Trading
Stocks, Options and Currencies
All I know about FOREX trading - aka: trading currencies - is that it has the advantage of running 24/7 because the market never closes.
I am not a forex trader so on this website
I focus on stock trading and options trading, that's because everything I write about in this website comes from what I have personally learnt while practicing the art of getting out of the rat race.
In my first years of trading, I got lucky enough to stumble on an advertisement about options trading by
optionetics.
I did go to a seminar by this company fearing I would meet some pushy salespeople trying their best to get a
yes from me on some options trading software.
Just out of a seminar about trading online:
I had the best time of my life, I learnt in two hours more than I would have learnt in two days studying the subject. I didn't sign up for anything like another class, nor did I buy any software.
Instead, I went back home and quicly opened an account at
optionsXpress to try out their
real time virtual trading platform. And I loved it.
I was only 24 years old at the time and had never experienced such an adrenalin rush. The first (virtual) trades were really exciting. I would sit there waiting of the BTO order (buy to open order) to be filled but after a couple of days I got bored of it and decided virtual trading was not for me.
That's when I wired my first usd 500 into my trading account and purchased my first options. Eventually I lost it all. Let me explain you how.
How I lost money trading options:
I was aware that buying stocks meant you could either win or loose because it is directional trading:
You bet on the stock going up.
So, I set up a
straddle with a delta neutral.
I was really over the top when the underlying stock moved out of its current range (up or down doesn't matter with a straddle) and I made a little money (usd 100 or so) which left me with only usd 40 after deduction of the commissions.
That's because when you trade straddles with only usd 500, the percentage of commissions paid is huge:
Commissions to open the trade:
- usd 15 to buy the call contracts (BTO)
- usd 15 to buy the put contracts (BTO)
Commissions to close the trade:
- usd 15 to sell the calls (Sell to close - STC)
- usd 15 to sell the put contracts (STC)
Total: usd 60 out of usd 500 invested. That's over 10% of commissions which means that if you make just 10% gross profit on a trade you are still loosing money!
That's when I started learning about technical analysis in the belief that I would time the market.
Ooops... That was a bad idea!
I re-injected usd 500 into my trading account on two occasions, to bet (gambling really!!) on a stock going up or down. I lost my money because I was wrong. Nobody can predict market direction.
I realized that I also lost money when I was right: That's because the implied volatility of the option would go down in the same time than the underlying stock would go in the direction which I had predicted. This resulted in my investment loosing value even though I was right on the stock's direction.
At that point, I was disappointed and refused to use any more real money to learn more... but I had not given up just yet!
Money lost on the stock market has been well used:
Looking back I don't regret that I lost almost two grounds in the stock market because trading with real money has taught me real lessons.
It's also given me the incentive I needed to learn more about implied and historical volatility, time decay and other components of an option value (greeks).
Finally, loosing real money gave me the reason I needed to be more serious about trading virtual money.
Lessons learnt from trading experiences:
Going for delta neutral (non directional) positions makes sense! (This is not a joke, it really does!)
Time decay is the enemy of the call or put buyer.
Volatility can work against you or for you.
My (new / conservative) options trading style:
I buy long term options and sell short terms options. I love it. This is great because everyday that passes, my chance to make a profit increases.
This type of set up is called
calendar calls or
calendar puts depending on how you set it up. You are basically selling time (selling short time options with rapid time decay) with the cover of a longer term option.
It is
very safe to set up calendar positions as long as the stocks remains in its range. How wide the range depends on the set up.
Personally, I look for expensive short term options, high IV options (high implied volatility) and cheap long term options. To find them among thousands of optionable stocks, I look for options with a high IV/HV (Historical Volatility) ratio.
To be safe I go for slightly
out of the money options and I make sure that the spread remains profitable even with the stock going up or down by 10%.
I only use technical analysis to look for resistance and support levels in the stock chart.
Additionally, to stay on the safe side, I look for options with a
high open interest so that I can easily buy and sell my calls and puts. This also means that the spread between ask and bid price is low which is nice.
Keep coming back to my website, I intend to share
options trading ideas as I keep experimenting with calendar calls on popular Nasdaq stocks such as GOOG and BIDU.
Have you considered investing into stocks, options or currencies?
Trading stocks is a tough job, it can be done a daily basis, even hourly basis. Most people invest in stocks without realizing that they could protect their investment with options giving them the right to sell their stock at a price which does NOT depend from market conditions.
Such traders are using put options to protect / hedge their investment in stocks. Others are writing calls on a stock they own. These are educated investors who have learnt how to make a living from trading.
Learning what others ignore is key to success and internet is a wonderful resource which allows to gain the necessary education to trade from anywhere in the world.
Trading currencies is becoming more and more popular. Learn more about FOREX trading in the following article:
How to be a full time forex trader
Do you want to learn more about trading online? Maybe your website is about trading? If so, visit:
Directory of websites about options trading
Directory of websites about trading stocks
Directory of websites about forex trading (currencies)
