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A Look at Patterns Preceding Trends

John Seguin, Market Taker Mentoring

One of the most common pre-trend setups requires monitoring time at price. The more time spent at price, the more volume accumulates, subsequently a fair price and fair value area take shape. In markets, momentum is recognized as a vertical move away from fair value. Uptrends begin with positive momentum and downtrends start with negative momentum.

Powerful moves often occur after a market has gone through a period of choppy trendless trade. Think of it as the time it takes to build up energy for the big race. When pent-up energy is released the move is often one-directional and rapid. [more]

Using Delta to Help a Credit Spread

John Kmiecik, Market Taker Mentoring

When you think about selling a vertical credit spread as an option trader, probably the first thing you think of is positive theta. Of course that is a very important aspect to a potential profit. But there is another Greek that can get you to your profit destination quicker than even theta sometimes and that is delta.

There are two types of vertical credit spreads: put and call. Selling a call credit spread, an option trader believes the stock will stay below a certain area like resistance for maximum profit. Trade is initiated by selling a call and buying a higher strike call with the same expiration. A put credit spread is created by selling a put and buying a lower strike put with the same expiration. The option [more]

A Look at Short-Term Sniping

John Seguin, Market Taker Mentoring

During my years at the Chicago Board of Trade, I had many friends who were short-term or day traders, also known as “locals,” in the trading pit. The locals provided liquidity to brokers who were filling orders for institutional traders and fund managers. The reward for providing liquidity was that locals were given the edge. Getting an edge meant you sold the offer side or bought the bid side of the market.

Institutional traders typically executed large orders and held positions to ride trends. Locals, on the other hand, traded for one or two ticks many times during the session. They usually traded large quantities for small profits and losses. An institutional trader might do [more]

A Simple Lesson on Vega Exposure

John Kmiecik, Market Taker Mentoring

As an option trader, implied volatility (IV) can be a big influence on your option trades. IV is used to determine the current price of option contracts together with other factors like time to expiration and the strike price. Keeping it simple, when IV rises, so do option prices, and when IV falls, so do option prices.

IV generally increases when the market is bearish and decreases when the market is bullish. Long options, both call and puts, have positive vega. Vega changes the option premium for every 1% IV changes. If IV rises, so do call and put premiums and vice versa. So, when an option is bought, an option trader prefers IV to increase. The option premium increases, which could lead to a profit to [more]

Fed’s Reaction to Tariffs Pivotal

John Seguin, Market Taker Mentoring

News travels fast and markets react just as quickly because access to the financial futures markets is virtually uninterrupted from Sunday night to Friday afternoon. In our Monday morning meeting we review event risk for the coming week. We examine scenarios depending on data that are bullish, bearish or neutral. There is an emphasis on economic reports that typically affect interest rate policy. Interest rates are the engine for the economy. The Fed raises interest rates to tame an overheated or inflated economy. And they lower rates to encourage spending and lending.

For years the monthly employment report was the main market mover. Recently, price components in many of the regular monthly reports are in vogue. Prices for goods and services are scrutinized more than job data lately. Producer and consumer prices are [more]

Using Collars to Protect Gains

John Kmiecik, Market Taker Mentoring

After a number of big-name stocks like Apple and Amazon hit record highs recently, many of them moved lower over the past several sessions. As an investor, this can be a little disheartening, to say the least. But if you know how to use options, some of these gains can be protected. Let’s take a quick look.

Collars

A collar is selling a call option and using some if not all of the premium collected to buy a put option. Think of it as a covered call and a protective put as one trade. Many investors will sell call options against their long stock position to potentially increase their return. But with collars, the proceeds are used to partially or fully pay for a long put. The buyer of a put option has the right to sell the stock [more]

See Support and Recognize Resistance

John Seguin, Market Taker Mentoring

Choosing where to enter and exit trades is a skill that can be learned through observation and practice. At the end of every day, get in the habit of marking where the high and low were made. Then look back to the last time that price traded. If you do this on a regular basis, you will find that highs and lows tend to be made when old high-volume prices and very low volume prices are retested. Recognizing where sellers gained control of momentum before a decline and where buyers gained control before a rally will help you pinpoint entry and exit levels. I prefer to use 30-minute bar charts for reading day momentum and marking low and high-volume or fair prices. [more]

The Importance of a Trading Routine

John Kmiecik, Market Taker Mentoring

You might have heard that pilots seem to make pretty good traders. Whether that can be proved is doubtful, but why is it a possibility? The simple answer might be that they have to follow a routine as pilots, and traders should do the same.

Think about it for a second. Things that are routine for you are generally easy. Trading, as most know and have experienced, is not easy especially at first. So, doesn’t it make sense to develop a routine and make it as easy as possible to succeed?

If you trade “normal” market hours with the market opening sometime in the morning, plan a pre-market routine. How are you going to look for new opportunities and how are you going to address any current positions? These are just a couple of issues to consider, [more]

Recognize Neutrality to Identify Change

John Seguin, Market Taker Mentoring

In our daily futures class we frequently refer to a list of axioms that reveal market tendencies. This “Tool Box” is divided into sections that focus on different situations traders face when developing strategy or trade ideas.

In this week’s newsletter we will focus on a few scenarios that frequently telegraph the end of a trend and sometimes the reversal of one.

When markets trend higher they tend to make lows very early in the day and closes tend to be above the midpoint of the range. When bears are in control, highs tend to be made in the first hour of trading and closes are often below the midpoint of the day range. [more]

More Odds on Your Side

John Kmiecik, Market Taker Mentoring

I have always had this discussion with my trading students, but lately it has been a fixture in every conversation. Are the odds on your side for the trade? Here is a brief account of a discussion I had with a one-on-one student this past week about putting the odds on his side based on technical analysis.

We were talking about putting the odds on your side for trades and the subject of day trading came up. I told him the same rules apply to smaller time frames as well as larger time frames like daily and weekly charts. Look for areas where the stock may hold and reverse like support and resistance. We looked at the market and found a potential trade idea on Alibaba Group (BABA) on a 5-minute chart. [more]

When Is a Market Move too Quick?

