Session of 03/02/2007

[WallStreetnBio]

Dave would buying BIDU puts be a better idea than GOOG puts? Thats just going off the theory that our markets affect China more than Chinas markets affect ours. The DOW is down again so that should put more fear in the Chinese sending there markets down.  Maybe I'm wrong but I think BIDU has more downside in it than GOOG even though I agree they are both good shorts.

[dnickers]

Why the stop? That way any bit of intraday volatility wipes you out. Better to buy just a little and let the thing run its course. That's what I'll do.

I just like to have the option go my way immediately, leaving little room the other way.  Probably not the best strategy, but limits losses.  I like the play though David, and I think I'll watch it for a little bit and maybe try again.   

[David Randolph]

Dave would buying BIDU puts be a better idea than GOOG puts? Thats just going off the theory that our markets affect China more than Chinas markets affect ours. The DOW is down again so that should put more fear in the Chinese sending there markets down.  Maybe I'm wrong but I think BIDU has more downside in it than GOOG even though I agree they are both good shorts.

Yes, more downside potential at BIDU than at GOOG. But beware with the puts you buy and absolutely don't invest a significant part of your capital in that. Buy money you can afford to lose, as you would lose if you buy a penny stock that tanks 50% in one day.

[ScottishTrader]

GOOG Weekly Chart suggests a double top with a target of $397 (i.e. high of 513 - middle W-leg of $455 = 57.  455 - 57 = $397).  If GOOG keeps going down from here, it may see some support at 427-430, but it does look like a significant breakdown is looming unless it bounces immediately.

By the way, its really nice to have such a discussion about all this - very educational

[David Randolph]

Why the stop? That way any bit of intraday volatility wipes you out. Better to buy just a little and let the thing run its course. That's what I'll do.

I just like to have the option go my way immediately, leaving little room the other way.  Probably not the best strategy, but limits losses.  I like the play though David, and I think I'll watch it for a little bit and maybe try again.   

Ok, I know your game. My game needs to be: see a trade, place my position and then let the market run its course, without any regard for the intraday or even the short term.

But, in this case, if the stock just goes up to close that gap on the chart, my puts will be worthless. I guess there's too much leverage in them, that's why I wanted Ramsburg to buy something more in the money, but the bid/ask spread was huge there.

One thing is sure: I can only speculate, not gamble, and I believe trading with extremely tight stops is gambling, because the intraday is unpredictable, and not just that ... it makes you pay attention to the intraday, and that kills a trader.

I wish I knew how to explain what my experience about that is ... the basic principle is: if you buy or hold based on the intraday or very short term, you will be presented with endless hold/sell decisions as you hold the position, and invariably you get out too soon, not really making any money over the long term.

Let me just applaud you one more time dnickers

[dnickers]

One thing is sure: I can only speculate, not gamble, and I believe trading with extremely tight stops is gambling, because the intraday is unpredictable, and not just that ... it makes you pay attention to the intraday, and that kills a trader.

I wish I knew how to explain what my experience about that is ... the basic principle is: if you buy or hold based on the intraday or very short term, you will be presented with endless hold/sell decisions as you hold the position, and invariably you get out too soon, not really making any money over the long term.

And this is why I pay money to be a member here.  I am learning from the best.  The lessons/philosophy learned here is outstanding.  What better way to learn than from people who are sincere, genuine, experienced, and talented.

[bourbonstreet_crawdaddy]

Why the stop? That way any bit of intraday volatility wipes you out. Better to buy just a little and let the thing run its course. That's what I'll do.

I just like to have the option go my way immediately, leaving little room the other way.  Probably not the best strategy, but limits losses.  I like the play though David, and I think I'll watch it for a little bit and maybe try again.   

Ok, I know your game. My game needs to be: see a trade, place my position and then let the market run its course, without any regard for the intraday or even the short term.

But, in this case, if the stock just goes up to close that gap on the chart, my puts will be worthless. I guess there's too much leverage in them, that's why I wanted Ramsburg to buy something more in the money, but the bid/ask spread was huge there.

One thing is sure: I can only speculate, not gamble, and I believe trading with extremely tight stops is gambling, because the intraday is unpredictable, and not just that ... it makes you pay attention to the intraday, and that kills a trader.

