Burns / Ebert Show Me Your Options!

The Guide to Complete Confidence for Every Stock and Options Trader Seeking Consistent, Predictable Returns
1. Auflage 2012
ISBN: 978-1-60796-419-3
Verlag: Igal Meirovich
Format: EPUB
Kopierschutz: Adobe DRM (»Systemvoraussetzungen)

E-Book, Englisch, 268 Seiten

We wrote this book to give stock traders a stock option book that was neither so simple that it insulted their intelligence but at the same time not so complicated that it was beyond comprehension. We also wanted to make it a fun read as opposed to feeling like a boring college lecture. We believe we have accomplished these missions.

Autoren/Hrsg.

Burns, Steve

Ebert, Christopher

Leseproben

Chapter 1 OPTIONS ARE NOT ASSETS, THEY ARE BETS.   Stock Trader heard the alarm go off. He rolled over in bed and hit his beloved snooze button. It was time to head off to his day job, but his mind rarely stopped thinking of his second job of trading. Trading would be his ticket out of the nine-to-five corporate world. He wanted to move from being an employee of a company to an investor in the company. He wanted his money to work for him and be able to stop working for money. His dream was financial independence. Of course, all his fellow employees thought he was nuts. Most of his friends at work could not comprehend ever not having a job, or that not having a job should even be a goal. Stock Trader, though, was different; he ignored all the negativity and doubt and just kept on doing what others believed was impossible. He beat the S&P 500 year after year He went to cash and avoided downtrends He sold stocks short and made money in downtrends Many months he made more trading than working He built his accounts over time even during market crashes As he lay in bed he realized why he continued working so hard at trading. He wanted the freedom to do what he wanted, when he wanted. His goal was not material things, oddly enough. He wanted time, he wanted freedom, and he did not want to be a slave to earning a wage and paying bills. “Isn’t that gambling?” They would ask him in a concerned and slightly condescending tone at work. “No, it is a business like any other. I use the same principles as any other business. I buy and sell inventory, I follow trends and I manage risk. I participate in auctions and use best practices to get an edge over my competitors. The company we work for gambles more than I do,” Stock Trader would respond. Unfortunately, his audience really didn’t understand what he was talking about. With only a few likeminded friends, Stock Trader continued along his journey in the stock market, trading, reading, and learning. He truly loved the stock market. He would watch CNBC like other men watched ESPN. While other men were entering fantasy baseball and football leagues, he was entering stock trading contests online. For him it was not just about making money; it was a passion of his, a challenge of both strategy and wit. Determination and will power separated many winners from the losers in the stock market. He loved the stock market game.  He had always loved stock trading. He had been fascinated with quotes and what made stocks move up and down from the time he was a small child. As a matter of fact, he had an account and was trading something for as long as he was legally old enough to do so. When he was too young for stocks, he had collected and traded coins, baseball cards, and comic books. He did not know it at the time, but these activities were training him for the markets. When a certain superhero was popular, that character’s comic books would go up in value. A movie release, cartoon, or television show could cause a bull market in that superhero. This prepared him to see that a hot product could send a company's stock soaring. Future record setting expectations for a rookie baseball star set his cards on an uptrend as long as he met expectations for home runs, batting average, and RBIs each season, much like earnings expectations drove stock prices in the market. One bad season could lower the value of the player’s cards just like a bad earnings announcement could lower a stock’s price. Rookie cards could make big money if their careers took off, just like small cap companies in the stock market if their products and earnings took off in an uptrend. Hall of Fame players' cards stayed about the same, their growth years being behind them. Everyone knew where the Hall of Famers would end up, much like most big cap stocks that just meander along at about the same price with their growth years being behind them. When he was young, he visited coin shows and made purchases for his growing collection. Years later, as he sold his coin collection, he learned the difference between what something was purported to be worth by a book on prices versus what a buyer was willing to pay for it. There was evidently a difference in the price of the coins depending on whether he rented a booth and bought coins from people trying to sell them, or