John Seguin, Market Taker Mentoring

For an independent short-term or swing trader, timing is crucial. There are patterns that frequently precede trends and increase the odds for vertical or directional moves. On the other hand, there are also situations or setups that occur when a market is apt to go through a holding pattern or period of consolidation.

Measure price action using vertical and horizontal dimensions. These stats allow a trader to distinguish if a market has moved too far and too fast, thus favoring a short volatility strategy, or whether it is likely to trend or move directionally, thus favoring a long option tactic. Identifying when a trend is about to start or end is how we get probability in our favor. [more]

It’s a Good Time to Review

John Kmiecik, Market Taker Mentoring

If you are an option trader like me, you are not a big fan of earnings season. The reason is simple: I do not like to hold positions over an earnings announcement. All trading is speculative, but to me it seems that holding a position over earnings is “extra” speculative. So, what is an options trader to do? The simple answer is to review his or her trades.

This should absolutely be done year-round, but many of us do not do it enough. Here is the excuse you need to get started. I know you might have procrastinated writing that trading plan for a long time, but I’m hoping you have finally completed it. This is an integral part of your trading plan and putting it off is not doing you any favors. [more]

How to Track Financial Market Correlations

John Seguin, Market Taker Mentoring

Trading financial futures has been a tough task lately. The equity indexes have done well recently, but they have spent most of the past five months chopping around in the range that was established over two days back in early February. Treasuries have been stagnant, while precious metals have been trending lower and the dollar higher. 

At times the relationship between these sectors is not apparent. However, a sharp move in one commodity may renew or reveal a relationship with another sector. In Futures Group Coaching class, we track correlations between many markets and different time frames. For example, a gold trader may refer to Japanese yen or dollar index to time the start of a trend or possibly the end of [more]

How to Choose a Stop Loss

John Kmiecik, Market Taker Mentoring

When it comes to options, stop losses can be a little trickier than, say, equities. Bid/ask spreads tend to be a little wider, which means there is more ground to make up than something with a tighter spread. Let’s look at a general rule of thumb I use when it comes to stop losses and options.

Outrights

When just buying or selling a single-legged option, I tend to use a hard stop. I will put in a sell stop loss for long positions and a buy stop loss for short positions. The reason behind this is that since there is only a single leg, the bid/ask spread is usually [more]

Sprinting Into a Trend

John Seguin, Market Taker Mentoring

When trends begin there tends be a violent move from a fair value area. The range on the day of a breakout usually exceeds the average, and it is often almost twice the length of a normal day. The so-called “sprint” from value is also called a trend day and occurs 10% to 15% of the time.

Odds for catching a trend day nearly double when the previous 72 hours have seen below average volume and ranges. In addition, day ranges tend to overlap severely, while opens and closes during regular trading hours are near each other. A series of candlesticks with small bodies are common before trend days. [more]

Motivation Is Critical to Trading Success

John Kmiecik, Market Taker Mentoring

If you are new to trading or have been trading for several years without the success you envisioned, it might be time to reflect on a very important component of successful trading. Are you really committed to being a successful trader? Ask yourself that and really think hard about the truthful answer. Trading, as you probably know, can be very frustrating and I mean very! A lot of traders say they are willing to put in the time and effort to make it a successful endeavor, but are they really? Putting in long hours does not guarantee your success because you need to spend your time wisely. To say you are motivated and to make the changes and put in the time to make yourself successful are two very different things. Trust me, I have been there in the past, so I know it is true. [more]

Impact Reports and Market Correlations

John Seguin, Market Taker Mentoring

Markets typically bounce around in consolidation patterns. Trend type moves occur about 25% of the time. Consolidation phases precede trends, and trends follow consolidation phases. Traders labor to catch trends and avoid the trendless choppy trading periods. It requires timing and agility to be profitable when a market is gyrating and not trending.

There are markets that correlate either directly or inversely. Occasionally a breakout or onset of a trend is revealed, while the other correlating commodity remains stagnant. Recognizing subtle differences often leads to the edge we all seek to catch a trend when it kicks in. [more]

How to Sell a Bull Put Spread

John Kmiecik, Market Taker Mentoring

Implied volatility has remained predominantly low for well over a year now, except for a few spikes higher up when the market has sold off or there has been some pending news that can affect the market. The Federal Reserve is expected to raise interest rates this coming week, so it is doubtful IV levels will change much based on the outlook. Undoubtedly, there will be another time when the market drops and IV rises again to high levels.

Implied volatility by definition is the estimated future volatility of a stock’s price. More often than not, IV increases during a bearish market and decreases during a bullish market as we have seen. The reasoning is that a bearish market is riskier than a bullish market. [more]

The ‘Players Card’ Edge

John Seguin, Market Taker Mentoring

As an educator I have made assumptions that new traders already have a good understanding of market fundamentals. The more I teach, the more I realize most traders have not experienced trading pits and the valuable lessons we were privy to in that environment. Looking back, it was a privilege to watch the auction process in its most basic form, a trading pit.

When I started my career at the Chicago Board of Trade, my title was “runner.” Basically, I did whatever the rich guys told me to do. Getting lunch, buying an anniversary card for someone’s wife and appearing in court for someone were just a few of the chores. When it came to my actual job, maybe the most valuable task I had was to fill out a “players card.”  [more]

How to Set Up a Call Credit Spread

John Kmiecik, Market Taker Mentoring

Call credit spreads can be an effective way to profit when an option trader expects a stock to stay below a certain area. Many times this area is potential resistance in the form of pivot levels or maybe a moving average. Let’s take a look at how to implement this trade strategy.

A call credit spread — or as it is sometimes called, a “bear call spread” — is created by selling a call option and buying a higher strike call with the same expiration. Maximum profit is the credit received, and it would be earned if the options expire worthless (at or below the short strike at expiration). The maximum risk on the trade is subtracting the premium received from the difference in the [more]

How to Diagnose Trend Potential

John Seguin, Market Taker Mentoring

Prediction is fallacy, probability is not.

Time may be the most valuable commodity for traders. If we could control it, we would know where a price would be anytime. This is what we seek, but such knowledge is idealistic unless you are a time traveler or “terminator." However, there are patterns that give us a slight chance to get time on our side.  

