All posts by Barry Brush

REMEMBER YOUR NAKED OBJECTIVE IS TO MAKE MONEY

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Get Naked By Taking The Clothes Off of Your Stock Before You Buy It.

Okay, you just sold the family SUV to put a stop to all that gas price gouging out there and purchased a cute little used hybrid for a net credit of 10 grand plus a $200 rebate. The teaser seminar you attended last week convinced you the stock market would make you a millionaire faster than the rule of 72 and eliminate your worries about diversity in world politics. So…Where should you begin?

Before you call your cousin’s broker, to buy stock in your favorite company, probably the one you work for or one whose name is prominently displayed on the lid of your laptop, take a breath and remember your objective is to make money not to please your ego.

Today that might sound impossible, but I would like to invite you to take a short walk with me to the other side for a view of my favorite investment paradigm.

What if I told you that you could sell the stock you want to own before buying it, without borrowing it to sell it short or spending any of your hard earned money on it. What if I also told you that it would be possible each and every month to net more than 10 times the dividend that attracted you to it to begin with; and build a little capital on the side as well.

The truth can sometimes seem stranger than fiction, but it’s still the truth. That is why this is an investment paradigm. It is knowledge that is hiding behind its own language. It’s no secret. It’s just that sometimes we don’t see what we are looking at. It involves selling an option contract that you do not own. It’s legal and it’s done every day. Follow along; I’ll explain the concept. What you do with it is up to you.

First, if you haven’t already, open and online brokerage account. Do a Google search for a good options site. You won’t want to deal with humans in your trading. They are expensive and they always seem to try to persuade you to do something other than what you know you should be doing. You can open the account for free and use their virtual trading to test the site features before you fund your account. Make sure you request and are granted at least a level 4 option trading status. (Uncovered trades on equities)

You will need to meet certain experience, net worth, and risk tolerance parameters on your application to absolve your broker in advance of any wrong doing. Something to do with compliance and SEC Regs.

For Experience and training: Re-read my blogs here at www.SelfInvestors.com or spend a few evenings perusing the free options classes out there like those hosted by the Options Industry Council. Either will be sufficient to qualify you for “extensive or advanced experience/training” in options. You have to put the time in. Go to:

clip_image001http://www.888options.com/classes.

As for your Net worth: You have my permission to add in the value of your dog or cat to get your net worth up near the max.

Risk Tolerance: Make sure to check “Speculation.” Even though we will only be selling what we don’t own. Whenever you sell an Option contract, you incur an obligation until its expiration. (When you buy one you acquire a right.) Some people call it speculation. Some call it insurance. I call it insurance speculation.

With your account now open and if you have at least “$10,000 in marginable securities or cash” in it you can sell an “uncovered” or heaven forbid, what’s called a “naked” contract. If your balance is less, don’t worry, you can turn your naked trade into one with clothes by purchasing a lower priced contract expiring in the same month as the one you sold. For that, your cash reserve requirement is only the amount of the spread between the two strike prices, nominally $250 or $500 per pair of contracts. You are still selling the same contract but now you have to buy “insurance against its decrease in value. I think my Mortgage Banker has the same rule that allows me to sell my house to him without ever owning it.

In my example you incur the obligation to buy the stock you want to own, at the price you wanted to buy it for; but now under the terms of your contract, you only agree to buy it at that price if it is below the agreed and wanted price. Where you wanted to buy it anyway. If it is above your agreed and wanted price when your obligation expires, you pay nothing. But of course you still want the stock so, you simply keep what you sold it for and agree to sell it again. You will receive money and an obligation to buy it if asked to, which is what you want to do. Right?

Now you are simultaneously hoping to buy the stock to make money and not to buy the stock to make money. What do you want? To make money? Yes! It is available no matter which way you turn.

Oops! The stock you wanted to buy at that price just when down in value and darn…. the contract you sold was exercised. To fulfill your obligation, you must now buy the stock where you wanted to buy it in the first place. Darn!

Now you own the stock you wanted to own, at the price you wanted to pay. You rationalize the 10% gain you received on it over the past 3 weeks (annualized 120%+) as helping you buy it at a discount. Because the value has slipped a little you are not quite so sure you want to own the stock after all. You can’t make any cash money until you sell the stock anyway so you decide to try to sell it for more than you had to pay for it. You can legally sell someone the right to buy it from you at a price higher than it is now by selling the obligation to sell it to them, if they ask for it, for say, another 10% of its value.

