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My Take on an Advisory Service

As a general rule, I am not a fan of services that predict where the stock market is headed next. Nor do I believe that most advisory services can steer their clients into profitable trades. However, the quality/integrity of services differ and today I’d like to mention one that I think is worth consideration.

Please understand that past performance is no guarantee of future returns. Kim Klaiman runs SteadyOptions and it is clear to me that he cares about his membership and operates SteadyOptions with integrity.. His trades are transparent and he explains the rationale behind each trade. In other words, it is an educational service ion addition to being an advisory. He is willing to teach subscribers to make the trades alone and reach the point where his services are no longer required.

NOTE: SteadyOptions uses a non-directional approach. They seek opportunities that do not depend on predicting market direction.

SteadyOptions

SO is an options trading advisory that uses diversified option strategies and has produced positive returns under all market conditions. The stated objective is to target steady and consistent gains with a high winning ratio and limited risk. If this sounds like the typical iron condor advisory, I assure you that it is not.

What I like about this service is that it offers a combination of a high quality education along with actionable trade ideas.

What makes SteadyOptions different?

    Impressive performance – a track record of making money in any market.

    –The track record includes every trade, both winners and losers. They hide nothing.

    –Complete transparency – the performance is based on real fills, not hypothetical performance.

    –A complete portfolio approach. In other words, trades are not initiated without considering how they fit in with the entire portfolio.

    –First priority is capital protection.

    –The performance of the model portfolio reflects the growth of the entire account including the cash balance. Some services consider a $1,000 gain on a $1,000 investment to be a 100% return when the whole account is worth $10,000. SO considers this to be a 10% return — and that is the honest way of doing the calculations.

    –All trades are shared in real time, including entry, exit and adjustments. This is the real deal with no fudging of results.

Members voted SteadyOptions #1 ranked newsletter on Investimonials.

The SO newsletter manages three different strategies:

    –Steady Options trades mostly option volatility, making plays on stocks around company earnings.

    –Anchor Trades manages a fully hedged long ETF investment portfolio.

    –Steady Condors manages few different and unique iron condor strategies on index products.

I understand that people tend to pay maximum attention to performance, but do know that SteadyOptions puts a lot of emphasis on options education. Each trade is discussed before it is executed. SteadyOptions is not a get-rich-quick-without-efforts kind of newsletter. It requires time and effort on the part of subscribers. There is a learning curve to become familiar with the strategies.

All subscriptions include a 10 day free trial. Click here to start your free trial.

Full disclosure: I do receiver a referral fee for new subscribers (please use this link), but this advisory service is run in a manner that appeals to me and my strong belief in a sold options education.

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Trading and Logical Thinking

The truth is: we do not always reach logical conclusions.

The problem is: we always believe our conclusions are based on sound logic.

The result is: we have no incentive to look for a way of improving how we conduct our business or live our lives.

This is costly for traders. Consistently profitable traders don’t have to be concerned with this situation because they are probably making good decisions. It is very much against the odds for a trader to be ‘lucky’ over an extended period of time.

The problem is more serious for traders who earn very little, or who lose, money. The need something better. The very real problem is that it is difficult to convince people that their thinking is flawed and that their decisions are less than logical. It is human nature to believe that we think logically and reach good decisions based on that logic.

We all understand when we require lessons to learn something new. Sports are a perfect example. Individuals take lessons from professionals. Could it be true that people are so willing to accept help in improving their golf (tennis, bowling, baseball etc) skills because there is no logic involved. By that I mean they are willing to accept help in performing better in a physical endeavor than in an intellectual one.

If we cannot play golf well (and I cannot), we can take lessons that teach us to hold and swing the clubs more efficiently. We understand that holding the club correctly involves a decision. We have a bunch of possibilities and we must choose one that works. However, we cannot be expected to know how to hold the club without being shown. When it comes to trading, once we understand the concepts of a strategy, we tend to believe that we manage that strategy effectively. In other words, we believe that we are making good decisions as the trade progresses. If we are not making consistently, then we tend to assume the problem lies anywhere, but never in our personal inability to make good, logical choices.

I can also learn which club to choose for a given shot. Consider how similar this is to choosing an option strategy based on given market conditions. This is a situation in which we are willing to learn form someone else.

I can be taught the importance of follow through. And taking lessons is in no way demeaning. We accept the fact that the professional knows more than we do and willing pay for instruction. The follow through in golf is very similar to knowing when to exit a (winning or losing) trade. yet most traders prefer to go their own way and believe they are always making decent decisions.