A candlestick is a technical tool that reveals momentum or direction in real time. This tool is geared to determine future direction using the close in relation to the open of a specified time frame. If a market closes above the open, it is deemed bullish, and a close [more]

Long Calls Can Work

John Kmiecik, Market Taker Mentoring

Here is a short little reminder to all option traders who have abandoned buying calls: Please don’t forget to consider them as an option, so to speak. The first thing I personally learned as a brand-new option trader was a long call. I thought to myself that this is such a great strategy when I expect to profit from a move higher in the stock for significantly less money than buying shares. Of course, as time goes by and your knowledge increases, spreads usually become another choice for an option trader to consider, and for good reason. But let’s not forget a long call has unlimited profit potential, and there is always a chance the stock might rise more than you had [more]

Will USD Trend End or Reverse?

John Seguin, Market Taker Mentoring

For most markets trade has been quite choppy and trendless since early February when the stock market suffered a steep decline of historic speed. Since then trend trades have been rare in most commodities. However, recently the dollar has risen steadily against a basket of currencies, mainly the Euro, British pound, Aussie dollar and Japanese yen.

For many futures traders, catching a trend with few if any reversals that lasts for more than a week is a dream trade. Riding a trend for a few weeks is almost unheard of. Short-term or swing traders are an impatient bunch. Once a trend has begun, many of us attempt to time when it will end. Often traders walk the line bordering on psychosis. First, they work hard to recognize the onset of a trend [more]

Tesla Collar Over Earnings

John Kmiecik, Market Taker Mentoring

Generally, collars are used by investors when they want to protect a profitable equity position by setting an exit point. But many investors fail to realize what collars can do to protect your equity position, particularly for a volatile stock. We are smack dab in the middle of quarterly earnings, and now might be as good a time as any to discuss this somewhat simple, but effective, option strategy.

A collar is holding shares of stock and buying a put and selling a call on the position. Usually both the call and the put are out-of-the money when establishing this option combination. One collar represents one long put and one short call along with 100 shares of the underlying stock. One of the main objectives of a collar is to protect the shares of stock from decreasing in value rather than [more]

How to Increase Odds of Catching a Trend

John Seguin, Market Taker Mentoring

Most forecasters categorize price action and assign names or numbers to certain patterns. Patterns may differ but are often dependent on each other. Basically, there are three types of patterns: directional, neutral and trend.

Trends frequently begin violently. They often originate after neutral phases, also known as consolidation periods. Directional patterns are most common mid-trend. [more]

Let's Talk Iron Condors

John Kmiecik, Market Taker Mentoring

An iron condor is a market-neutral strategy that combines two credit spreads. A call credit spread is implemented above the current stock price, and a put credit spread is implemented below it. The objective of any credit spread is to profit from the short options’ time decay while protecting the position with further out-of-the-money long options.

The iron condor is simply combining the call and put credit spreads as one trade. The trade is based on the possibility of the stock trading between both credit spreads by expiration. Let’s use ABC stock as an example. If the stock has been trading between a range of [more]

Your Q2 Prep and Stat Sheet

John Seguin, Market Taker Mentoring

In the first quarter, we saw some massive moves both up and down in many markets. We learned that equity indexes are sensitive to inflation data as well as the threat of taxation on imports and exports. Therefore, make a point to check your calendar for such event risk. There are inflation data in many of the monthly reports. Notably, wages in employment data, CPI, PPI, GDP and ECI.

The tariff issue is a wild card in Q2. Recently, there have been far above average ranges when the tax issue is in the headlines. Meetings with China will likely play a huge part in stock prices in the coming months. [more]

Consider a Spread

John Kmiecik, Market Taker Mentoring

If options traders only buy and sell options outright, they are really ignoring the benefits of using options to create more flexible positions and hedge risks. Options are so multifaceted that even adding another short position to a long position can lower a trader's risk. As always with options, there are tradeoffs too.

Take this example: An option trader believes XYZ stock will rally over the next month or so. The stock is currently trading at $39.50. He could buy the April 40 call for 3.50. But what if XYZ traded sideways or dropped in price over the next several weeks or the implied volatility of the option fell? The value or premium of the option would probably be lowered. [more]

3 Top Tools for Traders

John Seguin, Market Taker Mentoring

Every day during our Futures Group Coaching, class we search for patterns that put odds in our favor to make trades that have trend potential with risk levels that are far less than the profit potential. Good trade location and timing are a trader’s holy grail.

Markets move from balance to imbalance. A balance phase typically occurs after a trend, and an imbalance phase is the onset of one. The trick is to recognize which phase a market is in. [more]

Higher Highs and Higher Lows

John Kmiecik, Market Taker Mentoring

The trend is your friend. How many times have you heard that famous saying? Probably too many, right? Well there are several sayings and reminders when it comes to trading that stand the test of time, and this is absolutely one of them. I start my Group Coaching class each and every session by reminding traders to consider the trend. To me it is so important, and it is a good reminder to look for opportunities when it comes to trends.

As traders, we are always looking for an edge and to put the odds on our side. Looking for opportunities and being patient fit these criteria. To me an uptrend is an underlying that is setting higher highs and [more]

Average vs. Median Ranges in Volatile Times

John Seguin, Market Taker Mentoring

When entering a trade, one must consider return objectives and how they relate to risk. There are many ways to project profit, but one of the most logical is to use average true range (ATR) over various time frames (day, week, month).

For example, assume a short-term strategy has given signal to buy. After entering the trade, the next steps are to define risk and then project profit potential. From the entry point, let’s say risk (stop loss) is set at 50% of an average day range below the entry price. And the first profit target would measure 100% of an average day range above the entry price. This simple strategy may prove useless if volatility jumps drastically and the current ranges become much larger than the [more]

Not Trading Is Always an Option

John Kmiecik, Market Taker Mentoring

If you have been watching the market over the past several weeks, you have seen lots of volatility. Not only has there been choppy and sloppy action from session to session, but also many moves that have been extended both ways. The closes have been erratic at best, and the intraday action has been just as unpredictable, with early buyers’ enthusiasm slowly surrendering to sellers to end the day.