Owning the stock, gives you the right to sell a call on it. You enter into a contract with someone to sell them your stock for a little more than you paid knowing your offer will expire automatically in 3 weeks if they don’t exercise their option to buy it. The price of the stock stays about the same neither going up or down. Your obligation to sell expires and you once again have to rationalize the 11% gain (annualized 125%) as possibly putting you into a higher tax bracket.

Because the stock is not gaining in value you are becoming less and less interested in owning it. So you arrange with someone else to buy it at the same price the last fellow did a month ago. Cha – Ching! You collect another 9% (119% annualized). This month your stock does move up a little and you are asked to sell it for a little more than you paid. Up a buck for a measly 2.5% gain. (only 30% annualized ๐Ÿ˜‰

Now you are back to cash and up 10 + 11 + 2.5 =23.5% in 90 days or 94% annualized. Your stock seems to be headed up now so you reconsider and are entertaining buying some again. But, why not just sell it again before you buy it. Isn’t the whole idea to make money?

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Cheers, 2dimes  Barry Brush

Barry Hot on the Heels of the Plunge Protection Plunge Team

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2DIME’S INVESTOR NOTES By: Barry Brush
Technical Analysis of Price & Volume Action Can Give a Trader a Heads Up In the Plunge Protection Game

An article in this morning’s paper gave me cause to reflect upon my last comment on disintermediation and the current state of our nation’s financial markets. The hyperinflationary credit release program which the Federal Reserve began last December has provided a total of $360 billion in short-term loans to credit squeezed banks. 10 times since December 2007 the Fed has opened its discount window to auction off notes at extremely low rates. In the latest auction commercial banks paid an interest rate of 2.87% for their loans. You and I should be so lucky as to find the same rate in our lifetime.

In yesterday’s auction of $50 billion in 28-day loans, there were bidders for $88.3 billion indicating to me that even at lofty levels, there is a significantly higher demand for credit than there are dollars available. One reason for this lack of dollars or bank deposits is a result of the disintermediation I spoke of in my last post on SelfInvestors.com . Have you ever wondered what this below market money is being used for? It certainly isn’t growing moss. What happens if you don’t repay them? I know. You just write them off. No muss no fuss. Poof!

Last Monday April 21st, I Just happened to be watching the 10min chart of "T". Indications were really pointing to a crash of a day given that most markets had moved up to but not through strong overhead resistance on Friday. What I observed was both unsettling and reassuring.

About 10:00 AM, there appeared to be unusual or strange non-human trading patterns occurring which I initially assumed was a corporate buy back in progress or possibly insider trading in anticipation of better than expected earnings. I later became convinced that it was intervention by the shadowy, deep cover grey-ops contractor known as the PPT, (Plunge Protection Team) or WGFM “Working Group on Financial Markets”.* (See Note Below)

I watched “T” sell off repeatedly to $37 exactly and then be miraculously bought back up to $37.90 exactly. I continued to check my monitor throughout the day. Similar price action continued all day at approximately 6 min. intervals; with a 40 min lunch break from 11:50 to 12:30 (So much for the In-human part because computers don’t take lunch breaks) I really haven’t noticed these trading patterns before. Very interesting. After the close, I examined all of the other Dow 30 stocks. With the exception of MSFT and INTC, there were distinct trading pattern similarities to those of “T”. That day the Dow opened around 12850 and headed south quickly. It closed at 12820 up as “planned”. I knew then that I had witnessed a methodical, massive and documented interventionist attack on 28 of the 30 Dow Components in order to prevent a potential sell off and to perpetuate a rally already struggling to take flight. My conclusion Annie, is that “Daddy War-Bucks” is alive, well and a reality.

Attached is a screen shot of “T” for confirmation. All of the other Dow component charts have duplicate price actions. I would appreciate any feed back you might have on my observations or any similar ones of your own. I suppose that if the “lender of last resort” is doing this, it is quasi-legal; and we can now elevate the national opinion of Martha Stewart to a BUY.

This is really good stuff, because it tells me that the Government AKA “The FED” or “us” is serious about protecting today’s Market and economy. However, it goes without saying that, the cost to future American generations will be enormous. In terms of the resulting inflation and the fact that eventually such rigging will destroy the integrity of the markets as free institutions of trading. But that is for someone in the future to worry about. Not us. Our job is to recognize it and to trade on it.

