option contract is cheaper than buy 100 shares). No necessarily they lose.

One has to buy for me being able to sell and vice-versa. Not always that means one side losing money. There are several examples:

- When I sell covered calls I have the obligation to sell the stock at a given strike price. If it expires ITM, it means I`ll sell them lower than the market price. I`m ok with that because my cost is lower than that, and I`m happy with the premium paid for the uncertainty of being able to sell the shares. The other side will certainly be happy to get the shares cheaper than market price. No one loses.

- When I sell puts, I have the obligation to buy the shares at a given strike price. If it expires OTM, I got the premium for free. If it expires ITM, it means I`ll buy them higher than the market price. I`m ok with that because that`s the price that I wanted to buy to invest or do a short term trade (I do that all the time with stocks that pay dividends higher than interest rate; keep selling puts to collect premium; if they tank and you are forced to buy, use the dividends to pay the interest from borrowing it; sell covered calls to collect extra premium (strike price higher than your cost); keep collecting dividends until you sell the stocks once you have enough profit; it cost you nothing to do this, and you got free money. No one loses.

- When I buy puts, I`m hedging. That`s the price of insurance to be exposed to the market and cap your losses. Another way to get free money with practically zero risk is to do the dividend collar trade on a high yield dividend paying stock. You basically buy 100 shares before the ex-dividend date, sell a call and buy a put (usually the premium for the call pays for most of the premium for the put), so your hedge is free. That allows you to collect the dividend for free and sell the stocks at same or higher price that you paid for, while the free hedge protects against losses. There`s a book on Amazon covering that strategy alone.

My point is that instead of saying "for every winner there`s a loser", I rather see it as "for every buyer there`s a seller". Sure, sometimes that means one losing for the other one to win, but the examples above shows that's not always the case.

Rod
Very informative, takes a few read for non like minded individuals like myself to digest and try to wrap around the various options position(s) one may take. I've dabbed into stocks and options, but don't enter more than two positions at a time, especially options as they are very time sensitive. I'm comfortable with high risk low cap, but am looking into relatively stable dividend paying large cap stocks (financials/oil and gas).

Watching a few stocks almost daily for a year, one really gets a feel of what represents a routine price movement for a particular stock. Seeing my stock make 100% gains in a matter of 2-3 month span really makes me want to sell and sit on the sidelines til things settle down. I contemplate doing that versus buying short term insurance (puts). Either move, if and when I am wrong and it continues its upward trend, means I will have minimized/reduced/missed out on those gains. But when I look at the charts and see a very steep incline, feel when it jumps hard, it can just as likely fall just as hard and as fast. Momentum can go one way one day, and be sold off hard the next day. I don't know technicals, I just follow my gut feeling (yes I know how that sounds).
"i love my girl friend and my girl friend loves me ok so you cant love me"
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rodbarc wrote: My total portfolio is $435K today. From that, $335K is from investments (long term), and around $100K is allocated for trading. I've been cashing profits every month to spend, unless my trading portfolio drops to $90K, then I'll wait until it's over $100K again. I do 4 types of tradings, so I allocate around $25K for each type of trade. I changed jobs in July, so I'm only using 2 types, rest is in cash since July. With the new job, I'll switch to 3 types only, putting $50K on 1 type and $25K on each type remaining. The Gold trading is the momentum / directional type of trade, and I allocate $5K to $10K per trade (I might use other securities / indexes, $5K to $10K at the time, and no more than $25K on it). YTD, the whole trading portfolio is up 17% (I had $100K in January, I have $100K now and I withdrew $17K so far). Some years are better or worse than others. This is a never-ending learning experience. 2008 was my best year. 2010 was the worst one, with losses. I'm not using the same strategies from those years, and being busy with work, I'm likely to do less trading (except the one that I'll have bigger weight, where the "research" is automated).

Sorry, I didn't understand this question. I've posted some of my entries, most recent ones are XIV and GLD. I posted some of the pre-earnings and post-earnings trades I did as well. I mentioned in a previous post that I'll be more diligent to post every entry and exit, if someone cares about the logic / progress. By "willing to conduct their trades and show how much money they made" do you mean post entries / exits / profit or loss so that one can follow their performance?