I have talked to plenty of option traders and investors in my career at different stages of their success or lack thereof and under different market conditions. But I have found this current market to be universally a bit more difficult than most. For the most part, the traders I have talked to agree and ask [more]

Recognizing Change in Trend

John Seguin, Market Taker Mentoring

Timing the end or reversal of a trend is a difficult task and the ambition for most traders. There are a few patterns that recur when a trend is nearing an end.

When a market is trending higher, the low for the day is frequently made very early in the session, often within the first hour of trading. Conversely, when the trend is down, the high for the day is often seen early in the session. So, if a market is trending lower and the high for the day is made in the first hour, chances are that trend will continue to extend down. When we begin to see lows made in the initial hour, it is an indication that the trend is near an end. [more]

Analyzing Implied and Historical Volatility

John Kmiecik, Market Taker Mentoring

Historical volatility (HV) is the volatility derived by the underlying stock, stated in terms of annualized standard deviation as a percentage of the stock price. Historical volatility is helpful in comparing the volatility of a stock with another stock or to the stock itself over a period of time. For example, a stock that has a 20 historical volatility is less volatile than a stock with a 25 historical volatility. Much of this can usually be seen by the naked eye as well. With this recent turbulent market, many current historical volatility levels are trading above levels from as little as a month ago. [more]

Emotion Breeds Volatility

John Seguin, Market Taker Mentoring

In the past month we have seen all-time highs for stock indexes and endured a historic correction. Though extreme movements are unpredictable and scary, they teach us humility and respect. When emotions run high, severe up and down moves occur. Markets take no prisoners.

During extraordinary price movement a trader must adapt. Risk and profit targets need to expand. For example, shortly before the S&P topped out an average day range was about 23 points. During the past [more]

Odds on Pattern

John Seguin, Market Taker Mentoring

There are no indicators or patterns that pay off every time.  The best we can do as traders is to calculate probability of a trade working in our favor. Markets are like snowflakes. No day is like another.

Legally every analyst must have a disclaimer. The reason for this is protection. The truth is no one can predict future events, but we can get odds in our favor. [more]

Selling Puts and Earnings

John Kmiecik, Market Taker Mentoring

If you are like me, you have probably seen numerous emails about selling puts. Writing or selling “naked” options is selling options without having a position in the underlying stock or being long any options on the stock. For example, if a trader is writing naked calls, he is selling calls without owning the stock. If the trader did own the stock, the position would be considered “covered.” [more]
 

Crude Oil Pace Problem

John Seguin, Market Taker Mentoring

The past year has seen some incredible trends. Most notable is the rise to historic levels in equity indexes. Another more recent rally began in June and has yet to recede. Crude oil bottomed out in early 2016 and spent the next 18 months or so in a rather tight range. Nearly all the trade during that consolidation period occurred between $45 and $60. In mid-December oil began to rise from $56 and penetrated the upper band of the long-term range on the last day of 2017. It has been on a steady rise for a month straight.

Using a 7-month sample as a benchmark, the average month range for oil spans about $5.50. The range over the past month is almost $9.00. The range since mid-December is closer to the length of an average quarter, which is [more]

Comparing Bearish Verticals

John Kmiecik, Market Taker Mentoring

Vertical spreads offer an option trader a wide variety of risk/reward scenarios. As I like to say about options, there are always tradeoffs. The various strategies that can be used and vertical spreads are no different.
 
Many new option traders tend to stay away from credit spreads. Debit spreads (depending on how they are implemented) usually offer higher rewards based on the risk amount and are often viewed as a [more]

Tracking Trading Trends

John Seguin, Market Taker Mentoring

The speed of a rising or declining trend may reveal the longevity of a directional move. When markets move in a methodical fashion trends tend to last longer, thus increasing profit potential. When markets get severely overbought/oversold they frequently go through days, even weeks, of choppy trendless trade. Such periods of consolidation occur when trends near exhaustion and signify that profits should be realized.

To determine if a trend is moving too fast it is imperative to track average range length, commonly known as average true range (ATR). For short-term or swing traders the ATR for days and weeks can be [more]

Option Traders Should Still Consider Long Calls

John Kmiecik, Market Taker Mentoring

With so many option strategies out there, a trader can be overwhelmed at times, especially during volatile periods. They will hear things like “you have to be able to trade spreads if you are going to make it trading options” or “professional option traders only sell options.” Option traders might be inclined to never look at buying call options again if they believe everything that is said. This famous saying applies here: “Don’t believe everything you hear.” In this article we’ll share a couple of great reasons buying calls should not be overlooked, but first here’s a brief look at what a call option is [more]

Monitoring Trading Momentum to Gauge Trends

John Seguin, Market Taker Mentoring

When prices severely overlap over a few sessions and the day ranges are below average, odds favor a breakout. When a direction is established we can monitor the strength and likely continuation of a trend using a couple of short-term indicators. One of the most reliable direction indicators requires watching the highest volume time of day. Consistently, the first hour of regular trading hours provides the most liquidity. It is during this time that institutional traders typically execute orders. After all, they are [more]

Smart Traders Review Their Trades

John Kmiecik, Market Taker Mentoring

As we move closer to the end of another year, you will probably see plenty of “year in review” pieces in the media. Consider doing the same as a trader. This is a great way to gauge how you are developing as a trader. A lot of traders will concentrate on their profit and loss statement, but this can be deceiving. Why? Many good trades lose money and a lot of bad trades make money. Your goal as a trader is to follow your trading plan and take the best trades that make sense to you with the hope of putting the odds on your side for success. With the end of the year fast approaching, there is no better time to start than now.  [more]

Stats for the New Year

John Seguin, Market Taker Mentoring

When December rolls around it is a good idea to take a step back from short-term charts and focus on long-term patterns to prepare for the coming year. Creating a spreadsheet of statistics is a great start. Traders need to know when a market is ripe to trend or ready to consolidate. Tracking vertical measurements of price action in various time frames can be a useful resource when timing directional trades or determining when the end of a trend is near. [more]

Using Butterflies to Trade Directionally

John Kmiecik, Market Taker Mentoring

Many option traders use butterfly spreads for a neutral outlook on the underlying. The position is structured to profit from time decay but with the added benefit of a “margin of error” around the position depending on what strike prices are chosen. Butterflies can be great market-neutral trades. However, what some traders don’t realize is that butterflies can also be great for trading directionally. [more]

Use Value Areas to Protect Profit

John Seguin, Market Taker Mentoring

Breakouts frequently occur after consecutive value areas severely overlap. Value areas are also used to risk and protect profit during a trend.