The majority does not want to nor can it see the paradigm shift in the US economy. Over the past 20 years, it has clearly migrated from “laissez-faire” to state control. The switch was thrown 2 decades ago. Darn! I never saw it happen. For you, I and our children, there will be a difference because we see what is going on. State control is not a bad thing for us. We are traders and we are aware of it. So continue to be-aware.

Our strength is in being able to quickly shift our capital to invest in strong companies in strong sectors as the winds of change blow. Rely on price and volume action and technical indicators. They will reveal the “monkey business” going on. A free Market has always had the ability to look ahead 6 months or so and forecast the future strength or weakness of the economy. A concern of mine is that interventions such as the one I witnessed Monday will denigrate the Market’s ability to make that projection. Never underestimate the power of the US Government.

That said, stocks remain one of the best hedges against inflation: but don’t be satisfied with mediocre mutual fund returns. Get involved in the market and stay involved. Make sure your subscription to SelfInvestors.com is kept up to date. Use it!

FYI, I was at a breakfast meeting yesterday with various business leaders in Charlotte, NC. Bob Tourtellot, the owner of an industrial rag company, Wiping Cloths, Inc., said his sales were up 20% over last year. He said rag sales were a reliable leading indicator of the general economy. Go Figure!

Cheers, 2dimes Barry Brush

Note* My thanks to Robert D. McHugh, for thoughts and excerpts from his TechnicalIndicatorIndex Newsletter and Nelson Hultberg’s comments and research below. Nelson Hultberg is a freelance writer in Dallas, Tx. and the Executive Director of Americans for a Free Republic.

Executive Order 12631–Working Group on Financial Markets
The provisions of Executive Order 12631 of Mar. 18, 1988, appear at 53 FR 9421, 3 CFR, 1988 Comp., p. 559, unless otherwise noted.

This order states that the major appointees of this group are to be the Secretary of the Treasury, the Federal Reserve Chairman, the SEC Chairman, and the CFTC Chairman and those they designate to fulfill their purposes. The purposes, as defined in the Executive Order, are to "[enhance] the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and [maintain] investor confidence." The order goes on to say, "To the extent permitted by law and subject to the availability of funds therefore, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions."

“The PPT or “Working Group” was authorized by Congress after the crash of 1987. (October 19, 1987 "Black Monday") Its job: to buy markets should declines get out of control. It has become more interventionist than was originally intended under the law. There are no minutes of meetings, no recorded phone conversations, no re­ports of activities, no announcements of intentions. It is a secret group including the Chairman of the Federal Reserve, the Secretary of the Treasury, the Head of the SEC, and their surrogates which include some of the large Wall Street firms. The original objective was to prevent disastrous market crashes. Lately, it seems, they buy markets when they decide markets need to be bought, including equity mar­kets. Their main resource is the money the Fed “prints”. The money is injected into markets via auctions at the New York Fed’s Repo desk. Once upon a time this would show up in the M-3 numbers, warning intervention was nigh. But, in November 2005, the Fed announced with little comment and no palatable explanation that it would no longer report the M-3 number after March 2006. Without the useful resource of M-3, we need to find other tools to monitor when the PPT is likely to intervene, to instigate or prolong a rally.

For the PPT to be effective in driving markets higher, the potential for a sustained turnaround rally depends upon a high volume of open short interest. By measuring this short interest by the level of CBOE put options, we can gauge when markets are ripe for PPT intervention. The way it works is, the PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with politi­cal events that could be perceived by markets as highly negative and cause a decline, need to be pre­vented by a rally already in flight.

To get that rally, the PPT’s key component is money “given” to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer’s account. That buying comes out of the blue at a time when short interest is high. The unexpected rally strikes blood, and fear overcomes those who were betting the market would drop. These shorts need to cover, need to buy the very stocks they had agreed to sell (without owning them) at today’s prices in anticipation they could buy them in the future at much lower prices and pocket the difference. Seeing those stocks rally above their committed selling price, the shorts are forced to buy — and buy they do. Thus, those most pessimistic about the equity market end up buying equities like mad, fueling the rally that the PPT started. Bingo, a huge turnaround rally is well underway, or a rally al­ready underway is extended, and money from the sidelines; from Hedge Funds, Mutual funds and individuals rushes to join in the buying madness for several days and weeks as the rally gathers a life of its own.”