Rod
yup.

and proof of entry + exit. Most of the time TA traders look at the past and say, hey, that was a great entry point and exit point for a XYZ profit. which is pretty useless if you ask me.
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techcrium wrote: yup.

and proof of entry + exit. Most of the time TA traders look at the past and say, hey, that was a great entry point and exit point for a XYZ profit. which is pretty useless if you ask me.
I think they post when they remember or it is convinient when talking a subject. One needs to remember that after placing a trade, come here and post. Same when close it. Not sure how many care either. I'm posting on this thread, although it's kind of been highjacked lately by answering these questions (apologies). Dlhunter also created a thread for post earnings play, where he's been posting and I plan the same when I trade those.

BTW, I hope that by proof you mean posting the trade right after you got it, before having it closed, as a text here. If you are talking about screen shots for audit proof, then it really adds up work (I can't do it on my phone, where I trade, too cumbersome, and I can't upload pictures where I work, plus you need to cover sensitive info like account number, full name, etc). Plus it adds little - I think the real value is posting "trade X because of this logic, entered at Y". When one closes it, "exited at Z".

Not sure if that helps?

Rod
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rodbarc wrote: You can see the chart that I used for my analysis at http://img545.imageshack.us/img545/5951/sccs.jpg.

The red line is EMA(200), so since Gold is trading below that line, it's in a long term bear market.

The purple line is the descending wedge, which is classically expected to resolve up. However, I wouldn't be surprised if that doesn't happen, because in a bear market, bear rules apply. Expectations is that it will keep going lower. We had recently a mini-rally in a bear market for Gold from July to September, so it might happen again, and the descending wedge might be spark to ignite such formation. That's why I'm waiting - short term wants to resolve up, long term wants to resolve down, I don't like these conflicts, so I wait to see which one materializes. By materializing I mean price breaking out of the up purple line or breaking down of the down purple line. Staying within the range means we have to wait longer.

The dashed green line shows August's low which were expected to hit. We hit them already.

The dashed orange line is the next support that I expect to hit from a long term perspective (June's low). That would be likely to happen if the this bullish formation (descending wedge) doesn't materialize.

Rod
Looks good. Thanks.
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I don't know squat about this kinda stuff, but UBI.PA is looking appealing after that 20% drop.

Watch Dogs was delayed, stock plummeted and I assume when the new Assassin's Creed and Watch Dogs comes out the stock will recover for an easy 20% profit?

I'm with TD, can I easily open up an investment account and throw money at this?
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Anyone buying IBM?
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cessnabmw wrote: Anyone buying IBM?
i did buy 1k$ worth of shares
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FiNaL WaR wrote: i did buy 1k$ worth of shares
on the dip today?


I took a flier earlier this year on RKN (red knee solutions) a small canadian company after i read an article on it by chris umiastowski (sp). It's been great to me so far. In terms of % returns on individual stocks, it was my best bet this year.
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ItechJester wrote: on the dip today?
yes @ 175$
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cessnabmw wrote: Anyone buying IBM?
CGI Group Inc (GIB) is a much better value in IT Services. Add Constellation Software Inc. (CSU) and The Ultimate Software Group, Inc. (ULTI) to watch as well.

Xerox (XRX) is also looking like a good turnaround by moving into the services industry
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rodbarc wrote: You can see the chart that I used for my analysis at http://img545.imageshack.us/img545/5951/sccs.jpg.

The red line is EMA(200), so since Gold is trading below that line, it's in a long term bear market.

The purple line is the descending wedge, which is classically expected to resolve up. However, I wouldn't be surprised if that doesn't happen, because in a bear market, bear rules apply. Expectations is that it will keep going lower. We had recently a mini-rally in a bear market for Gold from July to September, so it might happen again, and the descending wedge might be spark to ignite such formation. That's why I'm waiting - short term wants to resolve up, long term wants to resolve down, I don't like these conflicts, so I wait to see which one materializes. By materializing I mean price breaking out of the up purple line or breaking down of the down purple line. Staying within the range means we have to wait longer.

The dashed green line shows August's low which were expected to hit. We hit them already.

The dashed orange line is the next support that I expect to hit from a long term perspective (June's low). That would be likely to happen if the this bullish formation (descending wedge) doesn't materialize.

Rod
Gold broke out today from the descending wedge, which was the short term expectation. Now the question is if it will sustain it (to initiate another rally) or if the long term bear market in Gold will prevail. I'll wait EMA(20) to cross up EMA(50). If that happens, I'll be buying LEAP calls. If that doesn't happen, I'll continue to wait for the next pattern.

Rod

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