Value areas include approximately 70% of the volume around the mean or high-volume price, also known as POC (point of control). In the monthly macrographs below value areas are shown. There is a value area high (VAH) and a value area low (VAL). The POC or fair price is shown as that price that sticks out the furthest to the right of each monthly profile. [more]

Nervous About Your Stock? Consider a Collar

John Kmiecik, Market Taker Mentoring

What an incredible bull run the market has been on. Seriously who would have thought at the beginning of 2017 that we would still be setting all-time highs as recently as a couple of weeks ago. With many traders and investors thinking that at some point the market is going to move lower (although many have been wrong up until now), it may be time to take a look at a potential protection strategy using options. A collar is an often misunderstood but rather simple option strategy that can particularly benefit investors. [more]

Recognizing Market Breakout Potential

John Seguin, Market Taker Mentoring

Large capital flows are what move markets. Simply, if there are more buyers than sellers, prices rise. And when offers outweigh bids, prices fall. One of the goals of a trader is to recognize when a shift in capital flow occurs. Better still, it is important to identify when odds favor a shift, before it happens.

Before markets begin to trend, they frequently go through a period of choppy trendless trade or neutral [more]

There Are Other Options Than Calls and Puts

John Kmiecik, Market Taker Mentoring

Many new and some more experienced options traders think that strategies come down to one simple idea: Buy calls for a bullish outlook and buy puts for a bearish outlook. Now don’t get me wrong, I still buy calls and puts and use them successfully for my options trading but there are alternatives too. Long calls and long puts are without a doubt the most basic options positions, but they may not always be the most suitable. If options traders only buy and sell options outright, they are really ignoring the benefits [more]

Quantify Breakout Potential

John Seguin, Market Taker Mentoring

Traders, especially short-term traders, tend to be impatient. We all want the market to move in our favor directly after entering a position. Great timing, eases anxiety, decreases risk and increases profit potential.

Choosing when to enter a trade may be as vital as where to buy or sell. It is common for a trend to develop after a consolidation phase. Conversely, consolidation phases typically follow trends and the circle repeats. To increase the odds of catching a trend early refer to horizontal measurement also known as “time at price.” This dimension is best [more]

All Traders Need a Plan

John Kmiecik, Market Taker Mentoring

Every day I host a live options trading class and every week I choose a trading subject to talk about in addition to just talking about trade ideas. This past week we talked about having a trading plan and following that trade plan. I know when I bring up the subject, many of you groan and most likely it is because of one or two reasons. The first is you have heard this before that you need to have a plan and follow it but have not done so yet. The second is because maybe you have started a plan or have a plan, but are not following it. In either case, this will serve as another little reminder.

Before you get started writing a trading plan, traders need to ask themselves if they are truly motivated to succeed. It may sound insulting to ask that but traders really need to find out. Will you put in the time to make it as a trader? There are going to highs and lows along the way. Will you be able to handle those? And will be disciplined enough to write and follow a trading plan? [more]

Making Money in a Neutral or Down Market Trading Index Options

Marlene Sackman, Author

Trading index options is like a game of chess. There are many choices to make in a chess game based on what you want to accomplish, but, in many cases, more importantly, on what your opponent does. The best chess players are able to look multiple moves ahead in determining the possible action and reactions to these moves. The first moves, in many cases, are relatively standard. It’s the subsequent moves in the middle game  that set up the strategy to take control and ultimately come in for the kill in the end game.
 
In trading index options, the first move is based on a variety of fundamental and technical analytics. There are a vast array of fundamental and technical tools that have proven some consistency in predicting future outcomes, however, in the end, one must rely on personal judgment in choosing a strike, month and [more]

How to Protect Yourself from HFTs

The Hold Brothers Team, Contributors

Trading is a business that is constantly changing in terms of regulation, market structure, and trading styles. Arguably the biggest change within the industry within the past decade has been the emergence of high frequency traders (HFTs), who employ automated algorithms and black box strategies to execute certain types of trades faster than a human can.

Some strategies that automated traders use include low latency implementation of price arbitrage, trading for liquidity rebates, trading from sides of the spread then profiting from the difference, and price spiking or trading on the [more]

Keeping the Context When Trading Patterns

Craig Garbie, Contributor

Myopia and trading, generally, do not mix well. What do I mean? Focusing on a single timeframe while looking for an opportunity will likely have the trader entering many subpar trades that look like wonderful candidates without the markets background. I say generally, because some HFT algorithms and other unique trading methodologies are indeed very short term focused. However, I am referring to strategic trading even if that means a daily timeframe focus. Having a plan and carving out trading opportunities requires time, work and analysis.

A popular and relatively simple trading pattern is based on continuation. Continuation is defined for our purpose, as market movement [more]

An Effective Strategic Option Trading Plan Requires Flexibility 

Dan Passarelli, Market Taker Mentoring, Inc.

Sometimes the best move in executing your strategic option trading plan requires you to change course.

In battle, the generals never order an army to retreat. They simply order a "strategic withdrawal" of troops and resources, based on new information and conditions.

Semantic silliness, perhaps, but a valid strategy. [more]

You Gotta Know Who is in Control

Craig Garbie, Contributor

As a futures trader it is critical to know who is in control for the day. What is the dominant timeframe in the market? For our purposes I will breakdown participants into four basic groups operating on different timeframes. They have different motives, tactics and tools.  Now, there will be times [more]

Making Money in a Neutral or Down Market

Marlene Sackheim, Author

My hat goes off to Janet Yellen who had the wherewithal to take the bull by its horns and start the process of normalizing interest rates in the United States. Along with a myriad of other fundamental factors, the equity markets are approaching more reasonable values. There goes that word ‘fundamental’ which has finally started appearing in the financial chatter.