P.S.:

My belief and observation is that we have just witnessed such a rally; so take advantage and be-aware.

Put PUTs To Work As Insurance Against Disintermediation

clip_image001 2DIME’S INVESTOR NOTES By: Barry Brush

April fool’s? With massive withdrawals and disintermediation* facing us to pay upcoming tax bills on April 15th, one would be ill advised to buy into this market. That is unless you are selling short. I’ve been standing on my head all week trying to make sense out of what’s up with this market. I found the answer while doing a handstand at my computer and typing with my toes. While looking under my desk, I was able to confirm that we are in a down trending market and as Alice would say, up is down.

What will the Government do with all those tax receipts anyway? Grind them up and re-issue them in Junk Auction-Rate Securities with dividends that are tax credits? Hmmm? No earnings – no taxes – no tax credits – no buyers for Junk Auction-Rate Securities or SIV’s – no earnings? – Hmmmm?

Don’t forget to file your tax return this year so you can get your rebate. Don’t make enough money to file? Hmmm? How much is $168 Billion? Hmmmm?

If you don’t want to shoulder the financial risk and burden of inactive capital while selling short, my advice is to discover PUTs… Buying a PUT on a stock you own is like buying insurance against a decrease in its value. Like Insurance, every month or so, the premium must be paid because the policy will expire if you don’t. Cool thing is that with a PUT you can, in effect, insure anyone’s stock, house or life without owning it or living it and be paid a benefit check if it declines in value or dies.

If you aren’t comfortable with PUTs, remember they are like calls with an opposite expectation of price movement. Look for a strike price with 6 – 8 weeks until expiration and a DELTA of .70 or more. Buy a lower delta strike for longer term options because the delta will increase over time as well. Don’t knock yourself out over implied or historical volatility, their relationship or option price charts showing risk and potential profit zones. All are nice to know; but I think it best to keep it simple. Just like a stock, option selection is all about price, volume, liquidity, momentum and the earnings potential of the company.

There is an optimal risk/reward point between one contract with a high delta and multiple contracts with a lower delta for the same amount of risk/$. Sometimes your ROI can actually increase if you spread the same dollars over more contracts. Just like a call, open interest should be no less than 100 contracts. Theoretical value should be approximately equal to the ask & preferably more. The Bid/Ask spread needs to be reasonably narrow (I’d say not more than a point or two) and ideally divisible by thirds. You want to be able to get in and out whenever.

As far as the current downtrend is concerned, take advantage of it. You don’t have to be wall flowers like the institutions are right now. Try to over come the paradigm of buy low sell high and waiting for a dividend; and acknowledge that traders can and do make money in any market. If you still aren’t sure about PUTs, check out the following ETFs: QID, DXD, SDS, the TWM or the DOG; you can even buy them outright like plain old atavistic shares of stock or you could place a couple of CALLs. J

Yesterday I paid $66.00 at Wal-Mart to fill up the 20 Gal. tank on the wife’s SUV. They even put a little corn syrup in the mix. Driving away from the pumps I noticed that there were no lines to buy more. It gave both me and the car bad vibes. The fill up was a 40% increase from this time last year. It’s the same increase as the price of corn and food over the same period. Hmmmm…? And I hear diesel fuel is going for more than a buck now. ($4.25/gal) Somehow, I don’t think the Trannies are going to let this Bear Market off the hook. (Jets, Trains, Trucks and Tractors all use diesel).

That being said, have you checked out the railroads lately. In my opinion, the value of a train ticket is underpriced and has some room to grow. Check out BNI and CSX. My son recently found that a round trip train ticket from Charleston, SC to Greensboro, NC was only $112 while the cost of gasoline alone to make the drive would run him $120 for the two tank fix his Beemer would need. Go figure. $8.00 is still a savings of 7% which is not a bad rate of return over a two day period. I hear it’s even safe to “text” on the train; and I think he can take his pocket knife with him for the ride.

All this, and the gremlins that keep blowing up pipelines and monasteries will make for an interesting school year; but, go ahead and start studying for the final exam. It’s probably multiple choice and every question will have more than one OPTION for the correct answer.

