Not even close to a bottom! | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Volatility Close to Close Method indi? 0 replies

NY Close vs GMT Close 6 replies

How to close order on BAR close? 6 replies

Need help!! Close order on this bar close 5 replies

Seeking Correct Open/Close - It's Close but ... 0 replies

Attachments: Not even close to a bottom!
Exit Attachments

Not even close to a bottom!

  • #1
  • First Post: Mar 4, 2009 6:51pm Mar 4, 2009 6:51pm
It was pretty unlikely that we would bottom at the same level as in 2003 for the following reasons.

1) Credit markets were liquid back then and around the same time hedge funds leverage increased to about 1:30.

2) Stocks above 200 EMA are dead flat (ultimate sign of a dead bull), not so in 2002-2003.

http://i42.tinypic.com/352odwh.jpg

3) Rydex Cash flow is relatively bullish and nowhere near the support level created when the SP500 stoped making higher highs. (in 2003 there was a break down, pointing toward a complete capitulation by the last bulls still standing).

http://i43.tinypic.com/200xri1.jpg


2) Earnings are droping so quickly that the P/E bands are converging (didn't even happen back in '29). P/E is now 28! Watch for another Oct style crash before this is over. Bear market rallies could be much shorter, as they did after 1930 during the great depression.

http://i42.tinypic.com/2ntl89j.gif
  • #2
  • Mar 5, 2009 7:12am Mar 5, 2009 7:12am
Is that a double top I see?
  • #3
  • Mar 5, 2009 7:52am Mar 5, 2009 7:52am
Quoting Ronald Raygun
Is that a double top I see?

As some point, we could be seeing 1970s prices... I see us heading toward an abyss.
  • #4
  • Mar 5, 2009 7:55am Mar 5, 2009 7:55am
It just means we need to change our trading strategies.

I hope your systems aren't limited to Buy/Sell trading. Derivatives are making me plenty of money--even if it's a longer investment.
  • #5
  • Mar 5, 2009 8:50am Mar 5, 2009 8:50am
Hey fxterrapin did you go to the University of Maryland?

I agree that we aren't all that close to the bottom of this mess. Historically speaking, the P/E ratios are still way too high to call this the bottom.
  • #6
  • Mar 5, 2009 9:04am Mar 5, 2009 9:04am
Quoting Ronald Raygun
I hope your systems aren't limited to Buy/Sell trading.
While I can't compete with the 18 year old mind of a self-proclaimed trading prodigy, I've yet to find a way to trade without buying and selling...in any market. But then again, I've only been doing it for 23 years.
  • #7
  • Mar 5, 2009 10:27am Mar 5, 2009 10:27am
I'm obviously not using the correct words. But I was making a reference to trading derivatives. Options trading comes to mind.

Opening puts and calls against any market is a start.
  • #8
  • Mar 5, 2009 10:29am Mar 5, 2009 10:29am
Quoting philmcgrew
While I can't compete with the 18 year old mind of a self-proclaimed trading prodigy, I've yet to find a way to trade without buying and selling...in any market. But then again, I've only been doing it for 23 years.
I assume he is talking about trading volatility, rather than direction of price.

According to the young prodigy, his trading record on option structures (straddles) stands at 100%, having enjoyed 50 out of 50 consecutive winners, which is just incredible and something I have not heard of happening in my years as a options market-maker.

Obviously when trading straddles one is still buying or selling an asset, in this case implied volatility versus realised volatility. If you believe realised vol will be higher than the implied figure quoted in the market, then you buy the straddle and go long vol etc...
  • #9
  • Mar 5, 2009 10:42am Mar 5, 2009 10:42am
Quoting gammase1
Obviously when trading straddles one is still buying or selling an asset, in this case implied volatility versus realised volatility. If you believe realised vol will be higher than the implied figure quoted in the market, then you buy the straddle and go long vol etc...
This is the stuff which makes my head spin.

I'm not sure what you are used to, but 52 trades in 6 years is pretty slim to me, and the money I've made through options is certainly not money I can live off of.

Gammase1, I think I explained my strategy, I buy american options at least a year before maturity with breakeven requiring the price to move only 5% away from the strike price. Those opportunities I don't always find. But when I do--I can't explain it--but they don't lose me money.

You're welcome to try it. I've mostly been targeting news-heavy companies/industries.
  • #10
  • Mar 5, 2009 10:48am Mar 5, 2009 10:48am
Quoting Ronald Raygun
This is the stuff which makes my head spin.

I'm not sure what you are used to, but 52 trades in 6 years is pretty slim to me, and the money I've made through options is certainly not money I can live off of.

Gammase1, I think I explained my strategy, I buy american options at least a year before maturity with breakeven requiring the price to move only 5% away from the strike price. Those opportunities I don't always find. But when I do--I can't explain it--but they don't lose me money.

You're welcome to try it. I've mostly been targeting...
You traded your first option straddle at the age of 12?
  • #11
  • Mar 5, 2009 10:49am Mar 5, 2009 10:49am
Quoting gammase1
You traded your first option straddle at the age of 12?
Not directly.

It was a stock simulator competition and they allowed options trading. (simulator.investopedia.com) if you want to count live figures.