For the past eight years, the central bank interest rates and currency manipulations   have initiated and perpetuated nothing short of a meteoric rise in equity prices. These valuation increases were, in large part, not due to increases in earnings [more]

Wheats the Matter with the Grains?

Craig Garbie, Contributor

Looking at the grain complex, one thing is apparent. Wheat is the worst performer over any recent time period. While we see some strength in beans and its related markets, soy bean oil and soy bean meal. This is reportedly due to palm oil shortages in Asia. Palm oil has no other readily available substitutes so end users have been tapping soybean oil. Corn has not been able to find a reason to show lasting strength.

Wheat is near decade-long lows, and lower if we adjust for inflation. The temptation is to get long some grains as the rallies can be ferocious. If traders do not get the timing right, the markets [more]

What the DOW is going on?

Joe Cusick, Vice President of Wealth and Asset Management at MoneyBlock

How many times did you hear last week that the Dow Industrials hit a 3-month high or that the S&P 500 set a new record close? Sounds like the sky is the limit, but is it?

I often discuss how lagging markets or sectors tend to be the bane of market strategists with a directional opinion. Recently, I discussed how the Dow 30 has been anchored by two of its sister DOW indices: Utilities and Transports [more]

Trading and Filtering Continuation Trades

Craig Garbie, Contributor

The last article I talked about the importance of considering the context of the market when carving out trades and ideas. In this piece, I will explore some contextual elements that can be used as filters for continuation trades. Continuation trades are defined as trade opportunities in the direction of the perceived trend on the time frame being traded. Pauses or small retracements in the directional price action, provide opportunities to participate in the directional activity.

The question remains, under what conditions will a high probability trade present itself? The first thing to look for is where an impulse has taken place [more].

Stock Options Advice: Investor, Know Thyself

Dan Passarelli, Market Taker Mentoring

Here's some general advice about taking any stock options advice: Don't.

More precisely, never take stock options advice from anyone without weighing it against your own criteria for an appropriate risk or trade.

Every investor has a trading and investing psychology that constitutes his beliefs, values, aspirations and gratifications about risk and wealth. No two investors have the exact same psychology. [more]

Is This the Top for the Long Bond?

Craig Garbie, Contributor

Bonds yields have reached all-time lows across the globe. By some measures rates have reached five thousand year lows. Markets like Germany have seen negative real returns on their ten-year paper. When will it come to an end? Finding an entry somewhere near the turning point can potentially become a multi-year trade.

Rumors of an ECB taper have sent longer-term paper higher in recent days giving a possible [more]

Options or Equities: Which is Better to Own?

 Ross Barnett Terry, Contributor

As the options market has expanded it has presented an opportunity that many are not aware of or notTrading Articles even considered. The opportunity arises from the very question that drives ownership in shares and thus presents us with the question at hand. Options or equities: Which is better to own?

Being a former Market Maker on the CBOE, I was taught that stock was only a temporary hedge against the positions we carried and there only to negate the deltas... [more]

Synthetics in a Low Volatility Environment

Ross Barnett Terry, Contributor

In a low volatility environment, creating synthetic call and put positions offers traders creative flexibility. Synthetic positions can allow traders a position in the underlying stock (long or short) with protection.  Synthetic long calls or puts afford traders the luxury of cheap protection while creating unlimited upside potential on calls: with the only limitation to the downside for puts is the zero mark.

A synthetic call is created when the trader buys stock and purchases a put contract for downside protection (the position can also be legged). A synthetic put is created by selling shares of stock while simultaneously purchasing a call for [more]

Learn Options Trading with a Paper Trading Account First 

Dan Passarelli, Market Taker Mentoring, Inc.

At first glance, the work to learn options trading may be daunting to the individual investor. But you needn't worry. No one is a professional trader when they first start out. Everyone is inexperienced and needs to learn how to trade before they can master the market. The psychological impact of the fear of risk of loss can make the learning path particularly intimidating. But you can learn options trading without risk of loss. Quite the contrary.

In fact, you can learn options trading, developing and testing your own trading strategies in a real world environment [more]

How About Some Implied Volatility to Compliment Your Futures Trading?

Craig Garbie, Trader

When trading futures it helps to frame out the current day before the open. One thing I have found useful is using the Implied Volatility (IV) of the at the money options to create the zones where moves may exhaust and reversion becomes more likely.

The easiest way to show how I use IV for this estimate is by way of example using the S&P E-mini contact and the VIX. I am using the VIX as my estimate of IV because it is easy for anyone to get and track. The current VIX from the CBOE website on [more]

Making Money in a Neutral or Down Market Using Index Options

Marlene Sackheim, Author                                                                                              

Any one can make money in an up market – sometimes it’s as easy as throwing a dart at a financial page! It is the truly savvy, innovative investor who can come up with strategies to aggressively make money when stocks are going nowhere or down, down, down.  In fact, once you understand the nature of option pricing, finding strategies with extremely favorable  risk/reward can be much easier in a down market.

Just a brief span through any financial history book will quickly demonstrate that the equity markets have a decidedly upside bias. On average, a bull run can have 4-7 years of upside that is only slightly interrupted by small intermittent, insignificant corrections. In comparison, short downsides are fast and [more]

Playing Momentum Names in a Frothy Market

Joe Cusick, Vice President of Wealth and Asset Management at MoneyBlock

With markets just off of all-time highs, traders may find themselves in one of two camps – either they areTrading Education, Trading Articles trying to convince themselves to stay properly valued in the market, or they want exposure to the high-flying, high-growth, momentum stocks, likeNetflix, Facebook or Tesla.

Because these stocks are also at frothy valuations, buying a full position may eat up an outsized portion of a trader’s portfolio – exposing them to high volatility and risk. However, traders can capture the same upside potential as outright stock ownership, while ... [more]

 

Learn Options Trading With a Demo Account Before Trading for Real

At first glance, the work to learn options trading may be daunting to the individual investor. But you needn't worry. Everyone is inexperienced at the start of a new venture. But there is a way where traders can learn options trading without the risk of loss.