*Note: Disintermediation
The withdrawal of money from low yielding financial accounts, such as saving accounts, and the reinvestment into higher yielding securities such as Treasury bills. Banks, in an effort to keep the money, may pay depositors higher rates. In order to afford the higher rate, banks will then charge their borrowers higher interest rates. This can possibly lead to tight money and reduced economic activity.

Cheers, 2dimes ;-)     

P.S. Your comments are always welcome

Technorati Tags: options,puts,taxes

Take the Fear Out Of Options With a Straddle

2DIME’S INVESTOR NOTES
Monday, January 14th, 2008
 
 

A Simple Trade to Take the Fear Out Of Options

How many times have you selected a stock, evaluated it, chosen an option strategy and entered the trade only to have the stock move against you?
 
When I first started trading options, this seemed to happen to me all the time. It seemed easy to find great picks. I would buy call on a breakout and watch my investment soar often for a gain of 100% or more.
 
As my mood soared with the stock my emotions took over and I would start imagining all of the material treasures I would now be able to purchase. The impish voice of greed would begin talking to me and I would ride the play higher and higher to greater returns never taking any off or moving up my stops.
 
The next market cycle or price wave would kick in as more savvy traders took some profit off the table. My greed would tell me the play still had room to grow; but my fears began to overcome my hopes as the trade inevitably descended below a 100% rate of return. My fear would approach panic as my paper profit evaporated.
 
I would stay in the play until I was back to zero figuring that some how it would revisit 100%. I never sold until I was afraid I might loose everything I’d put at risk. This Battle inside my head between the emotions of Greed and Fear went on until I eventually paid for the luck I had had in my first six months of trading by bringing my account balance back to where it had started.
 
If any of this sounds familiar, you are on the right track. If you are there now, you have probably figured out that you should do something different. If you don’t know what it is that you aren’t doing, I suggest that you begin a trading journal. Who knows, perhaps the weather or what you had for breakfast may be adversely affecting you. More likely than not, it is only greed and fear at play.
 
If you are new to Options, Let me suggest a simple fool proof trade to get a grip on your financial future. The cool thing is that with this one, there is no room for greed or fear. All option traders should be able to make money if the underlying stock changes its price. The only constant is change and change is good. Up or down, it is good. We are going to expect and profit from change. We are not going to buy and hold anything. You can’t buy anything with paper profits, except maybe a failed mortgage company. BO! FA! FA! FA!
 
This trade is not about being right or wrong, it is about winning. You should be able to win with it 85% of the time, while minimizing your risk to about a 15% per trade. There are three steps to it.
 
First, find a stock that you think will move significantly in the next three weeks. You can find one based upon News, Rumor, Earnings or perhaps one of those scanners a lot of sites promote. It can be a good event or a bad event. It just has to be important enough to prompt a move in the stock.
 
Second, simultaneously buy a put and a call on either side of the at-the-money strike price. (Option strike price closest to the stock price)  Try to have your play in place three weeks prior to the upcoming event. Purchase options with approximately 3 months remaining until expiration. There, you’ve “straddled” a price point of an underlying stock. You now have the right but not the obligation to buy or sell 100 shares of your stock pick at the same price, the strike price.
 
Third, relax, don’t worry – make money. If your “event” causes the stock to move in advance of the event or at the event it doesn’t matter. Give it some time, perhaps as much as a week. If its good news and the stock goes up, your call will bring a profit WHEN YOU SELL IT. Or if its good news and the stock price falls because it wasn’t good enough, your put will make you smile WHEN YOU SELL IT. You can sell at a profit or put on a stop at a profitable level. That’s up to you. I personally like to sell. I’m a “now” kind of guy.
 
A normal expectancy would be for the profitable move to yield twice as much as the other side looses. Two to one odds are the norm. One quick note: After you capture your profit, you might hesitate before unloading the opposite option.(s) Often a fast moving stock will reconsider its direction and retrace a bit, giving you the opportunity to recapture some of the initial decline on the loosing side that occurred as the stock made its initial move.
 
A fourth step is a remote possibility if you have picked a mover; but I’ll cover it any way. If nothing happens, nada, no movement, zero; sell both sides and go shopping for another trade. You will most likely be able to limit your loss to around 15% of your initial investment. Say the “Straddle” cost you $100 for the Put and $150 for the Call your total investment would have been $250 and your total risk 15% or $37.50. I’m not a mathematician but you could probably loose on 7 out of 10 of these and still make money.
 