However, when logic is concerned, people seldom admit that others are superior. This is not a matter of intelligence. It is merely the ability to sort through alternatives and make a good choice. It is personal. It feels bad when others tell us that we made a poor choice. Yet, we feel no disgrace when we are told me made a poor golf shot.

The Point

If we are not achieving good results as a trader, it may be that our thought processes are flawed. Once we believe we learned how to trade (from experience, reading, seminars, personal lessons, etc.) we believe that we are capable of executing what we are taught. We believe we reach logical conclusions, based on the available facts.

The fact that traders (just as anyone else) can have blind spots and fail to recognize the flaws in their thinking means that there is not going to be an improvement in the results until the the decision-making process is improved. That takes being aware that there may be something wrong with what we are doing, even when we cannot see it for ourselves.

We must be open to the idea that each of us is completely unaware that we believe some things that are just not true.

http://goo.gl/Z9pAhN

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Buying high and selling low still doesn’t make sense

From Carl Richards Jan 6, 2014 article in the New Your Times

Buying high and selling low still doesn’t make sense

Given the huge year the stock market had, there is a temptation to think that now is the time to shift more of our portfolios into stocks. It’s easy to understand why we feel this way. After all, the stock market is doing well, we are hearing about it in the news, and we don’t want to miss out. But remember, since it is now January 2014 you have already missed the opportunity to buy in January 2013. Now the market is higher, and we have already established that we do not know what the market is going to do next. We only know what it has already done. Resist the temptation to buy high, and instead focus on maintaining a well-designed portfolio that reflects the risk needed to meet your goals.

Simple, but excellent advice.

Bubbles build when investors, who became over-disappointed about money that they failed to earn during recent stock market rallies, jump in. Sure they expect to participate in future rallies, but these people (on average) tend to enter at exactly the worst possible time.

Bottoms form when these same investors suddenly decide that a bear market decline has cost them too much money. They finally decide to exit, fully expecting the markets to continue lower.

Unless you are a skilled market timer with a proven track record, my advice is do exactly as Carl suggests: “Focus on maintaining a well-designed portfolio that reflects the risk needed to meet your goals.

http://goo.gl/Mp4kB6

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Increase Investment Returns with no Added Risk

This months Consumer Reports magazine has a cover story about how to increase your returns when owning a 401-k (or any) retirement account. It’s pretty simple: cut fees and expenses.

Cut Management Fees

The sad truth is that far too many people create savings plans for their retirement years, without paying attention to expenses. It seems reasonable for us to trust that our employers, looking out for our best interests, would provide access to a plan that treats investors fairly. Alas, that is not the case.

If you have a savings plan — and I surely hope that you do — then take the time to learn exactly how it works.

    –If you own mutual funds, consider switching to

–no-load funds
–low-cost index funds
–low-cost exchange traded funds (ETFs) that come with passive management

–if you own index funds, be certain that the fees are low (i.e., Vanguard)

–if your savings are all in company stock, consider diversification.

    –if you get to buy stock commission free and at a discount, continue to buy the shares. But periodically sell some (or all) of those shares because you do not want to be depend on the success of one company for both your employment and retirement savings.

–No matter where your retirement funds are invested, speak with your human resources department and consider each of your investment alternatives. Do not choose investments that charge higher fees. Even 0.5% per year makes a big difference in the value of your holdings over a 30-year career.

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All Good Things…

Today Options for Rookies has reached the milestone of 1,000 posts.
I’ve also replied to a few thousand comments and/or questions.

I’ve poured a ton of energy and love into writing this blog.
But, It’s time to move on. I want to spend time on other aspects of my life.

Thank You

I have many notes of appreciation from readers who felt the passion that I bring to the table when helping others learn to use options. Each one of them is a treasure. Thank you.

I trust that I’ve inspired many of you to take the time to understand how options work before beginning to trade with real money.

I know that I’ve emphasized the importance of risk management when trading or investing. If you learned nothing else from these posts except for that single item, then I have done my job.

Most of all, I appreciate having the opportunity to blog about options. It’s something I thoroughly enjoyed doing for more than three years, and I offer a special thank you for all the encouragement.

Options for Rookies is going into retirement. I’ll still be around at the premium site.

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Teaching Options

Options education. That’s my business. It has also been my passion.

One basic question in preparing a course of study for individuals or groups is deciding which ideas can be taught vs. which can come only with experience.

Students can be helped to understand the greeks, what they represent, and how to make them correspond with the trader’s outlook for the market. In simple terms, all students come to understand that being long delta is likely to bring positive results when the market moves higher. However, there are enough exceptions that the student must be taught when delta (or any other greek) can be overwhelmed by other factors and fail to produce the anticipated profits.