if he went to a coin show and bought coins as a customer. This taught him about the bid/ask spread in the market even before he had traded a stock. There are wholesale buyers and retail sellers in most industries; the stock market was no different. With an energy drink in hand, he sat down and pulled up his accounts, as was his daily ritual. He had two different accounts: one tax deferred for “retirement” and a brokerage account. He stared at the numbers: $201,617 in his retirement account and $103,725 in his brokerage account. It took 15 years of trading and some luck to build his accounts to this size. Many who knew about his success thought he was just lucky and had no idea about the long hours he spent studying the markets to achieve his success. Unlike his peers at work, he had sidestepped the last bear market that mauled many of the buy-and-holders. He was 33 years old and had played to win. He had used trend trading and some swing trading to achieve some outstanding results. He worked very hard to be in the right place at the right time and to seize the opportunities the last bull market gave him. He also used the lessons of past bear markets, which mauled him, to know when to get out and sell short. Moving averages, support and resistance on the charts, prices, and volume were his constant friends and advisors. He had felt ready to trade for a living on many occasions. The dilemma he faced was that he wanted to produce a consistent income from his capital while exposing it to minimal risk. He was at a place in his trading career that he had to take what he considered to be very large position sizes to keep getting outperforming returns. All he really needed was a 15%-20% annual return and he was financially free. While he had accomplished that many times, and even many years in a row, the problem was that returns like that year after year would be world class. Even the fraudulent money manager, Bernie Madoff, did not produce consistent returns which matched Stock Trader’s goals. Stock Trader needed a way to trade with less risk and yet produce a relatively safe, regular income. His trend trading, while it had runs of huge returns, also had draw downs of capital. He hated draw downs; the method of trend trading he used had losing years, especially in very range-bound and choppy markets. So that day at work, Stock Trader kept thinking through his options: “High yield junk bonds? If they were diversified enough and if I bought them on a pullback I might be able to get 8% a year in interest. That is not enough. Real estate investment trusts pay dividends but not enough for me to meet my needs.”  “Could I swing trade for consistent returns? Probably, until a trend caused a draw down,” thought Stock Trader. “I really want the odds consistently in my favor if that will be my sole source of income.” That night, as Stock Trader was doing his normal Internet surfing, after checking market quotes and e-mail and sending out a few tweets, he noticed a post in his Facebook group “Winning Traders.”  It was from a new member with the user name Optionz Traderz. Stock Trader did not like it when people did not use their real names on Facebook. He thought that they needed to go to Twitter or MySpace if they were going to have avatars and screen names. Facebook was for real people. He looked at the post. Optionz Traderz: Who else on here has had success like I have had trading the triple leveraged ETF options? No comments were posted. “This person loves the letter ‘Z’ and has a pink Cadillac for a profile picture. Now he is talking about triple leveraged ETF options? He is a different breed,” thought Stock Trader. He waited, still no comments. Stock Trader felt the need to fill the void. Stock Trader: I mostly trade stocks, not options. I believe options are too risky. Using triple leveraged ETF options sounds like options on steroids; they are too rich for my blood. He received a posted response on Facebook. Optionz Traderz: I believe they represent the opportunity of a lifetime; they can be used to manage risk while giving you amounts of leverage that have only been available to professionals in the past. Stock Trader: You can also lose at the fastest pace ever. Optionz Traderz: The same trading rules apply to 3x options as to the rest of the market. The difference is that you can get the full upside of a triple leveraged trend while the downside is controlled with only the price you pay for the option being at risk. They are tools to increase leverage and limit downside risk. You can win big and lose small with these. In the past, the only way to achieve similar returns was to either open a large number of contracts or tie up a big chunk of capital by purchasing the shares outright. Utilizing triple leveraged ETFs cuts down significantly on commissions and fees when trading options and enables a huge reduction in the amount of money at risk when trading the underlying shares. Stock Trader: I have always thought of options as lottery...