No Greed, No Fear, No Worry. I’d much rather win than be right or wrong. Wouldn’t you?

Cheers, 2Dimes / Barry Brush
To contact me send an email by using the Contact form (link above) and Tate will make sure I get it.  The best option is to submit your comment to the blog here )

Barry on Navigating the Emotions of Stock Options Trading

2DIME’S INVESTOR NOTES
Wednesday, December 12th, 2007
 
 

“You Have the Option to Remain Silent.”

"Any Emotion You Display Can and Will Be Used Against You On the Trading Floor."

so…. “SNAP OUT OF IT!”

I have heard it said that "Trading is as much psychological as it is skill."  I personally think it is much more psychological than skill because much of the skill consists of being able to control the emotions which are along for the ride on every trade.

If you trade for a living like I do, you understand full well the psychological ups and downs which accompanied last months 10% correction. Control of them was the key to eking out a pay check.

As for myself, an ex-fighter pilot, having graduated from a career with a commercial airline, I’m supposed to have superior skills in emotional stability and control.  I used to get paid to take hundreds of people from point A to point B without ever needing to see the ground or the sun, and often two or more hours from the nearest landfall.  If  I preflighted the aircraft and properly planned for the flight, i.e. made sure I had enough gas, and precisely followed a checklist from start to finish, I always reached my goal; 100% of the time. Well, .. maybe not 100%, but close.

In my new career as an options trader, the trades I make are not exactly like that; but one can draw a tight parallel to the emotion involved.  The checklist I run now before I place a trade runs something like this. I pick an equity that is fundamentally above average. I preflight it to verify it will take me to my planned destination. Earnings and Sales Growth, Accumulation and Distribution, DELTA and then, just like every trader I know, I make my pick jump through a series of technical hoops based on price pattern, position and volume before pushing the thrust levers up and putting my money on the runway in harms way.

Usually all goes well and the flight to prosperity continues;  but every once in a while a malfunction occurs, usually a direct result of an overlooked piece of analysis known as a glitch, a screw-up or simply a mistake.  In the cockpit, we used to say if you screw something up unscrew it as soon as possible. When things go wrong what can we do?  We bite the bullet. We accept responsibility and take the appropriate action. Exit the trade to preserve capital. Then, we reflect on the cause so as to avoid it in the future.

As simple as that? What about that emotional fog of doubt that lingers? What do you do with that? What do you do when you start talking to yourself and beating up on yourself.  Thinking to yourself, Oh! I screwed that up, or You dumb a–!  Or why did you do that?  What will he/she think of me now? I was really stupid to gamble that way!

Unfortunately, these thoughts can only be escaped through experience and the emotional battles you win over time. My advice to new traders is to never ever think badly about yourself. You are your own best friend and the best asset you own. You are an excellent money manager!  And well, you’ll be rich! Nothing else is acceptable.

If it were simple ………;but it’s not, is it? Those things called emotions; Greed, Fear, Hope & Doubt are always lurking. They fluxuate, expanding and contracting over the life of any trade. They must be recognized and controlled to achieve success.

I think that trading options has the potential to be a little more emotionally charged than equities. Options have an innate factor of increased leverage. Their spirit or volatility colors them a little brighter than stocks. Their rapid price movements and fluxuations can “whip” an equity trader in and out of trades with regular frustration. While a 7% stop loss on a stock may be sufficient, a mental 30%-50% stop is often necessary in order to stay with an option trade to maturity. The mental stops I use require continual price and volume technical analysis of the underlying equity. A 5% decline in the stock price can mean a decline to 0% in a near term option. Conversely, a $2.00 move up could result in a 40% – 100% gain. I admit to watching some of my trades go to 0% only to bounce back to a 400% gain. Its pretty exciting stuff; but it can also be a trying, stressful, emotional ride.

I use a couple of tools to put the emotional beast in its place. First, I compartmentalize my emotional thoughts by recognizing them. Then, I substitute or overlay them with information I have learned through my training and education. In Pilot speak, its like flying a Category III instrument approach, where you don’t “know” you are landing until you feel the wheels touch down. Its just like trading where you rely on your knowledge, your indicators and memorized procedures to get the job done. Educate yourself and trust your knowledge. I often reassure myself by saying: “I am an excellent money manager”.