I wish I knew how to explain what my experience about that is ... the basic principle is: if you buy or hold based on the intraday or very short term, you will be presented with endless hold/sell decisions as you hold the position, and invariably you get out too soon, not really making any money over the long term.

Let me just applaud you one more time dnickers

Thank you for talking about gambling David. I believe you are right on the money when you say that intraday speculation and basing trades on intraday information is indeed gambling. I believe that all of us will make much more money over a longer time period by sticking to this wise advice.

Making too many short term trades ends up losing more than buying and holding a long or short position. Clearly defining your buy and sell points before making the trade is something that I am becoming comfortable with, but have not always done - and it usually ends up with me losing money on a winning strategy.

Thanks again for your wonderful insight, and sharing your philosophy and thoughts with us. Your experiences can be used by the members here to develop a sound trading technique and philosophy of our own, and you are having a positive impact on us.

Thanks

Bourbon

[David Randolph]

And this is why I pay money to be a member here.  I am learning from the best.  The lessons/philosophy learned here is outstanding.  What better way to learn than from people who are sincere, genuine, experienced, and talented.

Gee, what a nice way to end a very tough week dnickers, thank you

I feel I paid a very high tuition fee, so I'm not willing to let go of what I've learned. The money can only be made in the main moves, not in short term fluctuations. To concentrate on the main move, there must be sound reasons to take the trade and those sound reasons can't change due to a 5% move, or else they were not sound enough. I get out when the market proves me wrong or right, not when it didn't talk yet.

Anyway, I'm still learning, and I often make mistakes, as being a successful trader/investor is probably one of the most difficult endeavors a man can take.

[Guloso]

David Options are not so simple as you are writing. The price change with the time and special with the volatility.

If you are not looking for the volatility you are playing a losing  game. Try to buy puts with a low volatility (in historic terms).

[dnickers]

David Options are not so simple as you are writing. The price change with the time and special with the volatility.

If you are not looking for the volatility you are playing a losing  game. Try to buy puts with a low volatility (in historic terms).

However, with in the money options, I'm not too concerned with historic volatilities.  Here, the option price is pretty tightly coupled to the stock price...

And options are, in essence, simple.  As traders, we do a bunch of calculations and then pick some greek letters to call those calculations...but what really matters is what the underlying stock is doing...JMO

[Guloso]

One of my favorite strategies for Bear times is sell put options out of the money, where I consider the strike price cheaper in terms of Company fundamental value.  I don't mind if I will have to buy the shares on the maturity date. But this is for the long term.

[David Randolph]

David Options are not so simple as you are writing. The price change with the time and special with the volatility.

If you are not looking for the volatility you are playing a losing  game. Try to buy puts with a low volatility (in historic terms).

However, with in the money options, I'm not too concerned with historic volatilities.  Here the option price is pretty tightly coupled to the stock price...JMO

I agree with dnickers, that is why I prefer in the money options. Anyway, this trade on the options isn't sound, because it has a time limit of just two weeks, so I'm somewhat playing the short term here and I dislike that.

However, if GOOG breaks down to $435 or so I see it plunging $50 or so in a couple of days, so I guess it is worth the risk.

But I understand what you mean by taking volatility into account. Thanks.

[dnickers]

One of my favorite strategies for Bear times is sell put options out of the money, where I consider the strike price cheaper in terms of Company fundamental value.  I don't mind if I will have to buy the shares on the maturity date. But this is for the long term.

I like this strategy too, but in bear times, that company may trade well below the fundamental value, and you may see losses for quite some time...in addition, you need to have the cash to buy the stock if the put you sold gets put to you...so it really isn't that powerful of a leveraging tool...but, if the stock doesn't go down, you get to keep the premiums 

[David Randolph]

One of my favorite strategies for Bear times is sell put options out of the money, where I consider the strike price cheaper in terms of Company fundamental value.  I don't mind if I will have to buy the shares on the maturity date. But this is for the long term.

If I understood correctly Guloso, if you sell put options, you're making a bullish trade in a bear market, am I right? Betting stocks won't go down all that much, because they have fundamental value?

That can work if it is just a correction in a bull market, but if it is a bear market, most stocks will go down more than anyone could imagine when the bear market started.

[dnickers]

There it goes.  GOOG taking a dip