One example occurs whenever news is pending. Option prices tend to be bid higher, so that the after-the-news-is-released collapse of implied volatility can result in the call (or put) owner suffering a loss, despite having correctly predicted in which direction the stock price would move. This is an important aspect of the learning process. However, it is reasonable to expect students to grasp the principle that predicting market direction is not sufficient to generate profits when using options.

Mindset: Moving from stock trading to options

Because getting market direction correct is not good enough, experienced traders often adopt ‘market neutral strategies.’ Instead of predicting the market will move higher or lower, the prediction (or wager) becomes: the market will not move too far in either direction. That is foreign to short-term traders

This represents a big change in mindset for the person who has experience trading stocks. Stock trading is all about direction – bullish or bearish; holding for the long term or short term, betting on daily price swings or 20-second price changes, etc.

Risk/reward ratio is another big change for the trader who is moving from stocks to options. Stock traders always want the trade to have more to gain than to lose. Option traders do not have to accept that limitation. For example, many traders make a living by selling a $5 call or put spread and collecting a $1 premium. The maximum loss is four times the maximum gain, yet this is viable for option traders.

Having the ability to get the options student to recognize that he/she has entered into a new realm is an important qualification for the options educator. It’s truly important to be certain that the student understands that options are different. As trite as that sounds, when that difference is not emphasized early in the education process, some students will be troubled with the idea of ‘risking so much’ to ‘earn so little.’

Risk Management

To help ease the transition of new options traders into our universe, the concept that managing risk (other than by using the stop-loss tool that is so valuable to stock traders) is the essential talent required for success. Timing may add to profits, but it is not as important as it is when trading non-option vehicles. Something as basic as this is mandatory in the training process.

But it involves more than that. I doubt there is an options educator on the planet who does not mention ‘risk management’ in one form or another. However, options are different. Options and option positions have risk that can be quantified (the greeks). When that’s possible, a whole world of risk management becomes available to the trader. We measure those risks and use ‘the greeks’ to describe them.

What’s the big deal? When trading options, knowing how much money is at risk if something specific (price change, IV change, time passes etc) happens – represents the opportunity to reduce and control any specific risk. If the stock trader fears that markets will become deadly dull and trade in a very narrow range, there is not much that can be done. However, the option trader can seek positions with positive theta and/or negative vega. Or, if the trader is a strict believer in owning positive gamma, then sitting on the sidelines becomes the appropriate strategy.

There is such a large advantage to knowing that the greeks can help plan strategies and measure risk, that failure to emphasize their importance makes the whole learning process far less valuable.

Philosophy

Taking a class when the course consists of:

  • Explanation of some strategies
  • Being told appropriate conditions for using each
  • The promise that you can read charts and predict market moves

is just not good enough. The mechanics of using options are important, but not sufficient. Learning the basics, understanding how to apply them, achieving proper (profitable) mindsets – those are important. Those are the ideas that the teacher must pass along to the beginning student. I wonder how many mentors who charge big bucks for an education understand these truths.

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Dinner’s Ready

Did your mother ever tell you not to be late for dinner? Have you ever been told that by a restaurant?

I’d like to share an experience that happened to me last night. Penny and I decided to take a friend to dinner for her birthday, and the birthday girl requested that we visit Burt’s Place, located in a nearby suburb.

When calling to find out their business hours, we discovered that to make a reservation, the caller must place an order. That is a solid way to turn over the tables, but it was an unusual requirement to us.

We were told that the only available time was 5:30. Pretty early, but we took the reservation. Then we were told to be there on time because the pizza would be set on the table at precisely 5:30. Wow. Pay for dinner and if you arrive late, you get to eat it cold. This is a business that appears to be so successful that they can, and do, get away with treating their customers harshly.

A genuine Burt's Place pan pizza

Well, not enjoying room temperature pizza, we arrived on time. True to their word, dinner was served at 5:30. The next surprise came when the pizza was set on a nearby table, with a bunch of other pizzas. The waitress gave us each a slice and we were notified that we were not permitted to get up and take another slice. Instead, the waitress had to be summoned to cut and serve.

Most amazing!

Bottom line, decent pizza, but not nearly as good as advertised. It was, however, a unique place to have a meal. I do not think I will exercise my option to return.

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Options Mentors and their Promises

Published in error and removed immediately.

I apologize for some of the content, and for now, it’s best to let it go at that.

Mark Wolfinger
June 20, 2011

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