I have to confess that some times those negative thoughts are very resilient. When I started trading, I had to come up with a simple way to combat them and add emotional stability to my trades. I adopted a short cut I call: “SNAP OUT OF IT!” I used it a lot at first. Here’s how it works. It is a physical mind trick I still use today, although thank goodness very rarely. Let me explain.

If you run into me, you might notice I wear one of those affinity rubber wrist bands. My current one says “END HUNGER.” (from some kind of a diet program I think.) It doesn’t matter what it says. What matters is that it stays on my wrist and I can use it to control my emotions. If I ever catch myself thinking one of those negative thoughts, (My favorite is: “You Dumb A_ _ !) I stretch the band about 3 inches off my wrist and let go. OUCH! Then I caress the sore spot and say something like “Well I’ll be rich!” It is kind of a psychological punishment for bad behavior and reward for good combined. It really works. Afterward, I dispassionately move on to do what I am really good at, making a living trading stocks and options; staying cool, calm, collected and rich.

Cheers, 2Dimes / Barry Brush
To contact me send an email by using the Contact form (link above) and Tate will make sure I get it.  The best option is to submit your comment to the blog here ๐Ÿ™‚

Future Profits Through Lessons of History

2DIME’S INVESTOR NOTES
Wednesday, November 21st, 2007
 
“On Average, History Will Repeat Itself.
 
 
 
Wow! What do you think about the recent moves in the Markets? Truly, the only constant is change. As for my personal efforts to stay ahead of the crowd, I’m about even with my trades for the past two weeks. Gains off setting give backs. The advantage of picking good stocks in good industries at good buy points, they weather the storms of market fluctuations nicely. Its great to even see some of them motoring onward and upward while "Rome burns."
 
During the first week of November, I was feeling some relief as the markets were recovering from the late October pullback. I pondered whether the expected last quarter rally was at hand and wondered if we would see new highs. I made a mental note that GOOG and AAPL looked a bit Over Bought…..with rising prices during the previous week BUT with declining Volume. Hmmm…..
 
I was trying to refresh my memory about the average price of stock during the last 52 years that has historically made the greatest run-up. I recollected it was around $48; but wanted to pin it down. I guess the need for precision is an old carry over from my days as a professional pilot.
 
 Where did I see that?  It was in William O’Neil’s book “The Successful Investor” ( pg.111)

As I was thumbing through the book, I noticed a chart of AOL from 1999 and thought….That sure looks like GOOG. It was talking about how to recognize tops and was using AOL as an example of an “Exhaustion Top.” I took another look at GOOG and noted on the chart:
 
“ Same Pattern as AOL 1999
1. 7-8th Base formation
2. Highest daily gain 19 on 10/30/07
3.Prices continuing to rise on declining daily volume
4. Exhaustion Gap 10/23 – 10/24?”
 
Later in the trading day, on November 5th,  I thought about how important studying past performance of individuals and stocks is to gaining an understanding of the markets and the trading craft. So.. I trimmed off a few profitable trades (Rule of thumb is to take ½ off when your gains hit 100%) and purchased high DELTA Puts on GOOG, AAPL, DIA and the QQQQ’s. With the uptick on the 6th , the little voice of greed in my head started chattering and vacillating and then became quiet on the 7th as the correction swooped in and gave the FED another opportunity to inject cash into the marketplace. (On Thursday November 15th they injected $47 billion in temporary reserves into the banking system, its biggest injection since September 2001.)
 
Granted Google is not AOL and 2007 is not 1999; but it sure is gratifying to see stuff happen after you think it might and take a few precautionary steps “just incase.”
 
The puts on GOOG, AAPL, DIA and QQQQ helped to blunt some of my less favorable plays. And yes, golly darn, I exited before I thought I should have. And now, a week later it is a moot point. Cause I’m all about Calls.
 
As I said, “The only constant is change;” but it sure is helpful when that change repeats itself. Now! Where’s the BULL?
 
Cheers, 2Dimes / Barry Brush (To contact me send an email. To support@selfinvestors.com and Tate will make sure I get it.)

Do You Have a Millionaire Mind?

