Just realized I made $14.8k this morning

[mGrunin]

Thanks for clarifying, good that I didn't open a bigger position on this.
I will keep an eye on it tomorrow.
So they only hold no margin if the long leg is ITM or below the short leg?
I should read the books you suggested before doing bigger trades

No margin is held as as long as the long leg is closer ITM/ATM than the short leg. The easiest way to look at this is:

Long Cost > Short Cost : No margin.
Long Cost < Short Cost: Yes margin.

To figure out the margin:

Take the difference between the two strike prices. Multiply that by 100. Then multiply that by the amount of contracts you are opening the position for.

 

[ameyer]

No margin is held as as long as the long leg is closer ITM/ATM than the short leg. The easiest way to look at this is:

Long Cost > Short Cost : No margin.
Long Cost < Short Cost: Yes margin.

To figure out the margin:

Take the difference between the two strike prices. Multiply that by 100. Then multiply that by the amount of contracts you are opening the position for.

That was very helpful, thanks!
So probably I would not have been able to open a much bigger position anyway.

 

[mGrunin]

Ameyer, today was a perfect example of how selling a naked position can have you go broke. Before you were questioning what were the chances of Apple moving up 5% in a single day? Well..today AAPL moved a whole 7.21%.

Let's see the actual numbers. If you decided to sell the $560 calls on Friday, for a $1.43 premium. Well today they would be worth $11.25.

So in other words, if you sold off $10,000 of calls on Friday, then today you would be owing $100,000+ and the brokerage would call in your position, so they'd force you to close it today and pay the loss.

 

[mGrunin]

Since Apple caught my interest today, going to dedicate a post to it. Let's take a look at it's movement for the last 4 months:

Here we go. So the red line is the 50 SMA, and the blue line is the 100 SMA. If we look at the arrow labeled (Death Cross), you'll see the 100 SMA crossing the 50 SMA; that's never a good thing, which you can tell by the name of it. Soon as we see that happen Apple started tumbling down even quicker.

We can also see how on two instances the stock was not able to successfully break through the 50 SMA. This can be seen with the two locations I circled. It's obviously a resistance level. Well today seemed to have changed that. The 7% gap up pushed us $10 above the 50 SMA; nice.

So what should you make out from this? It's coming close to an attractive trade. The smart thing to do is not touch it until it surpasses the 100 SMA at the 590 level. Even better if the two SMA cross each other again; then that's a big buying indicator.

Putting together what happened today, expect a big movement tomorrow. If the markets open up weak and AAPL is a bit down, then it's going to attempt to fade a good deal of today's gain. If on the other hand it opens up, then we can very well see a 3-4% move up for Apple as more shorts are squeezed and buying panic resumes.

 

[extor]

One thing I don't understand is how the little guy still manages to make anything by speculating in 2012 when Goldmann Sachs supposedly has their HAL 9000 50 petaflop brain playing around with a trillion dollars in funny money.

Wall Street's secret advantage: High-speed trading - The Week

If you made $1,000 today then why didn't someone or something more astute pre-empt that opportunity away from you by getting ahead of you in the waiting list for that transaction, driving it's potential profitability to null before YOU had a chance to get on board the gravy train?



tl;dr how is it that noobs are allowed to score so well in this zero sum game?

 

[ameyer]

One thing I don't understand is how the little guy still manages to make anything by speculating in 2012 when Goldmann Sachs supposedly has their HAL 9000 50 petaflop brain playing around with a trillion dollars in funny money.

Wall Street's secret advantage: High-speed trading - The Week

If you made $1,000 today then why didn't someone or something more astute pre-empt that opportunity away from you by getting ahead of you in the waiting list for that transaction, driving it's potential profitability to null before YOU had a chance to get on board the gravy train?

tl;dr how is it that noobs are allowed to score so well in this zero sum game?

I think you cannot drive profitability to null on both/all sides.
I've heard that this high speed trading is causing bigger margins for people like me. I think their main thing is doing arbitrage between exchanges, so another side effect might be that prices of the same shares between various exchanges are quite similar.

 

[ameyer]

Thanks for your AAPL insight mGrunin.
How did your last weeks trades turn out by the way?

I burned my finger a little last week
But fortunately I didn't sell AAPL put options yesterday

On Friday AAPL was trading very low until noon. My positions turned very nice (I sold at 550 puts and AAPL was between 510 to 520).
However then I became very greedy and very stupid
I started selling some 525 puts, and at 11:30 AAPL started a huge rally.
I lost around $9k
(I learned a lesson and I'm happy because it could have turned out much worse!)

 

[mGrunin]

My last week's trade on those spreads didn't work out that well. GDX moved 7%+ down and LNKD moved up about 5%. I took losses of 10-20% on my positions. It's all good, they are just being setup for testing so the losses are minimum at couple hundred dollars a position.

Yep, that happens. Greed is the biggest culprit in this industry when it comes to losing positions. In just two of my biggest instances greed was responsible for about $200,000 in losses. Sometimes you wait too long, and you keep waiting..and waiting..and then things go the other direction and you still don't want to sell out.

