Remember Canarsie Capital, the hedge fundrun bythe former head of risk management at Morgan Stanley and a 28-year-old former Galleon trader, which blew up in January, prompting Owen Li, the former Galleon trader, to tell investors that he was "truly sorry" for losing all their money? Well, Lipled guilty to securities fraud.
It is so tempting to begin trading options. Too many novices hear/read stories about earning 10% per month and, believing that nonsense, want their share of the ‘free money.’ They take a couple of lessons or read a chapter or two and believe they know what they are doing. A typical mindset is: ‘How difficult can it be if people are making 10% per month?’
Iron Condor is a very popular strategy used by many options traders. It can perform very well many months, but the real question is: how much will you lose when the market volatility explodes? Many condor traders give back all of their profits during the 2-3 losing months each year when the markets make large moves because they lack a detailed plan for risk management.
When adopting an iron condor trading strategy, there are several decisions to make: Choose the underlying stock or index, Choose an expiration month, Choose strike prices, Decide how much cash you want to collect when opening the position (this will be your maximum profit for the trade). Read the stock option advice below to start learning the basics of trading iron condors.
Fama/French (2008): Momentum is "the center stage anomaly of recent years…an anomaly that is above suspicion…the premier market anomaly." This article will share a simple example of the power of momentum investing, and more specifically, the power of combining relative strength momentum with absolute momentum.
Let’s begin with a basic fact: There are many methods for adjusting a position so that risk is reduced. Some are inexpensive, others cost more than most traders are willing to spend. Some are effective most of the time, but the protection offered is minimal. Others are so effective (alas, that happens rarely) that the gains an be spectacular. [Think of owning an extra put or two before the market opens down 20% one fine day]
Selling naked put options is (mistakenly) considered to be a 'very risky‘ proposition. Stockbrokers who spread that message are doing their customers a major disservice, because they are steering them away from a prudent strategy. The only dangerous part of options trading is the risk-insensitive trader who buys and sells options with little or no understanding of just what can go wrong.
2013 was a strong year for Steady Condors even while our preferred underlying, RUT (Russell 2000), managed to hit all-time highs on almost a daily basis to the tune of nearly 40% for the year. As most of you know Steady Condors is a market neutral, income generating, manage by the Greeks strategy. Our trades are primarily risk managed variations of iron condors. If you haven’t already, please see our introduction to the strategy here.
It's been a while since I wrote just a pure column for members, and I think it is about time to update everyone on where my firm is, how the Anchor strategy is performing, and my general thoughts on the markets before the end of the year. Since most people care more about the markets, I'll give my general thoughts on those, and I'll save the professional updates to the end.