In fact, you can learn options trading, developing and testing your own trading strategies in a real world environment, without risking a penny of your own money. How? With a demo, or paper-trading account at your online options broker [more]

Correlations and Trade Timing

Craig Garbie, Contributor

Capital markets and commodities are tied together through capital flows. Money moves in and out of asset classes in somewhat predictable ways. Part of the trading game involves figuring out what the current relationships consist of. Another part of trading is figuring out when those relationships break down or change.

There are many ways to track these correlations or non-correlations. Some traders or firms spend large sums of money tracking the way markets move [more]

Making Wise Stock Option Picks 

Making outstanding stock option picks with great profit potentials and low risk, whether the market is up or down, is a challenge these days. But it’s not necessarily impossible. Success for any trader depends on diligent market research and a thorough understanding of stock option fundamentals.

First understand, that when looking for profitable trading opportunities, you don't have to do all the work yourself. There are many services these days that offer guidelines and various research to help traders with shortcuts. And there are news aggregators that put all the relevant fundamental data all in one place. There are also professional analysts make stock option picks... [more]

Flash Boys and the Tower: FCC License Number 1215095Book Review, Article, Educational Article

Amy Boggs, Traders Exclusive

Michael Lewis’ Flash Boys gives us an interesting, yet somewhat biased glimpse about life as a high-frequency trader. As controversial as it may seem, it is an entertaining book that has roots in reality. In all its glory, Lewis’ book offers the secrets of the insider, an elite group known as high-frequency traders (HFT). But some secrets are not all laid out. Some are ... [more]

 

Protect Yourself in Fast Markets

It can happen to anyone. If you're trading online, be aware that sometimes options trading platforms can develop delays, especially in fast markets when many investors want to trade at the same time, and prices change quickly.

Heavy traffic can occasionally slow down even the best options trading platform. [more]

The Iron Butterfly

Randall Liss, The Liss Report

No, not the 1970's heavy metal band (I really date myself here, don't I?). I mean one of my very favoriteOptions Education Strategy, Options Trading Article  trading strategies. It is particularly useful when the market or a stock is range bound, or as now, going back and forth between... [more]

 

The Advantages to Using an Online Discount Option Broker

Once you decide to begin trading options, one of your first decisions is whether you will use a full-service broker or an online discount option broker, meaning a broker in which self-directed traders can enter their own trades and execute them themselves at a very low commission.

Beyond paying these greatly reduced commissions from those of traditional brokers, there are some advantages and maybe disadvantages to using an online discount option broker. Let’s take a look. [more]

 

The "Greeks"

 Ross Barnett Terry, ContributorTrading Option Greeks, Option Greeks Article

Options are dynamic animals governed by a set of theoretical variables known as “Greeks.” Together they assume the dynamics of the sensitivity of the option with regards to a one point move in the underlying...[more]

Creating a Low Cost Collar

 Ross Barnett Terry, Contributor

When investors get to a point where they have substantial gains in a position, they may want to start toHelp with trading, Trading Articles, options trading help look at protection against loss. One of the most creative low cost ways to achieve this is through an options play known as a collar trade. The trade consists of buying a put option and financing the cost of that put option with a call option that has a higher strike with the same expiration. The call option... [more]

 

What's Happening To The Smaller Banks?

Tim Melvin, Contributor

Consider the life of a banker running a small bank today.Article on Small Banks, Educational Article

It used to be a great life running one of these little banks. You oversaw a network of 10 or 15 branches in smaller towns or suburbs across the country and were a well-liked business leader of your community.

More than likely you weren't just a member of the Rotary and other civic groups, you... [more]

 

How Patience Will Earn You Money In The Stock Market

 Tim Melvin, Contributor

That seems to be the attitude that infects all too many investors. When the opening bells ring on the NYSE every morning at 9:30 am EST, traders seem to feel the need to do something.

The ticker tape is running, the talking heads on the media are cheerleading different stocks and sectors. The advertisements are almost constant, urging out... [more]

 

Be Careful What You Wish For.... When The Jobs Picture Improves and Wages Rise, Look Out, Inflation is Around Corner!

Floyd Upperman, Contributor

The recent FOMC meeting and subsequent announcement came as a surprise to me. I expectedArticle on Inflation, Banking Article, Educational Article a more hawkish tone, at least some hint of an exit plan (at least some plan to taper the 85B a month in Fed purchases of bonds and mortgage back securities). But not even a whisper on that! And now everyone is focused on the Debt ceiling, and the annual tradition of "raising the debt ceiling". What a farce! If this whole fiasco... [more]

Advanced Trading: Going Long and Short on the Same Instrument in the Same Account

 Raymond Stein, NinjaTrader, LLC

Savvy investors must have an arsenal of tools and strategies available to employ as theArticle  on Trading, Educational Article, Trading Tools to use, option trading system market continually changes, adapts and corrects to news and events from around the world. I would like toshare a powerful technique any trader can use to either hedge their position and/or trade in multiple time frames and multiple directions (long or short) at the same time.

Why would I want to trade long and short on the same instrument, in the same account at the same time? This is a great question and the key... [more]

Butterfly Spreads: Part C

 Ross Barnett Terry, Contributor

As previously discussed, the butterfly and condor spreads are a composition of vertical spreadsoption trading ideas, options trading education, Options trading strategies combined in various ways. All offer the trader various ways to profit with inherent defined risk. The long butterflies can be designed to profit as a stock moves up or down or trades sideways. The key to success is for the stock to stay in the range between the long strikes and optimally being at the common short strike nearest to expiration; which is when the spread is at its most profitable point.