2DIME’S INVESTOR NOTES
Friday, November 16th, 2007
 
“Pick a penny up and all day you’ll have good luck.
TGIF! I think I have almost recovered from last weeks time change. Are we still saving daylight or did we just give back what we saved all summer? Did we really save anything? I’m confused. Calling it Daylight Shifting Time might be more accurate.

I did a quick poll of my friends and family and no one seemed to know much about the whys or what’s of Daylight Saving time so, I did a little research. The official spelling is Daylight Saving Time, not Daylight SavingS Time. The main purpose of Daylight Saving Time (called "Summer Time" in many places in the world) is to make better use of daylight; and, to save energy.

Studies done by the U.S. Department of Transportation show that Daylight Saving Time trims the entire country’s electricity usage by a small but significant amount, about one percent each day, because less electricity is used for lighting and appliances. Similarly, in New Zealand, power companies have found that power usage decreases 3.5 percent when daylight saving starts. In the first week, peak evening consumption commonly drops around five percent.

Energy saving aside, a poll conducted by the U.S. Department of Transportation indicated that Americans liked Daylight Saving Time because during the summer "there is more light in the evenings and so you can do more.”
Did you know? And…. On August 8, 2005, President George W. Bush signed the Energy Policy Act of 2005. This Act changed the time change dates for Daylight Saving Time in the U.S. Beginning in 2007, DST will begin on the second Sunday in March and end the first Sunday in November. The Secretary of Energy will report the impact of this change to Congress. Congress retains the right to resume the 2005 Daylight Saving Time schedule once the Department of Energy study is complete. Cool! So What!

So, in short, Daylight Saving Time gives us the opportunity to enjoy sunny summer evenings by moving our clocks an hour forward in the spring. I can hardly wait.

While we are on the topic of “Saving:” have you ever thought about your relationship with money and how the preconceived notion about money that a person carries around with them affects the amount he or she is able to accumulate.
 
The accumulation of money or gain for family and civic benefit is at the focus of my trading career. I would hope that it is near the center of yours as well. I believe that before achieving success as a trader, one must be certain his attitude towards money is in sync with one’s ability to accumulate it. That would mean you would have developed a set of money rules to go along with your trading rules. Simple Rules, like: Never pass a penny that you see on the ground without making an effort to pick it up.
 
It is not that the penny has any “real” worth in that you could actually use it to buy something. It is that the penny even without “worth” is still a very large and significant mental symbol whose real value lies inside your minds attitude toward wealth. I believe that if you see and pass up one lonely penny on the sidewalk, you are setting off an avalanche of negative values toward money in your mind which in turn will color your ability to attract and accumulate meaningful wealth.
 
I know you will still think I’m dumb to go out of my way to pick up that penny; but at least you’ll know why I did it. Sometimes, I’ll even go down for dimes and quarters that others are oblivious to. You might even hear me say to myself…..”Well, I’ll be Rich!”
 
So what other “Money Rules” come to mind? How about…”Always think good thoughts or congratulatory ones about the monetary successes of others, no matter who they are, whatever political party they represent or religion they espouse.” It’s a tough one but:
 
The slightest negative thought about your or another’s monetary situation will have a long term negative impact on your prosperity. You may still be able to accumulate wealth, but just think of the fortune you could be missing.
 
Like a lot of folks, I’ve made some unwise financial decisions in life and have been burned pretty badly by them. I carried the wounds from some of those misadventures around with me for years; avoiding this risk and that. Then one day I was fortunate enough to accept a friend’s invitation to attend a free 2 day seminar put on by T. Harv Ecker called “The Millionaire Mind.” What an amazing wake-up-call! All it cost was a 4hour drive to Atlanta and two night’s room and board at the Westin Peach Tree Plaza.
 
I credit those two days with permanently deleting any baggage I was carrying that had anything to do with an inability to attract, accumulate and most importantly hold on to money. It was emotionally cleansing and wealth enabling. As a part of assembling your trader’s toolbox, I recommend you find a seminar near you and attend.
 
secrets to millionsBy the way, his book “Secrets of the Millionaire Mind – Mastering the Inner Game of Wealth” is in print and available on Amazon.com for almost postage only.
 
 Better yet, ask around. Perhaps a rich friend has a copy that you could borrow.
 
Cheers, 2Dimes / Barry Brush (To contact me send an email. To support@selfinvestors.com and Tate will make sure I get it.)