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Dr. Duke
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When I first started Parkwood Capital in 2007, my coaching clients generally did not know what an Exchange Traded Fund (ETF) was, much less why it might be a better choice than a mutual fund. ETFs have now grown dramatically with over one trillion dollars invested. More and more investors are discovering the advantages of the ETF. Essentially, an ETF is a trust, consisting of a discrete group of stocks in fixed amounts and the investor is buying shares of that static fund. Immediately you see the principal advantage of the ETF - it isn't being actively managed and thus... Continue reading
Posted Sep 5, 2012 at Traders' Library Blog
After a flat 2011, traders were hopeful as 2012 started out with a strong bullish stock market. The S&P 500 Index grew 13% through the beginning of April. But then the market stalled and basically traded sideways. Then it got really ugly as the markets dropped 8% from May 1 through May 18. Since then, this market has served to confound rather than clearly trend either up or down. On June 1, the S&P 500 dropped $32 or 2.4%, but then, just three trading days later, we watched as the S&P 500 gained $29 or 2.3%. What a roller coaster... Continue reading
Posted Jun 26, 2012 at Traders' Library Blog
I talk to prospective clients every week and one of the "red flags" I am on guard for is unrealistic expectations. Often I find the trader expects to turn his $2,000 account into a million dollars before the end of the year. Other traders have concluded from some of the marketing pitches that losses can be avoided entirely if you just know the "secrets" of adjustments. Trading options can be very conservative or very aggressive. I am sure I could look back through recent history and develop some very attractive trades along the lines of, "If I had bought this... Continue reading
Posted May 15, 2012 at Traders' Library Blog
The markets set many records for volatility in 2011. The extremes in volatility surprised even the most seasoned market veterans. Interest in trading volatility itself has grown, and as you might expect, many new products have been created and marketed to meet this demand. This has resulted in a large number of choices for the trader who wants to trade volatility itself. Options on the VIX have been available for several years and have been growing in popularity, and we also have the VIX futures contracts. Some of the newer products include the volatility ETFs (exchange traded funds) and ETNs... Continue reading
Posted Apr 5, 2012 at Traders' Library Blog
One of my clients recently sent me the link to a YouTube video and asked my opinion. This video was designed to sell an options education course and is an excellent example of the marketing hype that is all too common in the options education/coaching business. The video is titled, “The Mysterious Vega Position”, and that certainly gets your attention. But what is mysterious about any options position? Options have been traded in growing volume since the Chicago Board Options Exchange opened in 1973. This firm would have you believe they have discovered something unknown to the thousands of professional... Continue reading
Posted Feb 28, 2012 at Traders' Library Blog
That is a question on many traders' minds. Investors in Apple have been richly rewarded for the last several years. Shortly after Google went public, the financial news was always focused on Google. Google was a Wall Street darling. And the people investing in Google in those early years did very well. But during several of those years, Apple's stock price was quietly outperforming Google. But everything changed after the earnings announcement from Apple last fall. Suddenly, the talking heads on CNBC were all making pessimistic predictions about Apple. To be sure, Steve Jobs' death is a significant loss for... Continue reading
Posted Jan 22, 2012 at Traders' Library Blog
First the disclosure: I am a bull on Apple. I like their products and am bullish on the future, even without Steve Jobs. But many analysts apparently think it is time to bash Apple since Steve died. Consider the last earnings announcement. By all measures, Apple continued its recent growth both in revenues and net income, but the market yawned and Apple stock dropped. Some anlaysts appeared to be confused since the iPhone 4S had just been released prior to the announcement and thus those sales could not be included in the results, but analysts expressed disappointment anyway. It has... Continue reading
Posted Jan 11, 2012 at Traders' Library Blog
Many traders have been attracted to options strategies that promise a high probability of success. Examples include deep ITM bull call spreads, far OTM credit spreads, iron condor spreads and many others. High probability options trades are inherently high risk/reward trades, i.e., the maximum potential loss is much larger than the maximum potential gain. The probability of a loss occurring is small, but if it occurs, it will be quite large and will wipe out several months of gains. Thus, high probability options trades necessitate a robust system of risk management so the trader can be reasonably sure she never... Continue reading
Posted Dec 21, 2011 at Traders' Library Blog
As Jim Bittman has wisely observed, we have had weekly options once a month since options began trading, so the concept should not be entirely foreign. What’s new is that we can now trade weekly options every week and these options have grown enormously in popularity. Many options experts have traditionally advised clients to close their options positions on the Friday before expiration week. The reasons are twofold. First, wide swings in price and volatility are common during expiration week. Secondly, gamma is large as expiration approaches for any options whose strike prices are near the underlying stock or index... Continue reading
Posted Dec 5, 2011 at Traders' Library Blog
It may be too early to label this recent market collapse as a "crash" or even to declare it over. Many analysts and the various CNBC talking heads have compared the declines of the past few weeks to the crash of 2008. But closer analysis shows that this crash is unprecedented in our market's history. The crash of 2008 lost $550 on the Standard and Poor's 500 Index or 42% over 59 trading sessions in the fall of 2008. By comparison, the 2011 crash was not nearly so severe, with a loss of $245 or 17%. But this $245 loss... Continue reading
Posted Aug 17, 2011 at Traders' Library Blog
A free webinar entitled, Trading the Iron Condor in a Bear Market, sponsored by Parkwood Capital, LLC, will be broadcast at 8:30 pm on June 29. The iron condor options strategy is a powerful income generation strategy, but to be successful, one has to know how to manage the position when the market trends strongly against you. Register for this free webinar today. Continue reading
Posted Jun 23, 2011 at Traders' Library Blog
I have just returned from the Traders Expo in Dallas where I was invited to speak on adjusting the iron condor. In one of the talks I attended, the speaker surprised me with his audacious assertion that he can predict the value of the S&P 500 to the day! Wow! He even asked the audience at one point what you could do if you could read today the Wall Street Journal as it would be published tomorrow. Well, I think I could make money if I had that advance copy of the newspaper, but this reminds me of one of... Continue reading
Posted Jun 20, 2011 at Traders' Library Blog
I recently received an email advertising an upcoming trading class that read: "How to find trade set-ups with a 3 to 1 or better risk/reward ratio… increasing the probability of success on every trade" This is an excellent example of some of the marketing hype and confusion about probabilities that is all too common in trading education. A trade with a high probability of success inherently has a lower relative potential gain and a relatively large potential loss. The probability of that loss occurring is small, but when it does occur it will wipe out many months of gains. A... Continue reading
Posted May 11, 2011 at Traders' Library Blog
I just initiated a trade today to take advantage of the upcoming earnings announcement by GOOG on April 14. I bought the GOOG Apr/May $600 call calendar for $740. The calendar spread is a classic "vega risk" trade; it has a large positive position vega which means it will increase in value with increasing implied volatility (IV). This position has a wide break-even range from $572 to $632 and will benefit from the increased IV that typically precedes the earnings announcement. The risks are two-fold: 1) that GOOG's price runs too far in one direction or the other, and 2)... Continue reading
Posted Apr 1, 2011 at Traders' Library Blog
I often hear people say something like this: "I am bullish on Apple and the VIX is high, so I am going to sell a put spread on Apple". It is a commonly taught myth that one should sell credit spreads when implied volatility is high, and buy debit spreads when implied volatility is low. The truth is that the returns of the debit spread and the credit spread at the same strike prices will always be identical. You can confirm this yourself with the options chain of your favorite stock. Learn about other option myths in "No Hype Options... Continue reading
Posted Mar 21, 2011 at Traders' Library Blog
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Mar 21, 2011