31 live options straddles, all since I was 16. On:

Google--Twice
Airline stocks during the oil price craze
Oil Companies
Apple
Banks
  • #12
  • Mar 5, 2009 11:08am Mar 5, 2009 11:08am
Quoting philmcgrew
Hey fxterrapin did you go to the University of Maryland?
Lol. Why do you ask?
  • #13
  • Mar 22, 2009 4:52am Mar 22, 2009 4:52am
ES
Attached Image (click to enlarge)
Click to Enlarge Name: esp.png Size: 91 KB
  • #14
  • Mar 22, 2009 7:23am Mar 22, 2009 7:23am
Quote
This is the stuff which makes my head spin.

It's actually really simple (well... the terminology anyway). Options come with a "volatility" that's expected, built into the price. It's done this way so the people that write the options can make money. For everyone that buys an option there has to back it with the underlying security.

So they basically write it expecting a certain level of motion. That's built into the price, the strike price, and is called "implied volatility." It's implied within the price. The strike price is a function of the "Black-Scholes" equation, which is beyond the scope of this post, but you get the point. Somewhere in that equation is an expected level of volatility.

Realized market volatility is what actually comes out of the market. Basically if the market only moved as the implied volatility expected, you wouldn't make money. You'd break-even on the strike price and lose money on the commission, or something to that effect. With a straddle you're paying 2x the premium (1 for long, 1 for short) so in reality you have to make 2x the expected volatility.

Basically by taking a straddle you're betting that the implied volatility (what's already priced into the option strike price) won't match the market, ie: that the market will move more than what the options anticipate. Since you're basically taking news trades, you're anticipating that people's response to the news will be bigger than what's priced into the options.

That's not a bad bet, especially given the market circumstances over the last several years (exaggerated), but it's hard to say whether it'd work long term or not.

As for the topic at hand, I don't think this is the bottom either. Until price confirms support, I've got no reason to anticipate a bull market.
  • #15
  • Mar 22, 2009 7:49am Mar 22, 2009 7:49am
Quoting Rabid
It's actually really simple (well... the terminology anyway). Options come with a "volatility" that's expected, built into the price. It's done this way so the people that write the options can make money. For everyone that buys an option there has to back it with the underlying security.

So they basically write it expecting a certain level of motion. That's built into the price, the strike price, and is called "implied volatility." It's implied within the price. The strike price is a function of the "Black-Scholes" equation, which is beyond the scope of this post, but you get the point. Somewhere in that equation is an expected level of volatility.

Realized market volatility is what actually comes out of the market. Basically if the market only moved as the implied volatility expected, you wouldn't make money. You'd break-even on the strike price and lose money on the commission, or something to that effect. With a straddle you're paying 2x the premium (1 for long, 1 for short) so in reality you have to make 2x the expected volatility.

Basically by taking a straddle you're betting that the implied volatility (what's already priced into the option strike price) won't match the market, ie: that the market will move more than what the options anticipate. Since you're basically taking news trades, you're anticipating that people's response to the news will be bigger than what's priced into the options.
There are enough errors in these statements to start a whole new thread. I would advise anyone wanting to learn options to not start with this kind of misinformation. I am not going to waste my fine Sunday morning correcting all the errors. I can't find a single concept that you got right.
  • #16
  • Edited 9:52am Mar 22, 2009 9:15am | Edited 9:52am
Quote
There are enough errors in these statements to start a whole new thread. I would advise anyone wanting to learn options to not start with this kind of misinformation. I am not going to waste my fine Sunday morning correcting all the errors. I can't find a single concept that you got right.
Sigh. Thanks for the criticism. Since you don't feel like clarifying, maybe Gamma will.

But just for the record... I said the following:
1. Options come with a volatility (via current price and a pricing model) built in.
2. Otherwise, why write them?
3. Implied volatility is the expected level of motion.
4. Strike price is a function of the Black Scholes equation.
5. Realized volatility is what actually happens (or happened).
6. It's hard to make money if price doesn't move to cover the strike price.
7. A straddle is a bet on volatility.
8. A straddle requires paying a premium on both sides.
9. In order to make money the stock has to move enough to cover the strike price.

So uhm, which ones of those didn't I get right?

I mean seriously if you're not going to bother adding to a thread, why comment?

Quote
I would advise anyone wanting to learn options to not start with this kind of misinformation.
Obviously nobody is trying to teach a class here, Professor.
  • #17
  • Mar 22, 2009 10:59am Mar 22, 2009 10:59am
i hope last week's more positive results will continue
  • #18
  • Mar 22, 2009 5:14pm Mar 22, 2009 5:14pm
Quoting trading801
i hope last week's more positive results will continue
i think the next week will reserve us some new minimums in the stock markets
  • #19
  • Mar 22, 2009 6:45pm Mar 22, 2009 6:45pm
Quoting philmcgrew
While I can't compete with the 18 year old mind of a self-proclaimed trading prodigy, I've yet to find a way to trade without buying and selling...in any market. But then again, I've only been doing it for 23 years.
  • #20
  • Mar 25, 2009 4:57pm Mar 25, 2009 4:57pm
So what does anyone think about the vix? We've had a good sized rally but the vix hasn't taken out the 40 level yet...i know this rally has been on some volatile moves but i expected the vix to fall more than it has considering we're up what 25% from this most recent short/mid term bottom.
0 traders viewing now