So I posted this earlier elsewhere:

I was looking to see AAPL break out of those ranges before opening a position. It broke out on the downside, going below $558. I purchased just $2,000 in contracts at $557 and then sold out of them when the stock was at $554. That came out to a $200 gain - 10%. These were BTO December 12 call options, opened and closed within 30 minutes. I stuck to small numbers during this trade because the trade occurred during my college class, so I didn't feel comfortable executing a substantial trade when I have no guarantee that I can keep an eye on the chart every minute. This is actually a reason why I got burned pretty badly back in September.

 

[ameyer]

shit! that's some serious losses.
not having an eye on it was also part of the reason why I lost last week.

btw, I read in another thread that you quit any IM activities, may I ask why?
Is trading your main earning source now?

sorry to hear that your last weeks trades didn't work out.
as I said I didn't participate, but if you have new suggestions I will take a look!

 

[cassius]

Since Apple caught my interest today, going to dedicate a post to it. Let's take a look at it's movement for the last 4 months:

Here we go. So the red line is the 50 SMA, and the blue line is the 100 SMA. If we look at the arrow labeled (Death Cross), you'll see the 100 SMA crossing the 50 SMA; that's never a good thing, which you can tell by the name of it. Soon as we see that happen Apple started tumbling down even quicker.

We can also see how on two instances the stock was not able to successfully break through the 50 SMA. This can be seen with the two locations I circled. It's obviously a resistance level. Well today seemed to have changed that. The 7% gap up pushed us $10 above the 50 SMA; nice.

So what should you make out from this? It's coming close to an attractive trade. The smart thing to do is not touch it until it surpasses the 100 SMA at the 590 level. Even better if the two SMA cross each other again; then that's a big buying indicator.

Putting together what happened today, expect a big movement tomorrow. If the markets open up weak and AAPL is a bit down, then it's going to attempt to fade a good deal of today's gain. If on the other hand it opens up, then we can very well see a 3-4% move up for Apple as more shorts are squeezed and buying panic resumes.

Be careful counting on the golden cross as a strong bullish TI. It's a saturated and overvalued indicator in big emotional plays like AAPL. As for your losses in your last post, "plan the trade and trade the plan." You can always see the trade more clearly before you're holding.

 

[ameyer]

Be careful counting on the golden cross as a strong bullish TI. It's a saturated and overvalued indicator in big emotional plays like AAPL. As for your losses in your last post, "plan the trade and trade the plan." You can always see the trade more clearly before you're holding.

Wouldn't it be possible to come up with a pattern recognition software that detects all those technical indicators?
It would be interesting to run such software on historical data and to look at the results.
But I guess it's too simple to be true

 

[cardine]

Wouldn't it be possible to come up with a pattern recognition software that detects all those technical indicators?
It would be interesting to run such software on historical data and to look at the results.
But I guess it's too simple to be true

If it were that simple, GS would have it, and be doing huge trading based off those indicators and they would no longer hold true because the correction would happen almost instantly.

I've sat down with friends of mine who are big traders ($1bn trades) and that is always where the conversation goes when we talk about purely technical trading.

You need more than just technical indicators, the market isn't that simplistic. You are grossly overfitting data when relying on technical indicators like that.

 

[cassius]

Wouldn't it be possible to come up with a pattern recognition software that detects all those technical indicators?
It would be interesting to run such software on historical data and to look at the results.
But I guess it's too simple to be true

Technical analysis is useful for recognizing probabilities, potential magnitude of change, support/resistance and sometimes exposing possible fundamental issues that aren't available or obvious in the filings. TA is particularly useful in intraday trades. What are typically considered bullish indicators can sometimes indicate a coming bearish trend as well. You have to interpret the indicators along with the fundamentals and social sentiment. Usually you see automated trading running algorithms that use huge trade volume with tiny spreads because these types of trades are less likely to be heavily influenced by sentiment and emotion. Social, legislative and industry indicators are better for predicting future price direction over multi-day and longer periods while TA will aid in predicting the magnitude and likelihood of those changes. Different strokes for different folks though, there are a million ways to trade and I've seen many different strategies prove successful. In regard to automated trading, as machine trading becomes more common and volume-heavy, especially with the big funds in NYC and Chicago, technical indicators' values will change and gaming the system mathematically will become more valuable for traders. We saw evidence of this during the May 6, 2010 flash crash.

Look into the reflexivity of technical analysis and you'll see there are trends within the trends. As reliance on a given indicator changes throughout the market, the value of that indicator is altered.

Sorry if this post is a little jumbled, I'm typing on my Galaxy and it's hard to properly organize my thoughts.