Another form of the butterfly is called a double diagonal, which is a similar position to the iron condor, but is created by the long strikes being purchased in the next... [more]

 

Understanding Butterfly Spreads: Part B Variations

Ross Barnett Terry, Contributor

Now that we have discussed the basics regarding the butterfly spreads, it is time to look at variationsOptions Strategy, Butterfly Spread, option trading ideas, options trading articles common to many floor traders regarding positioning. As we initially saw in part A, the Butterfly Spreads are comprised of a long vertical call spread and a short vertical call spread in the same expiration on the same underlying with a common short strike. The spread is most profitable at the common short strike. The goal again is to have the stock closest to the short strike but more importantly; between the two long strikes. The same is true for put butterfly spreads. That said let us look at a variation known as the iron butterfly.

The iron butterfly is a variation comprised of a short call vertical and a short put vertical on the same underlying and done in the same expiration... [more]

 

How to Get Your Wife to Support Your Trading

Laurie Itkin, The Options Lady

Before I began my formal presentation at the Traders Expo last year, I asked the 90% male audienceoptions trading articles, Trading Articles, option trading ideas three questions:

1) How many of you have wives/partners who trade?
2) How many of you wish your wife/partner would trade?
3) How many of you wish your ex-wife would trade so you can reduce your alimony?

As you guessed, very few hands went up in response to the first question, lots of hands went up in response to the second question, and laughter was the response ...[more]
 

 

Butterfly Spreads - Part I

Ross Barnett Terry, Contributor

In this discussion, butterfly spreads and variations will be addressed in an attempt to build on a conceptTrading education, Trading Articles, options trading education, free online trading education that will be further explained in additional soon-to-be released articles. The trader should then have a fundamental grasp on the different ways to properly position themselves for a wide array of scenarios in regards to the underlying security in question.

Butterfly spreads are an options position created by buying one vertical spread and selling another with the short strike of the verticals being ...[more]

 

“Presuming a Perfect World”

Larry Shover, SFG Alternatives

Uninterested in last week’s dampening growth data, (i.e. U.S. Import Prices, Producer Price Index, andTrading Education, Help with trading, Trading Articles, trading education online University of Michigan Sentiment Index, etc.); the S&P 500 resumed its ascent – shattering all-time (nominal) record highs (set October, 2007) in the process. The S&P 500 closed the week +2.29% and presently stands   ...[more]

 

“The Markets March Madness”

Larry Shover, SFG Alternatives

We look back at a confusing March 2013, a month where the S&P 500 posted a 3.5% gain (DowTrading ideas, online options trading, learn trading online, option trading Jones Industrials +3.70%, Nasdaq +3.40%) going against the grain of most – if not all – global stock markets. Europe was flattish overall however peripheral markets suffered steep declines – Spain and Italy both weakened more than -3.5% while Greece tumbled almost- 14.0%. March also witnessed  ...[more]

When Should You Take Advantage of the Early Exercise Right?

Dave Rodgers, Contributor

The early exercise feature for equity options contain fundamental changes in risk that need to beoptions trading training, learn trading online, option trading, Trade commentary evaluated prior to making a decision. The most common reason to exercise a call early is to capture a dividend. By exercising a call option the day before a stock goes ex-dividend the option holder take delivery of the stock and captures said dividend. This is can be an easy decision if options are deep in the money but how do you evaluate  ...[more]

 

Understanding Front Month Gamma

Ross Barnett Terry, Contributor

Gamma is a greek term that identifies the rate of change in a delta. In essence, it is the delta of theThe Greeks, Trading ideas, Trading Articles, options trading help, trading news delta. Why is this important? It is significantly important because gamma is a dynamic animal and is most sensitive as an option nears the end of its “life”.

Think of it as a dying entity, a warrior lying in the battlefield gasping for his last breath, lashing out, striking at anything that comes close. This is the very essence of the term gamma. The life of an option is limited. It either ends up ...[more] 

Earnings Volatility: Friend or Foe?

Ross Barnett Terry, Contributor

When a company has an earning’s conference scheduled, many times there is speculation not only inonline trading education, online trading help, options trading help, Volatility Article regards to the accuracy of the projected earnings per share (EPS), but to several other factors as well. These include but are not limited to sales and revenue streams, products in the pipeline, cash on hand, management changes, possible future stock or bond offerings, etc. The uncertainty may cause volatility in the shares themselves, but the diamond in the rough is actually the temporary parabolic increase in the exchange listed options on the underlying shares. Traders tend to stay on the sidelines going into the days leading up to the earnings...[more] 

Delta is the King of Option Greeks

Dan Passarelli, Market Taker Mentoring

We all know option contracts are derivatives, and option prices are derived from the underlying stock,Option Greeks, online trading help, options trading articles, Trading education, Help with trading index, ETF or futures contract. But with other factors at work – implied volatility, time decay, etc. – how can you know how much an option is going to move with respect to said underlying? Very simple – check out the option’s delta.

Delta is arguably the most heavily watched of the option greeks, as it offers a quick-and-dirty way of telling us what to expect from our option positions ...[more]

Is Time Decay Kicking Your Butt?

Dan Passarelli, Market Taker Mentoring

There are still a few weeks to go until options expiration, but it is never too early to start thinking about Article on Time Decay, Trading Education, options trading articles, options trading ideastime decay. Time decay is a premium buyer’s worst enemy and a premium seller’s trusted friend.

An option’s pricing consists of two main elements –intrinsic value (the difference between the strike price and the stock price; out-of-the-money options have no intrinsic value) and time value, measured by the length of time until expiration. While intrinsic value is ... [more]
 

Finer Points of Expiration

Dan Passarelli, Market Taker Mentoring Article on Expiration, Options Education,  Help with Option Trading

Once a month, options expiration rolls around. But options expiration requires some study to understand. Let’s take a look at some options expiration finer points.

1. While we always refer to “expiration Friday,” options don’t actually expire until Saturday. Technically, expiration occurs ...[more]

The Power of Leverage: Purchasing Options Verses Owning Shares of Stock

Ross Barnett Terry, Contributor

Why would anyone want to risk capital trading derivatives in lieu of the actual physical underlying vehicleoption trading, option trading tips, Trade commentary, Commentary on Options they are based on? The advantages are based on the potential to leverage available capital and better position one’s self for greater profit with greatly reduced risk.

Buying one standardized option affords the owner a veritable safety net on the price of the underlying. The strike price coupled with the cost of the options...[more]

 

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