 

[mGrunin]

Technical analysis is useful for recognizing probabilities, potential magnitude of change, support/resistance and sometimes exposing possible fundamental issues that aren't available or obvious in the filings. TA is particularly useful in intraday trades. What are typically considered bullish indicators can sometimes indicate a coming bearish trend as well. You have to interpret the indicators along with the fundamentals and social sentiment. Usually you see automated trading running algorithms that use huge trade volume with tiny spreads because these types of trades are less likely to be heavily influenced by sentiment and emotion. Social, legislative and industry indicators are better for predicting future price direction over multi-day and longer periods while TA will aid in predicting the magnitude and likelihood of those changes. Different strokes for different folks though, there are a million ways to trade and I've seen many different strategies prove successful. In regard to automated trading, as machine trading becomes more common and volume-heavy, especially with the big funds in NYC and Chicago, technical indicators' values will change and gaming the system mathematically will become more valuable for traders. We saw evidence of this during the May 6, 2010 flash crash.

Look into the reflexivity of technical analysis and you'll see there are trends within the trends. As reliance on a given indicator changes throughout the market, the value of that indicator is altered.

Sorry if this post is a little jumbled, I'm typing on my Galaxy and it's hard to properly organize my thoughts.

Great post to sum it up. Like you said, there are countless different strategies that can prove successful. Since I basically daytrade and want to get in and out of a trade the same day, the biggest thing I look at is technicals. The last thing I probably look at are fundamentals for intraday trades. Lots of big money has their systems set to buy or sell at X levels, figuring out those levels and making plays off them is a good way to go about it.

Regarding your earlier post on the golden cross, yea it probably shouldn't have too much weight placed on it but it's still a very worthy indicator to look at. The last golden cross Apple had was August 13th after a week of consolidation, right after the cross it shot up $45 in 6 trading days. If I see Apple climbing up, and gets back over the 100 SMA WITH increased volume, it will be looking as a good trade for me. I previously held Apple from $575 to $660 in August with calls and did very well. We also all know that at this level Apple's fundamentals are well worth the stock heading back up.

 

[mGrunin]

Good look of the crosses working out textbook style on AMZN:

The needle that was seen last week on the 15th was a a slight bullish indicator as well.

 

[cassius]

If it were that simple, GS would have it, and be doing huge trading based off those indicators and they would no longer hold true because the correction would happen almost instantly.

I've sat down with friends of mine who are big traders ($1bn trades) and that is always where the conversation goes when we talk about purely technical trading.

You need more than just technical indicators, the market isn't that simplistic. You are grossly overfitting data when relying on technical indicators like that.

Actually, GS and many others are heavily reliant on automated trading systems based solely on technicals and momentum. In fact, high-frequency algorithmic trading accounts for a large majority of all equity traded on both the NYSE and NASDAQ. Often times their servers are located at the exchanges themselves and make trades faster than you or I could even access the current PPS. Look into the 2010 flash crash I mentioned earlier. Although, it's important to realize that these trades are not swing trades, but the small spread, high-frequency trades in massive volume I mentioned earlier. Think scalping at incredible speeds.

 

[cassius]

Regarding your earlier post on the golden cross, yea it probably shouldn't have too much weight placed on it but it's still a very worthy indicator to look at. The last golden cross Apple had was August 13th after a week of consolidation, right after the cross it shot up $45 in 6 trading days. If I see Apple climbing up, and gets back over the 100 SMA WITH increased volume, it will be looking as a good trade for me. I previously held Apple from $575 to $660 in August with calls and did very well. We also all know that at this level Apple's fundamentals are well worth the stock heading back up.

Fair enough. My post was less for you and more for those learning from this discussion. I was not suggesting that SMA crosses are not valuable, rather that they're not an end-all indicator. Some people get too caught up in moving averages and blind themselves to other valuable indicators.

 

[mGrunin]

Actually, GS and many others are heavily reliant on automated trading systems based solely on technicals and momentum. In fact, high-frequency algorithmic trading accounts for a large majority of all equity traded on both the NYSE and NASDAQ. Often times their servers are located at the exchanges themselves and make trades faster than you or I could even access the current PPS. Look into the 2010 flash crash I mentioned earlier. Although, it's important to realize that these trades are not swing trades, but the small spread, high-frequency trades in massive volume I mentioned earlier. Think scalping at incredible speeds.

Was just looking for an article that spoke about automated trading systems. Things to pick up from it Cardine is that all the majority of the action in the market is done by machines. Companies would pay exchanges a monthly fee just as cassius said to place their servers right next to them so they receive the information quicker. It was said that every 10 millseconds that they are able to receive information quicker is worth over $50m a year.

 

[cassius]

Yep. Some of the Chicago-based firms were even in talks to mow down some hills and forests so they could get direct lines to the exchanges to transmit radio data. The fraction of a second they lose by going Chicago>satellite/tower>NYC makes them less competitive. It makes you wonder what could happen if someone figured out how to game one of the major algos or gained access to one of the automated trading desks at the exchanges.

 

[mGrunin]

Some things that have changed since this thread was last bumped. First of all, hoped that none of you opened those FB puts that you were planning to considering that Facebook had a 8% move up today.

Apple is still trucking forward. Buying is returning and analysts are coming forth everyday reiterating buy here and there. On the 1hr chart the golden cross is about to happen: