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Kevin M. O'Brien
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Options trader full-time, author, owner of www.kevinmobrien.com, a subscription-based service. Born in Chicago. Follow many stocks in the tech, financial, and agricultural sectors. Trade daily with a 5 Technical Indicator Strategy I developed. Also trade debit spreads, strangles, and also hold... More
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Kevin M. O'Brien
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Breakthrough: A Consistent Daily Options Trading Strategy For Volatile Stocks
  • The Issues Of Weekly Options, Risk, And Comments On My Daily Options Strategy 99 comments
    Oct 9, 2012 11:37 AM | about stocks: AAPL, GOOG, CF, CRM

    Over the past few months, there have been some comments made in my articles about using weekly options, instead of monthly options (as I strongly recommend using), and I feel it is a good time to address this issue in full.

    First, I would like to start out with my take on this: One of my firm beliefs with trading stock options is that you should always give yourself enough time with a trade just in case an unforeseeable event occurs. When I developed this strategy, it was right after the September 11, 2001 attacks on the World Trade Center. I remember thinking how bad it must feel for traders who had short-term trades going with bullish positions. The lack of time would make it difficult for them to recover their losses.

    Along with this, I also felt the need to wait to make any trades until after 10:30 a.m. EST. Not trading in the first hour takes away a lot of the unknowns in the market as far as direction. It also takes away a lot of the so-called "speed trades" or trades that are made solely by computers. These tend to happen right after the market opens or soon after 10:00 a.m EST. There was a great CNBC special a few months back that I highly recommend if you have not seen it already. It basically goes into what I am mentioning now. Just as I do not like trading within the first hour of the markets opening, I follow these same rules for the last hour of trading.

    I want to get back to the issue of the weekly options with my strategy. Personally, I like weekly options for trades like the neutral calendar spread and the reverse iron condor, even the long put butterfly spread. However, I refuse to use them for my daily strategy and here are a few examples why:

    If anyone claims that they can predict an unforeseen market event, catastrophe, or any other thing that can rattle the markets, they should not be in the trading business. It can happen at any time. The lack of time-value, if using weekly options with this strategy, will come back one day to really make you reconsider if using weekly options is the smart move. Often, the monthly options (next month forward, meaning instead of using an October Week 2, you would use a November expiration) are more expensive than the monthly ones, but not enough so that it should alter your choice in trading the monthly or weeklies.

    This goes to an issue that I consider being a bit greedy, when choosing weekly options instead of having a full month. Often, for just a little more money, you can have a full month of time-value, take away the worry of any unknown factors coming into play, and still have the delta high with the same strike prices. This is important. While it is tempting to go the cheaper route and pick up more contracts (basically, that would be the only point in choosing a weekly option), I highly recommend not doing so. Think about how many times over the last 4-5 years Ben Bernanke has rattled the markets, just by saying a few words. It is not a good feeling to be on the wrong end of that trade when so little time is left with your options. That is the definition of risky.

    I have received hundreds of e-mails over the past year regarding weekly options and by some of the people who use them. While they generally do well with them for a period of time, I almost always hear about the horror stories that ensued at a later date, and for exactly the same reasons I mentioned above. I am not suggesting that weekly options will not work at all. What I am saying that sooner or later you will get burned on them. I am writing this for everyone who is debating whether or not to use the weekly options instead of the standard monthly options that I make very clear is the correct way to trade with my strategy.

    There is one trader who e-mailed me a while back. He bought some Apple (NASDAQ:AAPL) contracts using the strategy, and used weekly options. This is something i really want to get across here. Anyway, I went back and looked at his trade. It wasn't a good trade to begin with. The numbers were off on the Intraday Momentum Index and the Full Stochastic Oscillator, by a good amount. Having weekly options, instead of the monthly options, really put him in a bad spot. Since it was a trade that should not have been made from the start, he now had about a day and a half to right the ship, so to speak. I recommended to him that he close the position, as Apple was in a downward swing. He at least has in-the-money options that still has their intrinsic value. But guess what happened? He closed his position for a decent loss. The next week, and keep in mind the trade he made was not an ideal trade, Apple recovered heavily on Monday. The problem was, with the weekly options, he never got to see that gain.

    Every trader is going to make mistakes at some point. One of the benefits of options is that you have a choice as to how much time you want to have with them. Please do not underestimate the importance of time-value using options.

    I would also like to address a few users who have commented on my articles and InstaBlogs, which have gone beyond bizarre. First, I will immediately respond to attacks, misinformation, lies, and comments that I feel are hurting traders who are using this strategy. I will never endorse weekly options with my strategy, and I will make clear the pitfalls of using them. Nobody knows this strategy better than I do, and for anyone who suggests using weekly options is a better alternative than the monthly options is seriously steering you in the wrong direction. See, I actually care how people are doing using my strategy. This is why I try to the best of my ability to respond to the many e-mails I receive daily and the comments on my articles when I can.

    One of the subjects that has come up from time to time is risk when using this strategy. It baffles me how one particular user has posted hundreds of comments on my articles promoting weekly options, yet says his method is less risky? Now, if I am buying the same strike price with more time-value, and theirs having less time-value, which makes more sense. Again, my opinion on this goes back to greed. He wants more contracts, I prefer more time simply as a safety-net in case of the unforeseen.

    I am not a big believer in stop-losses. On a long position (months out) this can be very useful. However, on trades where you are expecting to enter and exit the same day, stop losses can be very problematic. For example, let's assume you have entered a trade using Google (NASDAQ:GOOG) with the daily strategy, and assuming you bought call options. Every so often, a stock will move down a bit from where you bought it. With a stock such as Google, Apple, Salesforce.com (NYSE:CRM), CF Industries (NYSE:CF), etc., we are dealing with volatile stocks that move a lot in a matter of minutes, even by the tick. If you have a stop-loss when placing the trade, there is that possibility, maybe because of market conditions alone (nothing to do with the stock performance itself), that you will be taken out of the position without even giving it a fair chance to eventually do what you expected it would do the entire time. a 0.75 - $1.00 price move for these stocks is nothing for them. They often happen in minutes. Please keep this in mind. While stop losses can be beneficial on longer-term trades, please understand the possibility that you will be taken out of your position too soon.

    There are times when you will have a choice to make in deciding whether or not you want to hold onto a trade overnight. I generally do not like to do this, but one very good way of avoiding this is to not make any trades once 2:00 pm. EST approaches. Stocks tend to trade narrowly later in the day. The volatility is just not there. I prefer to have an opportunity in the 10:30 a.m EST range to 1:30 p.m. EST. This is usually where the best trades will appear.

    In the event where a decision has to be made where a trade just hasn't gone as planned, this is ultimately up to the person. It is hard for me to say or gauge what someone's tolerance is for a loss, nor their own capital. When I meet with clients in San Diego, I go over this with them. From afar, I cannot tell someone to cut a trade loose or to hold it without knowing their own situation. I will say this, however: whenever I have had to hold trades overnight over the years, I usually wind p doing even better than planned. But I like to be all cash everyday, another day of trading. Now, if you are down only a minimal amount before the market closes, I recommend closing the position. Tomorrow is a new day. What is difficult for many new option traders to stomach is how bad a trade can look because of the leverage options have. For example, if you own 10 contracts, a slight $0.50 move down on your call option position is a loss of $500.00 on paper. This scares many new trades off, as they cannot handle the large price swings. With options, just remember that everything is bloated. It is never as good as it looks or as bad as it seems. Having a month of time-value or more on your options will alleviate many of your worries.

    If you have any questions or comments, please send me an e-mail or send a comment. I will try to respond as soon as possible. Thanks.

    Disclosure: I am long AAPL.

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Comments (99)
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  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    My comments:

     

    Quote: "you should always give yourself enough time with a trade just in case an unforeseeable event occurs." -

     

    This is completely irrelevant for day trading. When you plan to be in a position for just few hours, negative theta is almost non-existent. However, you want to maximize the gamma, and this is where the weekly options present much better risk/reward. To minimize the risk, just set a stop loss. Since intra-day gap is much less likely than a gap at the open, the stop loss has a good chance to limit the loss in case the trade goes against you.

     

    Quote: "I like weekly options for trades like the neutral calendar spread and the reverse iron condor, even the long put butterfly spread. "

     

    Those are not day trades. The calendar spread is a gamma negative trade which is exposed much more to a sudden move if used with weekly options. The potential risk is MUCH higher (the reward as well IF the stock doesn't move). In case of black swan event, it has a good chance of losing 80%+.
    The reverse iron condor is a trade which benefits from a move, but also has a much higher negative theta when using weekly options. So once again, if the stock doesn't move, the theta will kill the trade in 2-3 days.

     

    No matter which system you are using - it is absolutely clear that for day trading, weekly options present MUCH better risk/reward.
    9 Oct 2012, 06:11 PM Reply Like
  • Kevin M. O'Brien
    , contributor
    Comments (1800) | Send Message
     
    Author’s reply » Agreement or not? Tired of it, bud. OK.
    9 Oct 2012, 09:32 PM Reply Like
  • Abe781200
    , contributor
    Comments (23) | Send Message
     
    "Having a month of time-value or more on your options will alleviate many of your worries."

     

    Why in the world would a person need a month of time value for a day trade? There is no better way to blow your account than to turn a day trade into a swing trade.

     

    "What is difficult for many new option traders to stomach is how bad a trade can look because of the leverage options have."

     

    If you cannot stomach the movement, let alone the potential loss, you are trading too big.

     

    "I am not a big believer in stop-losses. On a long position (months out) this can be very useful. However, on trades where you are expecting to enter and exit the same day, stop losses can be very problematic."

     

    I vehemently disagree. Stop losses are essential. If stopped out, it only proves that your original entry point was not good. You can always re-enter a trade. It's not always so easy to get out once your losses start to mount. For example, you get into AAPL only to have it keep sliding another dollar or three (then another ten the next day if you held overnight). If you had a stop loss, you could have gotten in again once it stopped sliding and really started to reverse. You would have captured that much more upside instead of having to wait for your original entry point, plus the additional move it needed to make in order for you to be profitable. Or, you were proven wrong and got stopped out. If price showed you that the stock was actually going to continue its trend, you could actually reverse your trade and join the trend. If I'm wrong, I admit it and have the cash to make a clear decision for my next trade. If I'm wrong and remain stubborn, my judgment is usually clouded. If I'm wrong and start praying that maybe it will turn around tomorrow, that trade is usually in DEEP trouble.

     

    I would really like to hear from some of Kevin's students who have taken the course and have had consistent results for over 6 months. All I've read are students who just completed the course... I wonder if people are actually able to stay solvent over the long haul.
    9 Oct 2012, 09:53 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    So now instead of responding to my comments you bash me on Investimonials? At least have the guts to post under your real name and not hide behind aliases.
    10 Oct 2012, 10:33 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    There really is no place for this kind of personal acrimony. Kevin doesn't like you, Kim, that is clear. He gets into these feuds with whoever questions his trading approach. Passion was in his gunsights recently. The common thread is that people start by asking for trade examples and pointing out vulnerabilities in the approach. This should be very easy for Kevin to respond to. He promises examples yet rarely delivers except in vague "I hit another homerun" terms. He declares war and gets very personal and insulting towards anybody who questions him.

     

    If his approach is sound, it should be pretty easy to respond to these criticisms factually. As in most things, there probably is no right/wrong. Kevin's system may work for Kevin and Kim's may work for Kim. It's a big world and there are many approaches to trading. I bought Kevin's book. I note that it was developed after years of trial and that he makes his living trading this way. Is it for me? It's hard to know, because he spends little time on here responding factually to questions. His threads tend to degenerate into wars. I imagine he thinks it's because he's under attack, and that must be frustrating. But it really is because he is non-responsive and hostile.

     

    His recent defense of using monthly options for day-trading is the kind of post I would like to see more of. He lays out his case and should be prepared to consider questions and criticisms. I like to read his point of view, and I like to read the criticisms. I don't like the hostile attacks he responds with and the flame wars that then spread to other sites.

     

    Are monthly options better fr a day-trading strategy? I'm not convinced that they are. But if they work for Kevin and are an integral part of his own successful trading approach, then that's all he needs to say. His main point is that having more time in an option gives you more safety if the trade goes against you. The criticism is that time value shouldn't matter in a day trade. That criticism seems valid to me. Is it?

     

    It doesn't help me to be told that Kim is obnoxious or that Passion is a moron and a loser. There doesn't even have to be a winner in the discussion points. Kevin can use monthly options because they work for him. As a reader, I consider his points and the criticism, and make up my own mind since I am responsible for my own trades.

     

    But there is a pattern of behavior here that really is below the belt and not helpful at all in a factual discussion. I doubt that's likely to change. In fact, I might be setting myself up for a round of attacks.

     

    I'd just like to read more about the trading approaches and have a respectful discussion about criticisms.
    11 Oct 2012, 09:48 AM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    Well said gl.

     

    Please note that I never said that Kevin's system can or cannot work. I never comment on something that I'm not familiar with. This style is not my cup of tea, but it doesn't mean it cannot work.

     

    My comment was about the use of weekly options in different timeframes. A completely professional and logical comment. As another example, look at my comments on Kevin's MOS article and look at his response.
    11 Oct 2012, 11:16 AM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    I guess this is the price you pay when you become successful. People love to hate when they can't be seen or found, and the more successful you become, the more jealous and hateful they become.

     

    I never attacked anyone personally, all my comments have been on strictly professional level. But some people just don't like when you expose their lack of knowledge and professionalism.
    11 Oct 2012, 09:07 AM Reply Like
  • Kevin M. O'Brien
    , contributor
    Comments (1800) | Send Message
     
    Author’s reply » First of all, never heard of Investmonials, or whatever site you said I commented on. Personally, I don't have time for that, nor would I take the time to make a comment. That's quite an accusation. Really?
    16 Oct 2012, 01:28 PM Reply Like
  • ssgsriram
    , contributor
    Comments (23) | Send Message
     
    As always, great article, Kevin. Thanks for sharing. Please ignore folks who are against your strategy and please continue to write. Small time traders like me and my friends have made significant money using your strategy in the last 18 months. Every time I have doubts about my own trading skills, I go back to your book and refresh the concepts. And if I still have doubts, I have reached out to you - and you have been generous with your time as well as advice.

     

    Bottom line - ignore the folks who are against your strategy; continue to write for folks like me. Thank you.
    11 Oct 2012, 04:24 PM Reply Like
  • Abe781200
    , contributor
    Comments (23) | Send Message
     
    ssgsriram,

     

    I am not personally against anyone or anyone's strategy, and I don't read that from anyone who has posted here. From what I read, people are only asking questions, but Kevin only gets defensive and offers no substantive response or rebuttal. I have yet to see a professional and well mannered discussion.

     

    Out of sincere curiosity, it seems that Kevin only started sharing his strategy late last year --- less than a year ago. How is it that you and your friends have had success with it for 18 months?
    11 Oct 2012, 11:38 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    Since you use this system, what are your thoughts on the weekly versus monthly options question? If weekly options are cheaper and have a higher delta, and time decay is not an issue since it is day trades, why not use them instead of the monthlies?
    12 Oct 2012, 12:14 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    Kevin -

     

    I have been paper trading your system to get a feel for it. At 11:10 am today, the indicators for Apple seemed to indicate a buy with call options. But in hindsight, that would trade would have lost money as Apple get falling throughout the day. I would appreciate your critique as to what you think of the trade at that time and whether or not you would have made it yourself.
    Thanks,
    12 Oct 2012, 12:21 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    SopranoFan -

     

    Thanks for your response. I'm also looking forward to hearing Kevin's take on the Apple trade. His strategy seems to work most of the time that I have been paper-trading it. But sometimes I encounter trades where the price keeps going down (for a long trade) after what seems a good entry point according to the strategy's parameters.

     

    Thanks all,
    12 Oct 2012, 11:59 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    SopranoFan -

     

    Thanks for your response - it is very informative. I am also looking forward to Kevin's response as the creator of the strategy. I would like to get his take as to whether the Apple trade I mentioned at 11:10 est was within the parameters of the strategy and if not, why.
    12 Oct 2012, 01:31 PM Reply Like
  • dbas
    , contributor
    Comments (16) | Send Message
     
    I don't understand the bad blood between Kevin and Klaiman. Was Klaiman a former apprentice and rogue student of Kevin's? "He is young, but the force is strong in this one."
    13 Oct 2012, 12:08 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    "apprentice and rogue student of Kevin's"? Please don't make me laugh. Me Kevin's student?

     

    Just read my comments which have always been on a purely professional level, and read Kevin's responses. Compare my track record (135% ROI in 9 months, with each trade fully documented) with Kevin's (non-existent).
    13 Oct 2012, 02:09 PM Reply Like
  • Kevin M. O'Brien
    , contributor
    Comments (1800) | Send Message
     
    Author’s reply » Right.
    16 Oct 2012, 01:40 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    Dbas, you've been posting for several months about learning Kevin's system. Have you been trading it?
    With this kind of discussion going on, you would think that some of Kevin's students would chime in about how the approach has worked for them.

     

    But there's not been a single credible person come forth with a series of discussions about specific real-time trades. Why is that?
    13 Oct 2012, 11:51 PM Reply Like
  • Kevin M. O'Brien
    , contributor
    Comments (1800) | Send Message
     
    Author’s reply » Why is that? Nobody is under any obligation to disclose their trades, you know.
    16 Oct 2012, 01:41 PM Reply Like
  • dbas
    , contributor
    Comments (16) | Send Message
     
    SteadyOptions: no disrespect intended. On another post, Kevin wrote "Then you should be thanking me" in regards to Kim's success:
    http://seekingalpha.co...

     

    glworden: I've dipped my toes in daily options trading, and have been wiped out. It's mostly my fault, as I let small gains turn into massive losses. Lessons learned, and it's back to basics for me. If it was that easy to earn $500/day, everyone would be doing it.
    14 Oct 2012, 12:47 AM Reply Like
  • dbas
    , contributor
    Comments (16) | Send Message
     
    glworden: Further to the above, I cannot comment on Kevin's system as I do not have the experience nor education to further contribute to what has been said by far greater minds like yourself, SteadyOptions, and SopranoFan. However I will say that ATM GOOG 600 calls annihilated me back in May. Had I used deep ITM weeklies, I would have lived to see another day, as SopranoFan put it. Had I bought and held the stock outright (as I'm accustomed to), I would've be able to participate in the 25% rally. Hindsight's 20/20.
    14 Oct 2012, 01:35 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    I would only like to add that I have been paper trading the system for a couple of months with mixed results. Even though I realize that paper trading is not the same as the real thing, I wanted to get a feel for Kevin's system. What I have found that, at least for me, the system can produce some winners. But I have encountered losses where even though the system's indicators flagged a stock as oversold, the stock continued its downward direction. I posted a specific question to Kevin a couple of days ago about such a situation with an Apple trade and am waiting for an answer.
    14 Oct 2012, 12:36 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    dbas and mr, I appreciate your honest reporting about your experiences.

     

    Knowing that there are those out there who took Kevin's personal training and who undoubtedly heard about it on SA, one would assume that given the benefit of Kevin's tutelage, they would be practicing at the highest level. Why aren't those people showing up on here with an honest no-BS endorsement and discussion? I don't know whether they are sworn to secrecy or what, and if so, why that would be the case? I find it very odd that people enter Kevin's training program, never to be heard from again.

     

    As to the weekly versus monthly question, I guess Kevin has explained his rationale on that. The counter-argument is that if it truly is a day-trading programs, then concerns about the safety provided by more time value are misplaced. I don't think Kevin has countered that argument, but he may feel that he doesn't have to.

     

    Are you using a trading plan, dbas? I don't think you're saying that buying GOOG stock outright would have helped you in the day trade, would it? And if you're saying you would have done well by holding the stock for a longer period, then you're really not a structured day trader. In the very short term, deep-in-the-money options should give you close to the same dollar return as the stock with a much lower capital outlay and a much higher percentage return. I don't think you can say the same thing about monthly options several weeks or months from expiration. They do give you more safety via time value, but again that is of no concern to the day trader.

     

    In Kevin's book, he appropriately speaks in absolute terms about never wanting to hold a position overnight. Part of the criticism of his approach is that in practice he does indicate that he holds overnight. And he does this when his profit doesn't materialize and the option drops. According to him, he uses no stops. So no stops and you don't hit the profit target, you end up holding, which is contrary to the stated strategy. No stops, and how far do you let it drop before you cut your losses? Kevin claims that these trades always pan out and the price always returns - and that he's not had a single loser this year. If that's true, it's amazing. If that's the case and you held longer term options on your GOOG, then why didn't it return to profit as promised? What rules did you break in exiting the position? Did you accept a loss that you hadn't accounted for?

     

    If it's true that you can trade this system without stops and that the price always comes back and there are virtually no losses, where are the people saying "yes, I do this, and it does work this way?"

     

    I'm not discounting the approach entirely. I don't think you can ever expect an entry signal to give you 100% winners, so if you trade well with that in mind, it's not alarming that you would have a losing GOOG trade. But according to the system, you weren't supposed to. You said it was your own mistakes. What were your mistakes? Did you not take the $1 profit when it was there? If you traded without stops and your losses just kept getting bigger, then you didn't make any mistake at all because you followed the system. Unless you panicked and sold with a big loss, only to have the whole position turn around the next day for a profit like Kevin said it would. Is that what happened? I'm really not trying to be antagonistic. I'm trying to understand how if you're adhering to the system you can have losses.

     

    In any trading system that I would consider, the losses are built in and expected. My plan would describe what my maximum loss might be and when and how I would book it. Accepting some losses is the cost of doing business.

     

    If Kevin's system works except for those times when the price keeps going beyond the overbought/oversold level, and it give you profit 80% or even 50% of the time, then it could still be profitable as long as there is a way to get out when those negative events occur. The fact that it's not always right is not a knock on the system. I wouldn't expect it to be always right.

     

    If the signals are good a high percentage of the time, then you should be able to trade it successfully. I just can't understand how you could do that without a trading plan.

     

    I tried some of Kevin's earnings plays and did poorly. He did well with the same trades. It's not his fault. My conclusion is that he is using skill and experience that he might not even be aware of, and that he's assuming too much if he thinks a novice trader can come along and do the same thing. He's reacting, improvising, trading by intuition, and it may very well work for him. His day trading system probably works for him, but I doubt very much that he lets a position deteriorate into the abyss, even though that's essentially what he's telling others to do.

     

    90% of success is not whether your signals are always right, but about how you manage the trade.
    14 Oct 2012, 06:31 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    I don't know if Kevin's system is profitable or not in the long run. It might be. However, if he did say that he has 100% winners, I can guarantee you that this is not true. If this was the case, Kevin would be the richest man on earth by now. NO system works 100% of the time. In fact, any professional trader will tell you that 50% success is considered excellent as long as you keep you winners bigger than your losers.

     

    The fact that he doesn't use stop losses speaks for itself. The most important thing is trading is position sizing. You base your allocation of the maximum loss - but if you don't know the maximum loss, how can you calculate the position sizing? And if you hold overnight, the stock can gap and the loss can become even larger. He says it will always come back - do you really believe that? What if it doesn't? What if the general thesis was correct but the markets just reversed taking the stock with them?

     

    The purpose of stop losses is to limit your loss so you know in advance how much you risk on every trade. In some cases, the trade will reverse after you are stopped out. It's part of trading. The most important thing is not to let a small loss to become a big loss. This is true for any trading system. Despite your best intentions, it will happen from time to time. But without stop losses, it will happen a lot. ANY system will produce a losing streak of 5-6 losers from time to time. Anyone telling you otherwise is either lying or has not been trading enough time. If you risk only 2-3% on each trade, even 5-6 losers won't kill you. But if you lose 15-20%, after 5-6 losers your account is toast.

     

    You also mentioned that he did well with his earnings plays - how do you know that? Because he says so? I didn't see any single trade that he fully followed, with entry and exit prices. Did you?

     

    And if someone comes here and tells you that he made millions using this system, do you have any way to verify it? The only way to see the system in action is to see the actual trades. In real time, not after the fact.
    14 Oct 2012, 07:17 PM Reply Like
  • Kevin M. O'Brien
    , contributor
    Comments (1800) | Send Message
     
    Author’s reply » Then don't comment on it. Plain and simple.
    16 Oct 2012, 01:44 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    Right on the earnings plays. Because he said so. On the times when it appeared the results were bad, like the GOOG trade, he said he could roll it forward.
    14 Oct 2012, 07:38 PM Reply Like
  • JohnYoga
    , contributor
    Comments (35) | Send Message
     
    Hello Kevin,

     

    I use your system to day trade the underlying without using options. I also use it in my Emini trading. Was there a reason why you used options versus the underlying?

     

    The reason why I ask is that I had found that trading with options in this fashion was very clumsy for me.

     

    Thank you, Kevin. I do use this system + my slight tweaks in my daily regimen.

     

    Regards,

     

    Marc
    14 Oct 2012, 08:40 PM Reply Like
  • dbas
    , contributor
    Comments (16) | Send Message
     
    glworden: great discussion! I'm not a day trader. I typically use dividend plays, and am more of a macro investor. I came across Kevin's GOOG earnings post, and checked out his daily options strategy. I bought his book, as the lure of a little extra juice through daily options was tempting. I did some paper trading of the system, and then decided to allocate $10k of my portfolio towards this method. It got cleaned out pretty quickly.

     

    As mentioned, I bought ATM GOOG Jun 600 calls in May on the indicators. I was up maybe $0.25, and then the markets sunk in June. I didn't have a stop loss, and held on until they were virtually worthless. I like GOOG as a company with a fair P/E and a clean balance sheet, so I didn't mind holding. Being new to options, I underestimated the effect of time decay. In the end I lost out on the daily trade, and the GOOG rally by not having a trading plan, as you mentioned. It's hard to be both a day trader and a fundamental trader simultaneously.

     

    As you say, trade management contributes to success far more than any other variable.
    15 Oct 2012, 12:38 AM Reply Like
  • bilo2444
    , contributor
    Comment (1) | Send Message
     
    me too i was novice, and i blew my account trading aapl.
    once on april 13th and again on may 1st never recovered because i held it overnight with no stops
    25 Oct 2012, 03:31 AM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    Dbas, like you, I have paid my dues in the school of hard knocks. I've taken several 100% losses. I was poorly educated by an under-qualified mentor and in over my head. Theta - time decay - wiped me out before I even knew what it was. Or sometimes the underlying would gap up or down and I thought I'd made a killing, but my option price actually fell; I had no understanding of implied volatility or even that earnings releases have a huge effect on options prices.
    I've subscribed to many services, made about every mistake you can make, and lost way too much money.
    So now I'm reloading. I'm determined to educate myself well and know what I'm doing before I start trading again. I've met people on SA and other places who I know to be successful traders because they've shared real time trades with me and have been very patient and thorough in discussions.

     

    Always looking for the Holy Grail, Kevin's system sounds great in its simplicity and results. But since I am responsible for my own trades, I need to vett any part of it that arouses concern. If these signals do produce winning trades in the targeted time frame a high percentage of the time, that is enticing. But entry signals are only a small part of a trading plan. It's the rest of the system that really concerns me. Using distant options makes no sense at all on a two-minute time frame, and Kevin's explanations seem tangential, like he's not even listening to the question. Most suspect of all is the implication that its a system so good that you don't even need stop losses or any kind of risk management. The only exit strategy you need is how to book profits, because profitable trades are the only thing it produces.

     

    So if these signals are really great, I'd be making adjustments to trade with a more reasonable trading plan. But then I wouldn't be trading the system, would I? So what? If it works, it works.

     

    But I have a problem committing my time and energy to something that has so many obvious flaws. For months, I and others have been asking trained traders to come forward and attest that this approach works as well as advertised. Share some real time trades. Share some set- ups as they are developing. Show us how holding on to a falling option in a falling market always works out, and how trading without stops produces better results.

     

    If the answer is that the system is so profitable that the rare but occasional 100% loss is an accepted part of it, then say that and give us a statistical argument and historical record for why that is so.

     

    There are lots of people wanting to learn options trading. If they come along like I was a few years ago and follow this system because it sounds so great, they are going to get skinned. Even if they do it pretty well, trading mistakes will have them turning small profits into losses. And if the position loses right from the start, holding onto it is not even a mistake, because that's what you are supposed to do.

     

    So where are those traders who have shelled out thousands of bucks to train with Kevin, who trade with discipline, and who have so many profitable trades that the built-in 100% losses are acceptable? Or do they adjust their trading to more realistic parameters? My guess is that Kevin does that, too. I bet he does not just sit there holding a losing position until it's a total loss.

     

    Those who criticize this method are not out to undermine Kevin. A look at the history of comments wil show that all discussions started with a sincere interest and a desire to understand the system. Then there is long-standing frustration with the lack of real-time examples and the very rancorous responses to inquiries. Animosity has obviously developed.

     

    But that is not the main theme of the criticisms. How can you push this system on the novice options trader (of which there ar many on this site) and see them led like lambs to the slaughter? If that perception is wrong, then show us in a civil and wel-documented way.

     

    We've really reached the end, because this request for a rational discussion and real-time examples has been going on for months. Your response, Dbas, is more detailed and to the point than anything we've gotten from Kevin.

     

    I can imagine that Kevin might feel he has responded and answered these questions, and others might feel that the questions just aren't satisfactory, or that they are evasive. I for one have never heard a convincing explanation of why trading without stops is good in any trading plan, or what there is about this one which would warrant an exception.
    15 Oct 2012, 09:15 AM Reply Like
  • dbas
    , contributor
    Comments (16) | Send Message
     
    Soprano and GL, I don't see it as rubbing salt in the wound at all. Quite the contrary, as people have to pay for this type of mentoring. In my brief experiment with the system, I had about a 75% win rate. However, my losers FAR outweighed my winners.

     

    One book or one week of training will not make anyone an expert at anything.
    16 Oct 2012, 12:42 AM Reply Like
  • mike_tee_vee
    , contributor
    Comments (20) | Send Message
     
    Can anyone comment on the importance of individual stock selection in this (or any) day trading strategy? For example AAPL has lagged the market. Does this impact it's performance on long plays?
    15 Oct 2012, 05:43 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    For day trading, you want stocks with a high average true range. They move a lot. You can screen for high ATR. AAPL is the top of the list. Why are you predisposed to trade AAPL long? If it's lagging, short set-ups are more likely to work.
    15 Oct 2012, 06:16 PM Reply Like
  • rgarvis
    , contributor
    Comments (3) | Send Message
     
    Hi mroptionstrader,
    I'd give your question a shot, if I may. If you applied Kevin's system precisely, the lower Bollinger Band was not breached at 11:10 and therefore a buy signal was not issued, I think. This nuance makes all the difference in the world. Many trades that are almost good enough, just aren't. Quality of trade is vital with this type of system.
    Secondly, and probably way more importantly, the quality of the BB opening is poor. The upper band "hooks" downward indicating continuation (hooking afterward is ok). This is a major alarm bell. Do NOT trade this setup, wait for a better one. While you did get a slight pop that a seasoned trader could marginally profit from, patience will be your best ally in selecting only the best trades to maximize your probability and not tax your ability. For example, a nice setup occurred today at about 11:14. To be sure, traditional overbought/oversold analysis is overly simplistic for the application of this system. I hope this is useful.
    15 Oct 2012, 09:39 PM Reply Like
  • Abe781200
    , contributor
    Comments (23) | Send Message
     
    Which stock had a nice setup at 11:14 on Oct 15? 11:14 EST? Did you enter the trade?
    16 Oct 2012, 09:28 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    rgarvis -

     

    Thanks for your response, it is helpful. Do you regularly use Kevin's system in your trading? If so, has it been consistently profitable for you? I'm also curious as to whether you use stops with this system, whether actual or mental stops
    15 Oct 2012, 10:10 PM Reply Like
  • rgarvis
    , contributor
    Comments (3) | Send Message
     
    mroptionstrader,

     

    I trade the system every day. I have not had a single loss in 6 months with the daily options strategy except for one, it was my mistake. I have not used stops, but I would pull a trade if I realized later I did not trade it correctly, or if it is not profitable by the end of day. My one loss was because I entered a trade before all the numbers were reached. I pulled the trade within minutes with a small loss. If a trade went against me by more than the daily move, I would probably yank it as well. However, my record is irrelevant to your trading. Experience in trading counts here. Best to watch trades for a substantial time before putting real or large money in. Backtesting is useful. Don't trade this until you know what you're doing. I read his book eight times, and the articles at least that many. I sat with Kevin for a week and learned way more. I looked at trades in the past for quite a while before starting with a small amount of money. Greed (and fear) has killed too many accounts in this and every other system out there. I would strongly suggest you stick to the rules and NOT try to tweak the system until you make good money at it. Until then you really don't know the system and its nuances. I am still learning. My 2 cents, YMMV.

     

    Also please note that my Oct 15, 9:39 post was written Friday. Oct 12
    16 Oct 2012, 09:17 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    rgarvis -

     

    Thanks for you detailed response. It seems like that on this blog, constructive feedback often gets lost in a flood of negativity. I'm just interested in evaluating Kevin's system. Do you adjust your price target on a position as a trade progresses, or do you just stick with a preset target as Kevin discusses?
    16 Oct 2012, 11:40 AM Reply Like
  • mroptionstrader
    , contributor
    Comments (16) | Send Message
     
    SopranoFan -

     

    I believe the Apple trade rgarvis referred to was on 10/12, not 10/15
    16 Oct 2012, 12:36 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    I would be VERY careful when someone claims 100% success ratio. With no actual trades posted in REAL TIME, not hindsight, you have really no way to verify this. My guess is that if someone had a 100% win ratio, he would not need to go to a training, and he would not probably post on SA. He most probably would be retired on his own island by now.

     

    Unless of course the trading sample is so small that it could be accidentally 100% winners. Any successful trader will tell you that 50% success ratio is considered excellent - as long as you keep your winners larger than your losers.
    16 Oct 2012, 02:05 PM Reply Like
  • Abe781200
    , contributor
    Comments (23) | Send Message
     
    You are being generous in saying to be "very careful". I'm going to come out and say I don't believe it. I think this is why people have been asking for trade details for months. If someone were so successful, why do they need to be so evasive?

     

    Insightful comment about sample size. If I went to Vegas and put a nickel in the slot machine and won a couple of dollars, then never went back to Vegas, I could claim a 100% win ratio in Vegas. I could even say my win rate was 4000%. Then I can start a class and teach others how to gamble.

     

    On a more serious note, I completely agree that the key to success is to keep winners larger than losers, calculate position sizing based on risk tolerance, and adhere to stops.
    16 Oct 2012, 02:22 PM Reply Like
  • rgarvis
    , contributor
    Comments (3) | Send Message
     
    Woah! Gentlemen, please!

     

    I just wanted to help a guy out. I have nothing to sell, don't care if you have faith issues, and I don't work for you.

     

    Where do you guys get the time to post all this. I clearly have made a big mistake by posting here. I will answer a few questions then I will no longer do this. I just don't have the time. I now fully understand why Kevin doesn't respond to everything. For me, after a day of trading, spending time with my teenage boys doing homework and sports, I don't have the time for this sort of thing. Doesn't anybody trade? This is my last post.

     

    @SopranoFan: Regarding your request, no. I will not post trades for you and screenshots and whatever else you've asked for. I have a much better idea: YOU do the work to validate or invalidate the system for you. This will be far more beneficial for you than if I spoon feed you. Or you can go to my website: www stealyourmoney dot com, and pay me a gazillion dollars for it. If you can't figure it out how to make it work then move on. If it works for you, then trade it, if it doesn't work for you then move on to something else. There are several hundred thousand systems out there and only about a dozen will work for you. If this doesn't, then don't waste time. Move on. Posting statistics for others, and spending a lot of time on posts will never make you an expert trader. It might make you decent analyst, statistician (greeks are statistics, and all statistics don't tell the whole picture, that is their function) or blogger, but none of these make trading money. I've seen traders make money with a coin toss, fractal systems, with or without stops, discretionary and mechanical, there is no definite, final answer. The question really is, can you trade, and how? Mine or anyone else's performance is completely irrelevant to yours. It's about skill people, not about the systems. Pick the system but work your trading psychology more.

     

    @ SteadyOptions: I understand that you have to say you don't believe, you have to sell your website. Unfortunately, that completely destroys your credibility when you attack other systems, something a proper marketer should never do. If your system works for you and for your disciples, then kudos to you. But, again, the system suits you. I can show you systems that generate 90% hit rates that my 14 year old can do, but once in awhile you get creamed. Or others that are 30% win-rates, but generate over 100% returns, (net of commissions). Final results count! NET of commissions, fees and costs. But I do agree with you: Real, profitable traders don't post here, at least for very long - and now I know why. When YOU actually start making real money trading, and not trying to do it with a website fee, you'll probably disappear too. FYI, I retired in 2006 and it nearly drove me crazy - never again. And I did look at islands to buy, but that's just senseless: no services, no people, no friends, no neighborhoods, etc. I'm happy where I am, just down the 401 from you, and a monthly trip somewhere.

     

    @Mroptions: Kevin has to be one of the most patient traders I've met and so he is with his profit targets. I'll admit to closing a trade more than once to take a profit short of my declared take-profit level, only to watch it go on to it. It seems that, after all this time, even I have to work on my trading psychology. And mark my words: that is way more important. Good luck.

     

    @all others: Trade trade trade. That's the only way to get good at it.

     

    I'm done. Now you'll take a whole bunch of pokes at me, have a few laughs at my expense, and forget me in a few weeks. And the latter is what I seek the most.
    17 Oct 2012, 09:41 AM Reply Like
  • Kevin M. O'Brien
    , contributor
    Comments (1800) | Send Message
     
    Author’s reply » Thanks Rich. I could never say it better.
    29 Oct 2012, 10:01 PM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    Rgarvis
    I just started trading Kevins system. I have placed almost 20 trades so far and when I trade them exactly how he suggests I haven't lost yet. May I ask what you learned in Kevins class that may not have been in his book? What is your view point on the weeklies? How do you handle losses if you have gotten any? Did you tweek the system at all to fit you? Thank you Happy Thanksgiving
    22 Nov 2012, 09:28 AM Reply Like
  • s.forte
    , contributor
    Comments (4) | Send Message
     
    Any insight on this trade appreciated from Kevin or an objective source following his strategy.

     

    LNKD - LinkedIn
    10/17 1:42 EST
    Clearly Breaks BB Band
    Low: $109.63
    RSI: 7.7
    IMI: 0.0 (prior close 3.95)
    MFI: 0.0 (prior close 7.69)
    Full Stochastic: 4.60, 6.63

     

    High after execution $110.12

     

    I realize the outlook is LNKD is overvalued, but I have not seen any commentary completely removing from the daily strategy.
    17 Oct 2012, 04:03 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    rgarvis,

     

    I did not attack the system. I just asked few simple questions. Frankly, I don't really care if the system works or not. I have my own system which works extremely well for me and my subscribers, as proven by few hundred trades fully disclosed on my website. Thank you for your concern, but my credibility does not need a proof. Just take a look at my transparency and the reviews I get. My credibility is confirmed by hundreds happy subscribers and hundreds more in the waiting list. And yes, I trade every single trade I share with my members and I actually make money from trading.

     

    As for your credibility - it was completely destroyed the moment you said you have not had a single loss in 6 months while trading it every day.

     

    As for those keeping asking questions about Kevin's system - I wouldn't hold my breath for answers. Kevin is on SA since last November, he did not provide any answers so far - what makes you think it will be different this time?

     

    Like SopranoFan said, talk is cheap. Actions is all that matters.
    17 Oct 2012, 06:21 PM Reply Like
  • mike_tee_vee
    , contributor
    Comments (20) | Send Message
     
    I'm a SteadyOptions subscriber, and I can vouch for Kim's credibility. The bad Investimonial reviews are bogus. He gives real time trade alerts, and often his subscribers can get even better fills. He owns up to every decision he makes public on the site, and places a strong emphasis on maximum losses. Every morning, he gives a gameplan of what he's looking at that day. In terms of service, his execution is the closest thing to perfection as I've ever seen.
    17 Oct 2012, 08:09 PM Reply Like
  • Tech Buff
    , contributor
    Comments (101) | Send Message
     
    I agree Mike 100% with you!

     

    Kim was instrumental in helping me avoid spending thousands of dollars on Kevin's training program. He enlightened me on Kevin's track history by pointing me to threads of Kevin's articles where weaknesses are very evident and cause for alarm. Particularly interesting however was despite the fact that Kim sells a service he actually objectively recommended a competitor's program for me to check out as well -- Dan Sheridan. Very impressed and that shows hes genuine.

     

    I was nonetheless anxious to see what Kevin had to say about Kim and his strategies I must say when he promised a few weeks ago that he would be writing an article. Unless I missed it I don't believe he followed through--- this speaks wonders in my book!

     

    Kevin why no article? It seems you are very critical against Kim in general statements-- but yet havent backed it up with real world examples.

     

    Looking at the questions here on this thread posed to him and failure to respond along with suspicious posters like rgarvis showing up out of nowhere making bold claims yet not responding is interesting as well.

     

    I also noticed that Kevin had about 50 comments removed recently that contained all sort of personal attacks and name calling... my guess is he is being watched by SA big brother haha!

     

    Serves him right in my book.
    23 Oct 2012, 09:12 AM Reply Like
  • SebastianC
    , contributor
    Comments (15) | Send Message
     
    Mike,

     

    I have not been ignoring you...I did receive your email.... however Seeking Alpha deleted my SopranoFan moniker and along with it all emails.

     

    As for the T3 Saturation Play by Pete Renzulli-- I have actually just purchased the course... and will be in the process of reviewing the material this weekend.

     

    Pete is one of the best traders at T3 and has an excellent teaching style-- he really knows his stuff and I am very familiar with him and his trading style and rules in general-- so in my opinion a specific strategy designed for holding periods of 1 to 3 days is an ideal complement to my intraday trading system for potential swing opps.

     

    In my opinion it would be money well spent if a 1-3 day trading style is of interest to you.

     

    P.S. Due to Hurricane Sandy the T3 main office has been closed and they have been in the process of restoring power and servers. Pete has been doing the Morning Calls and Daily Recaps while Redler has been out of commission--- I recommend you review the archives over the last week-- there is much to be gained from various snippets of trading rules he value adds to the material.
    8 Nov 2012, 06:53 PM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    Just wondering why SopranoFan comments have been deleted..
    22 Oct 2012, 11:50 PM Reply Like
  • Abe781200
    , contributor
    Comments (23) | Send Message
     
    Kim: Well-reasoned conversation and genuine questions do not seemed to be welcome here, whereas attack and name-calling by the author is okay? Upside down.

     

    Are we just supposed to accept that 100% win rate is the norm and that no proof is needed? Sorry, not everyone is that naive. It's just unacceptable to me that when legitimate concerns are raised, the author/his student tell us nobody who asks can be a real trader and they simply cannot be bothered with us. Something is not right with this picture.
    23 Oct 2012, 12:10 AM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    SopranoFan was straightforward and diligent in addressing the shortcomings of a trading system that was heavily promoted on SA. It's become obvious that Kevin will never provide detailed and straightforward answers, and he's very quick to use attack-and-insult mode. That's just not going to change, and wishing otherwise is an exercise in futility.

     

    I think SA is trying to maintain a civil tone and they objected to the fact that SopranoFan made an unsubstantiated allegation about rgarvis credibility. I think their's is a knee-jerk reaction, because anybody who claims a 100% win rate over a six month period deserves to be questioned. If it were true, it would be pretty easy to show some evidence to back up the claim. But there is never any evidence. Only evasion. If anything, SA should ask such posters to back up their allegations rather than to ban their critics.
    23 Oct 2012, 09:04 AM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    What happened? I'm trying to learn day trading, and I review posts such as this often. There has been some controversy on here, and apparently SA has made some deletions. Looks like all traces of SopranoFan have been removed.

     

    However, this post, which I saved, addresses some important issues regarding day trading as Kevin suggests. Follow Kevin's suggestions or consider these alternatives; the issue is nevertheless worthy of discussion:
    **********************...

     

    "For long term success in the markets, one must have a trading plan. Within this plan, there are certain key considerations that MUST be made before committing any capital to a trade.

     

    First and foremost - you need to be a risk manager. You must determine the maximum dollar amount you are willing to risk on any given trade... "maximum" meaning you will not take on any additional risk within the trade... this cannot be emphasized enough. Ideally-- this amount should be based on a fixed % of your total trading account... conservatively .5% to no more than an agressive maximum of 2%. Regardless of the amount.. to subscribe to this rule - you MUST be willing to sever a trade when your thesis for taking the trade fails. This can only be done properly by identifying the area on the chart where you are proven wrong... and position sizing accordingly based on the distance from your entry point to this point of failure... a.k.a. stop loss. Remember-- the first stop is the cheapest. Emotions MUST be removed. No egos. No hoping. No moving stop losses. No averaging down. You MUST be a rule based robot. Within your rules-- a maximum dollar amount of capital exposure per trade as a % of your total trading account should also be considered. Capital preservation is the key to keeping you in the game... the less capital at risk and subjected to unforseen "black swan" systemic events... the better. More on this later.

     

    Second- you MUST refrain from taking any trades that do not offer at least at a bare minimum a 1:1 reward to risk ratio... preferably however a 2:1 or better-- which will ensure you do not need to be right even 50% of the time in order to be profitable.

     

    Now - in order for the first two rules above to be properly utilized - a golden rule MUST be determined in advance of any setup consideration---and ultimately--any trade decision: KNOW YOUR TIME FRAME... AND DO NOT DEVIATE FROM IT. Without religiously honoring this rule-- you will be abandoning your role as risk manager. Instead of stacking the odds in your favor... you will be increasing your risk of failure... and potentially catastrophic failure at that... regardless of the time frame. To restate: the timeframe itself is moot. Whether you are a scalper (entry and exit often times taking place within seconds/minutes), day trader (entry and exit same day... holding for minutes up to hours), a short term swing trader (1 to 5 day holding period), longer term swing trader (5-30 days) or a position trader (30 days to 6 months)--- stay within the context of your chosen timeframe. Your chosen timeframe is what ultimately your risk and profit target for entry will be objectively based on... to deviate from it introduces emotional subjectivity and deters from the strict rule based discipline one must cultivate in order to be a successful trader.

     

    Kevin has conveyed that his strategy is a "Daily" strategy. By definition-- this falls under "day trader" status-- with entry and exit the same day. Here are some direct quotes from Kevin from his articles-- with hyperlinks for reference:

     

    "The goal of the daily options trading strategy I developed is to both get in and out of the trade as quickly as possible."

     

    "It is better to take a couple of hundred dollar loss than to hold overnight."

     

    http://seekingalpha.co...

     

    "As you can see, I use the 2-minute, one day chart setting."

     

    "For you to be successful trading this strategy, you need to take out all the emotion of the trade. Yes, there will be times when you could have held onto the trade longer and made a lot more money. I can't even tell you how many times this has happened. On the flip-side of that, there will also be many times when you should have sold the options when you had the chance to. It works both ways."

     

    http://seekingalpha.co...

     

    "I would also like to mention that it is not a very good idea to hold anything overnight. I receive e-mails telling me that they made a lot of money on the trade already and still want to hold the trade. From the minute you decide to hold that trade, you are no longer using this strategy. You are now a long call or put holder. This strategy has nothing to do with what happens the next trading day. You will be able to avoid holding overnight if you keep your trading times between 10:30-3:00 EST."

     

    http://seekingalpha.co...

     

    I think it is safe to say that all will be in agreement that this strategy is obviously based on a very short short time frame (the intial screen is based on a 2 minute chart... practically a "scalp" timeframe for all intensive purposes)... and as a result-- can be considered broadly as a "day trading" strategy. So let's look at the option contract alternatives:

     

    Kevin prefers to utilize monthly options with deltas of approximately .60. For those not familiar with delta-- this is the rate that the option premium will increase based on a $ 1.00 move in the underlying... $ .60 in other words. Based on AAPL's closing price of 635.85 today... the Nov. 620 calls have a delta of .61 and are currently 38.25 bid... 38.75 ask. The actual intrinsic value of these options is just under $ 16... which means over $ 22.00 is extrinsic value... or time value in essence. Now let's compare this with the current weekly options that have an equivalent delta: The October 630 calls which actually have a higher delta of .66 are priced at 11.20 bid... 11.45 ask. The actual intrinsic value of these options is just under $ 6... which means less than $ 5.50 is extrinsic time value.

     

    Now back to being a risk manager. Let's say you have in your trade plan a maximum loss amount of $ 600 that you would be willing to risk to enter a trade... based on a $ 60,000 trading account (1%). A day trade signal has been generated in Kevin's system... in which you are fairly certain that by giving AAPL a $ 1.00 stop loss distance from entry, a $ 1.00 - $ 2.00 move in your desired direction has a high probability of success (1:1 to 2:1 reward to risk profile). Since 1 option contract represents control of 100 shares... a $ 1.00 move in the stock will generate a $ 60 move in the option. Simple math will dictate that you could properly position size for conservatively 9 contracts (to account for any slippage) and be within your risk rules for stop loss (9 x $ 60 = $ 540). If you were to buy the Nov 620 monthly contracts-- the cost before commissions would be $ 34,650 (assuming you paid mid price of $ 38.50/contract). This would represent over 58% of your entire account value. Compare this to 9 contracts of the October 630 weekly calls... which would cost $ 10,215 (assuming you paid slightly higher than mid price of 11.35/contract). This would represent only 17% of your entire account value.

     

    It should be very obvious that the clear risk here resides within the monthly options... NOT THE WEEKLIES. The fact that over $ 24,000 more capital is required for the monthly strike subjects one to considerably more risk against unforseen black swan events... the weeklies are by far the safer choice. Take note also that utilizing weeklies has nothing whatsoever to do with using them to buy more contracts... this is not a consideration at all when properly position sizing for max loss. Increasing contract size simply because the weeklies are less expensive would expose us to considerably more risk... assuming everything else is constant. Only by reducing the stop loss distance with a more precise entry could one consider increasing contract size. With this in mind - the following quote from Kevin must be further qualified... as on its own is a recipe for increased risk in and of itself:

     

    "Instead of making a lot of trades daily, I feel it is better to focus on one (1) or two (2) trades and buy more contracts per trade. For example, why buy ten (10) contracts each on four different trades? It is a better decision to buy 40 contracts on one great oversold or overbought opportunity.""

     

    http://seekingalpha.co...

     

    In summary-- time value in an option contract for a day trading strategy is moot -- it serves no purpose whatsoever. The decision to enter a trade was based on a small time frame-- which means the exit is also based on a small time frame --- intraday.

     

    The possibility and risk of an unforeseen black swan event occurring intraday while in a directional trade is a given-- regardless of the option contract utilized. Having more time value does not lessen that risk... a drawdown is sure to occur regardless of the contract. To combat the risk of a black swan event-- we should always look for ways to reduce capital exposure to the markets... not increase it. For intraday trading strategies-- weeklies is the sound choice.

     

    Remember-- if a black swan event occurs-- you can always enter a new position. With weeklies- you will have considerably more capital at your disposal in which to take advantage of such an opportunity. Rationalizing holding a position simply because it has more time value is a recipe for disaster-- as the risk is the position can continue to deteriorate for some time before recovering... and the fact that an extremely high percentage of your capital will be tied to the position limits your chances for a successful recovery.

     

    If you are a day trader-- then day trade. If you are swing trader-- then swing trade. But never ever move up to a longer time frame once in a trade... your risk exponentially increases by doing so. Let a new trade setup under new conditions dictate that decision... with a new thesis based on a new entry and exit based on a new thesis on a new timeframe. Remember-- the first stop loss is always the cheapest and will ensure you live another day to battle within the market trenches.

     

    While you do get "more bang for the buck with higher deltas"... my intention was to keep deltas in the comparison as close as possible.

     

    It appears that Thinkorswim just updated the 630 weekly calls to a delta of .61... and the 620 monthly is now showing at .60... so virtually a wash there.

     

    As for the suggestion to reduce risk of a black swan by keeping positions small-- keep in mind that there is always a tradeoff-- in this particular case-- regardless if you were to reduce positions in weekly options or monthly options.. the net result is with the reduced risk comes the reduced reward as well.

     

    As for the black swan event risk being the primary justification for holding monthly options -- Kevin's argument does not hold water.

     

    The option series should match the timeframe context in which the thesis of the trade was based on. For an intermediate swing trade-- it would be ludicrous to do a weekly option-- and depending on the chart and measured move one would be seeking -- it might not even make sense to do a front month 30 days out... if the move is expected in 3 weeks--- it probably would make more sense to go 60 days out rather than limit yourself to a time constraint... just in case. But if it's a short term 1 to 5 day expected move-- 30 days out should be sufficient. The point is the option series is dependent on how long your trade thesis will take--along with some extra wiggle room...that's all.

     

    Three things typically will occur intraday during a black swan-- either an immediate reversal, a continued drawdown... or a base.

     

    Under any scenario a new trade can be implemented in a new timeframe. The current trade parameters that determine your entry at any given time have no bearing on the potential scenarios that could present themselves after a black swan."
    30 Oct 2012, 05:10 PM Reply Like
  • Abe781200
    , contributor
    Comments (23) | Send Message
     
    The more one uses underhanded tactics against one's critics, the less legitimate one appears. A person who is confident in his thesis/strategy would not be afraid to address issues and face criticism. Erasing comments is NOT the way to go to gain either credibility or respect. Disappointing, but again, what has happened in the past few months speaks VOLUMES about the author. Don't think that readers can be fooled. Many have read this and are able to see through a lot of this.

     

    Kevin's student said that he is one of the most "patient traders". That is a little surprising since he has no patience for his readers at all. Questions are always deemed as not worthy of an answer, and posters who disagree with him deemed not worthy of his time. The only time he takes the time to answer is when praised. ummmmm....

     

    You can prove me wrong by answering some of the questions asked over the past months.

     

    SopranoFan, if you can still read this: thanks for educating us and providing good insight as well as asking good questions. I know now they won't ever be answered, but I've also decided this is not the place to find them anyways.
    3 Nov 2012, 10:56 PM Reply Like
  • SebastianC
    , contributor
    Comments (15) | Send Message
     
    Abe781200--

     

    You're very welcome... my pleasure.
    8 Nov 2012, 06:48 PM Reply Like
  • SebastianC
    , contributor
    Comments (15) | Send Message
     
    Kevin how is the article coming on Steady Options and Kim Klaiman's strategies that you promised?

     

    In addition-- how is your analysis of the weaknesses of trading price and supply and demand coming along that you promised?
    8 Nov 2012, 06:59 PM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    I'm new to Kevin's system but I started trading it this week with my buddy and I'm 10 for10 . My friend is 13 for 13. Making money so far so good.
    17 Nov 2012, 06:00 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Mike that's great!

     

    Can you please provide actual trade examples? Fully detailed with stock symbol...entry/exit - date/time... option series - price paid/price sold - # of contracts please... thx.
    17 Nov 2012, 09:06 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Mike,

     

    As a follow up-- please keep in mind that the results you have posted are nothing short of phenomenal... especially in light of the market conditions this week... again-- CONGRATULATIONS!

     

    With this in mind-- surely you can understand the necessity and desire for all readers here to have some sort of means to determine the credibility of a such a post as yours... especially in light of the fact it is your first post ever on SA.

     

    A simple verification of option time and sales will deem you, your friend and of course Kevin O'Brien extremely worthy of much praise with the success you state... this time in the context of extreme credibility however.. thereby creating for you a positive established perception by readers for future posts. In addition-- you will be doing a great service to the readership base here-- for this trade detail knowledge will allow for reviewing the charts to get a feel for what the ideal setups and successful trades look like.

     

    Looking forward to hearing back from you. It will be a refreshing change since many others have come here posting similar results... yet when questioned for further proof they simply disappear. Hoping you buck the trend and establish the beginning of a "new normal".

     

    Thanks again in advance.
    17 Nov 2012, 09:33 AM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    I replied to your e-mail and I hope it satisfied your questions. Let me know if you need more info.
    20 Nov 2012, 09:36 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    No mike3dr it does not satisfy my questions... nor have you established any credibility at this point with your claims.

     

    I had requested specifically the following: Fully detailed trade examples with stock symbol...entry/exit - date/time... option series - price paid/price sold - # of contracts.

     

    This is what you had provided in your email yesteday:

     

    "I took 3 trades today. AAPL, CF, FFIV. I traded it by how Kevin said in the book. All winners but I'm not as aggressive in my profits as he suggests. I do it, in between my day job and sometimes (actually alot) I have to get out early. But all winners. Its better than losing. I'm an expert at that. : )"

     

    How could you possibly think that satisfied my questions?
    20 Nov 2012, 12:19 PM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Incidentally mike3dr- you would already know that you did not satisfy my questions if you had just checked your SA email.
    20 Nov 2012, 12:23 PM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    I'm not looking for credibility. I'm stating facts. If you don't like his system don't trade it. Why waste your time with all of this nonsense. I understand that you have valid points but if you don't like it don't trade it. I (like you) have had a lot of issues about these kind of claims and the only reason I tried it was because my friend ran off 10 straight trades without a loss. Trade yesterday, I took 1 trade, AAPL bought 530 calls at $36.45 time 13:32 sold at $37.00 time 13:35. How many contracts is up to you. How many I bought is none of your business. I'm done trying to be nice. Paper trade it or don't, I don't care. It has been working for me so far but I have only traded it for about 1 week.
    21 Nov 2012, 08:20 AM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    By the way I'm not Kevin.
    21 Nov 2012, 08:21 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    I already know you bought 5 contracts.

     

    What I also know is price hit strong demand level from 11/19 noon EST actually at 1:30 EST on 11/20... not 1:32. This is one of the big problems with lagging indicator based systems.

     

    What I also know is you had a huge amount of capital exposure in the market-- over $ 18,225... all to generate less than 1.5% return.

     

    Had you actually utilized weekly .9 deltas you would've actually only had to commit over 42% less capital.. or about $ 10,500 for 5 contracts... and generated approximately $ 1.00 profit during the same timeframe... which would represent over 4.7% return... of course buying at the proper demand zone area would've generated almost $ 2.00 in profit... or just over 9% return on capital.

     

    It's good that you aren't concerned with credibility... because until you can produce detailed trade info verifiable by time and sales on what you claim to be a 100% success rate-- your claims are meaningless.... which raises the question-- why even bring it up?

     

    Thanks Kevin.
    21 Nov 2012, 12:59 PM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Of course you aren't.
    21 Nov 2012, 01:13 PM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    mike3dr-- can you please explain exactly what you mean by the email you just sent me with the following content:

     

    "Anytime you want to meet up I'm fine with that. I'm in N.Y. I'll be happy to "discuss" this in person with you."

     

    ???
    21 Nov 2012, 02:10 PM Reply Like
  • Chasen
    , contributor
    Comments (2) | Send Message
     
    I bought Kevin's book on Amazon about three months ago for $9.99.
    Paper traded for about one month before going live.
    I've been making steady profits everyday after tweaking Kevin's system a tiny bit just to fit my trading style.
    And yes, I do use a stop loss mainly because I do not like to sit
    in front of the computer all morning
    After making the trade I put in an OCO to protect my downside or sell at my percentage gain.
    Again Kevin's methodology definitely works for me.
    I do not understand why there are so many skeptics.
    All you have to do, just like I always do, is to back test this strategy and you will see that it definitely does work and can make you a bunch of money.
    18 Nov 2012, 04:43 PM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Chasen,

     

    Please provide some actual trade examples. Since you are trading this "everyday"... surely this will not be too much to ask?

     

    Backtesting this strategy actually does quite the opposite from what you state... the reason being is because this system is based on lagging indicators.

     

    If however you are able to overcome the inherent weaknesses of lagging indicator based strategies... congratulations... however since you are a new poster-- surely you can understand it takes time to establish credibility.

     

    The easiest way possible to do this is to back up your claims with real world examples... complete with the same detail that I requested above from mike3dr. Surely since you are profitable everyday this task will be quite easy to do. A simple verification of time and sales on the options should be a formality.

     

    Thanks in advance.
    18 Nov 2012, 11:55 PM Reply Like
  • Chasen
    , contributor
    Comments (2) | Send Message
     
    Here ya go with proof:
    Nov. 13 8:58 a.m. bot LNKD Dec.100 put @ 5.70
    9:28 a.m sld @5.80
    Nov. 13 9:09 a.m. bot SLV Dec. 31.5 put @.99
    9:29 a.m. sld @1.02
    Nov. 13 9:17 a.m bot EBAY Dec. 49 put @2.38
    9:26 a.m. sld @2.45
    Nov. 14 8:59 a.m. bot YHOO Dec. 22 put @4:00
    9:32 a.m. sld @4:15
    Nov. 14 9:02 a.m. bot IWM Dec. 75 call @4:39
    9:31 a.m. sld @4:49
    Nov. 14 9:04 a.m. bot EBAY Dec. 44 call @4:05
    9:30 a.m. sld @4:15
    20 Nov 2012, 05:19 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Chasen - can you please clarify the time zone you are referring to-- or state the time in EST? Ideally-- your broker's statement will give trade time detail down to the second-- this is the most accurate way to provide proof-- especially where time and sales verificaiton come into play. Further-- the exact number of contracts would give even further credibility to match against time and sales.

     

    Nonetheless-- I am fairly certain if you are following Kevin's rules that it is fairly easy to deduce that for LNKD you were referring to 9:58 EST (8:58 CST) as just prior a pierce of the 2 min bollinger band had occurred on the 9:56 EST ending 2 min candle.

     

    Based on this timeframe-- I can tell you no LNKD Dec 100 puts traded. From 9:50EST to 9:55 EST a total of 27 contracts did trade at $ 5.90. No further trades occurred until 10:05 - 10:10 EST-- a single contract at $ 5.80. I can also tell you that not a single Dec 100 LNKD put contract traded on 11/13/12 at a price of $ 5.70... at any time.

     

    Now you further go on to state you sold Dec 100 puts at 9:28... which you obviously can only be referring to 10:28 EST. I can tell you that no Dec 100 LNKD puts traded at this time. The closest would be from 10:30 - 10:35 EST a total of 4 contracts traded between 5.90 and 6.05.

     

    I have stopped here at this first trade-- and will await your response to what is a very big problem here.
    20 Nov 2012, 07:22 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Sorry but I couldn't help but move on to the next trade SLV. There is a big problem here as well.

     

    While $ .99 entry price at 10:09 EST is plausible... your exit at $ 1.02 at 10:29 EST is most certainly not.

     

    Between 10:25 - 10:30 EST a total of 83 Dec. 31.5 SLV puts traded between $ .95 and $ .98.

     

    This is what you call "proof"???
    20 Nov 2012, 07:38 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    EBAY another big problem. No Dec 49 puts traded at 10:17 EST... A total of 7 contracts did trade between 10:20 - 10:25 EST at $ 2.39.

     

    No contracts traded at all on 10:26 EST. Between 10:30 - 10:35 EST 5 contracts traded @ $ 2.47. The only time any contract traded at $ 2.45 was between 10:40-10:45 EST - a total of 2 contracts.

     

    I think a major explanation is in order Chasen...???
    20 Nov 2012, 07:49 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    OK this is getting ridiculous.

     

    YHOO - the only trades in Dec 22 puts that took place on 11/14 were a total of 48 contracts the entire day... at prices of $ 4.15... $ 4.20... and $ 4.25. NO TRADES AT $ 4.00! The very first trade in this option series did not even take place until after 12:40 pm EST!!!
    20 Nov 2012, 07:58 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    IWM we lest go any further than to prove that no Dec 75 call contracts traded at any time during the day above $ 4.32. The low end of range was 3.23.

     

    Does anyone want to venture what type of results we will find with the final EBAY trade?
    20 Nov 2012, 08:04 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    What a surprise -- final EBAY trade listed on 11/14:

     

    A total of only 11 contracts traded for the day-- at a price of $ 3.31... between 3:15 - 3:20 pm EST.

     

    Chasen-- I am really curious to see if you are going to even reply to any of these posts.

     

    You do realize that simulator does not constitute real trades?

     

    No money has ever been made trading simulator... you do realize that?
    20 Nov 2012, 08:12 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Chasen I assume we wont be hearing from you again? Kevin?
    21 Nov 2012, 01:00 PM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    There are skeptics because there is no transparency. Vague claims of success such as yours, but no actual trades. And a hostile reaction to criticism. Most successful posters such as yourself are only around for a handful of posts and don't care to engage in discussion. No track record. No legs. Like him or not, Kim Klaiman is an example of true transparency. He posts every single trade on his site. Congratulations on finding a method that works for you.
    18 Nov 2012, 10:41 PM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Yep-- Kim Klaiman is the real deal.
    19 Nov 2012, 07:53 AM Reply Like
  • glworden
    , contributor
    Comments (147) | Send Message
     
    Thorn,
    Where do you find the data on options traded? Are there ever any contracts traded on other exchanges or from broker's stock that would account for the discrepancy. He said these were actual trades so there must be some explanation.

     

    It seems you can make some money from these trades. My question would be whether following the system precisely would lead to catastrophic losses due to lack of stops. These traders are wisely tweaking at least that part of it.
    20 Nov 2012, 10:37 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    glworden--

     

    Thinkorswim has time and sales option info for ALL exchanges.

     

    There is NO rational explanation other than he entered trades in a simulator- of which of course there would be no record of verification.

     

    Regardless -- if you look at some of the timeframes he provided -- the chart clearly shows price was in the middle of nowhere and didnt even follow Kevin's system to the tee.

     

    Once again-- TO DATE-- NOT A SINGLE APOLOGETIC HAS BEEN ABLE TO PROVE ANYTHING.

     

    What a surprise.
    20 Nov 2012, 12:22 PM Reply Like
  • mmester
    , contributor
    Comments (6) | Send Message
     
    I've been using this strategy for a few weeks, although I use weekly options. I'd be willing to provide an excel spreadsheet trade log or a screenshot of the buy/sell orders on ameritrade.

     

    the strategy is not perfect, and i've suffered some losses. I am also still working with very small amounts of money until I get more confidence.
    21 Nov 2012, 08:22 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    mmester-- how about just a few detailed trades posted here on this thread-- complete with the detail I listed in prior posts above?
    21 Nov 2012, 01:12 PM Reply Like
  • mmester
    , contributor
    Comments (6) | Send Message
     
    Sure thing-

     

    Filled Sell to Close 1 AAPL Nov 23 2012 565.0 Put Limit 6.80 -- -- 11:26:20 11/21/12
    Filled Buy to Open 1 AAPL Nov 23 2012 565.0 Put Limit 5.95 -- -- 11:18:13 11/21/12

     

    Filled Sell to Close 1 AAPL Nov 23 2012 560.0 Call Limit 7.70 -- -- 11:25:05 11/20/12
    Filled Buy to Open 1 AAPL Nov 23 2012 560.0 Call Limit 6.98 -- -- 10:54:34 11/20/12

     

    Filled Sell to Close 1 AAPL Nov 17 2012 505.0 Call Limit 7.60 -- -- 11:37:39 11/16/12
    Filled Buy to Open 1 AAPL Nov 17 2012 505.0 Call Limit 6.05 -- -- 11:29:14 11/16/12

     

    Filled Sell to Close 1 AAPL Nov 17 2012 545.0 Put Limit 6.30 -- -- 13:43:37 11/14/12
    Filled Buy to Open 1 AAPL Nov 17 2012 545.0 Put Limit 5.85 -- -- 13:36:52 11/14/12

     

    Filled Sell to Close 1 GOOG Nov 02 2012 695.0 Put Limit 6.40 -- -- 14:04:59 11/01/12
    Filled Buy to Open 1 GOOG Nov 02 2012 695.0 Put Limit 5.91 -- -- 13:46:30 11/01/12

     

    Filled Sell to Close 1 AAPL Nov 02 2012 600.0 Put Limit 6.12 -- -- 14:57:13 10/31/12
    Filled Buy to Open 1 AAPL Nov 02 2012 600.0 Put Limit 4.90 -- -- 14:52:10 10/31/12
    22 Nov 2012, 03:17 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    All times in EST?
    22 Nov 2012, 09:35 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Can you please post your losses as well?
    22 Nov 2012, 10:18 AM Reply Like
  • mmester
    , contributor
    Comments (6) | Send Message
     
    yup
    22 Nov 2012, 10:23 AM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    Did your losses occur because of your use of the Weeklies? I would really like to use them but Kevin does not recommend them. Which I still don't understand if you are day trading.
    22 Nov 2012, 08:33 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Readers there is absolutely no reason whatsoever to use monthlies for a day trading strategy. Please refer to the link below where glworden cut and paste my commentary on this issue:

     

    http://seekingalpha.co...
    22 Nov 2012, 09:40 AM Reply Like
  • mike3dr
    , contributor
    Comments (29) | Send Message
     
    Good job mmester, I take profits earlier than you between .50-.65 . I also trade the monthlies. Were your losses from a system failure or operator error? I'm still trying to figure out how not to take the big loss when something goes against me. Happy Thanksgiving
    22 Nov 2012, 08:34 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    Please refere to my post below on "how not to take the big loss when something goes against" you:

     

    http://seekingalpha.co...
    22 Nov 2012, 09:47 AM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    And here is a post relative to guidelines on parameters for proper position sizing:

     

    http://bit.ly/Qxdylj

     

    The key is identifying the location on the chart where you are proven wrong... IN ADVANCE of the trade. It needs to be in advance so you can properly be positioned for max loss. And "max loss" should never ever be based simply picking a random number of contracts at a certain entry price-- and then basing your stop loss on a dollar amount or % amount loss that if it occurs-- you exit the trade. The problem with this approach if you are in a call contract is you could be randomly exiting at an area on the chart where extreme demand exists. You want to have that area of extreme pivot demand identified in advance... with a stop below. I prefer .20-.30 below a pivot to avoid a bear trap sweep of where traditional stops are located. So if AAPL is at 600 at entry... with demand at 599... exit the trade if AAPL hits 598.75. This represents $ 1.25 of risk. WIth .90 deltas on options... lets assume based on fill slippage and bid ask spreads your option price will decline exactly by this amount. If your max loss is $ 500... you can get 4 contracts.

     

    But let's say you choose to enter with more confirmation as AAPL continues to show momentum... and now price is at 601. The only thing that has changed now is stop loss distance.. in this case- $ 2.25. So you must position size accordingly to where if stopped out your RISK IS STILL THE SAME. In this case -- you would only do 2 contracts-- because 2 x 2.25 is $ 450 loss... any more than that would exceed 1R. For simple math purposes- an extreme example would be a very wide stop of $ 5.00 would not allow any more than 1 contract.

     

    Regardless of the stop loss distance-- here is a key element that MUST be factored in -- reward potential. If you are risking $ 5... you better have a clean chart that shows supply overhead is at least $ 5 away.. preferably $ 10 however for a 1:2 risk: reward profile. You do NOT want to be looking to capture $ 1.00 move with $ 5 risk.

     

    Hopefully you get the idea.
    22 Nov 2012, 09:57 AM Reply Like
  • mike_tee_vee
    , contributor
    Comments (20) | Send Message
     
    Excellent discussion Thorn. Sam Seiden from Online Trading Academy talks about demand "zones" being a range of prices rather than a specific dollar value. You mentioned 0.20 - 0.30 below the pivot when identifying a stop. Would be this be below the lowest point of the zone to ensure you're not stopped out prematurely?
    22 Nov 2012, 08:28 PM Reply Like
  • thorninside
    , contributor
    Comments (70) | Send Message
     
    correct mike
    24 Nov 2012, 06:32 AM Reply Like
  • mmester
    , contributor
    Comments (6) | Send Message
     
    I wouldn't say my losses had anything to do with using weeklies.. I'm really not that familiar with options, but everything I read seems to suggest that weeklies make more sense.

     

    Kind of hard to say whether my losses were due to operator or system error.. you could really argue both. All the indicators except the bollinger bands were objectively signaling a buy/sell, but obviously it's harder to interpret the bollinger bands. After my first loss, which was huge, I decided that anytime I'm down 20% or more I'll sell, provided the drop doesn't happen immediately after I make the trade. I've also noticed from my trade log that my winners never take more than 30 minutes or so. So I use that as a sign too.

     

    Happy thanksgiving to you too.
    22 Nov 2012, 09:27 AM Reply Like
  • SteadyOptions
    , contributor
    Comments (2423) | Send Message
     
    Fascinating discussion. Too bad that the author of the strategy does not participate.

     

    Trading is based on probabilities. That means that we want to place the odds in our favor, but it will not always work. We have to accept that, no matter which strategy we trade. Losses are part of the game. Admitting to have losers is not a shame and does not invalidate the strategy.

     

    This is why it makes me laugh when someone claims that they traded for 6 months with no single loss. In fact, any professional trader will tell you that achieving 50% winning ratio is an excellent result, as long as you keep your winners larger than your losers. Claiming to have 100% winning ratio (or even 90%) simply destroys any credibility the person might have.

     

    BTW, we are all still waiting for Kevin's article about my system which he promised for "next Thursday" about 2 months ago.
    22 Nov 2012, 10:43 AM Reply Like
  • mmester
    , contributor
    Comments (6) | Send Message
     
    Here are all my trades minus the ones I posted earlier.

     

    Keep in mind that in the earlier trades I didn't always follow the system perfectly.

     

    10/05/2012  12:06:01

     

    Sold 1 AAPL Oct 5 2012 660.0 Call @ 0.65
     

     

    54.23

     

    ---
     

     

     10/05/2012  10:42:20

     

    Bought 1 AAPL Oct 5 2012 660.0 Call @ 4.1
     

     

    -420.76

     

    ---
     09/26/2012  14:54:13

     

    Sold 1 AAPL Sep 28 2012 655.0 Put @ 1.78
     

     

    167.23

     

    ---
     09/26/2012  13:23:56

     

    Bought 1 AAPL Sep 28 2012 655.0 Put @ 2.5
     

     

    -260.76

     

    ---
     09/25/2012  13:36:10

     

    Sold 3 AAPL Sep 28 2012 700.0 Call @ 1.57
     

     

    458.68

     

    ---
     09/25/2012  13:16:20

     

    Bought 3 AAPL Sep 28 2012 700.0 Call @ 1.34
     

     

    -414.30

     

    ---
     09/24/2012  14:04:00

     

    Sold 1 AAPL Sep 28 2012 695.0 Call @ 4.3
     

     

    419.23

     

    ---
     09/24/2012  13:52:12

     

    Bought 1 AAPL Sep 28 2012 695.0 Call @ 3.83
     

     

    -393.76

     

    ---
     09/19/2012  15:37:43

     

    Sold 3 AAPL Sep 22 2012 695.0 Put @ 1.2
     

     

    347.69

     

    ---
     09/19/2012  14:27:44

     

    Bought 3 AAPL Sep 22 2012 695.0 Put @ 1.35
     

     

    -417.30

     

    ---
     09/18/2012  14:02:36

     

    Sold 1 GOOG Sep 22 2012 715.0 Put @ 5.3
     

     

    519.22

     

    ---
     09/18/2012  12:50:30

     

    Bought 1 GOOG Sep 22 2012 715.0 Put @ 5.1
     

     

    -520.76

     

    ---
     09/17/2012  15:00:49

     

    Sold 1 GOOG Sep 22 2012 705.0 Put @ 4.1
     

     

    399.23

     

    ---
     09/17/2012  14:50:37

     

    Bought 1 GOOG Sep 22 2012 705.0 Put @ 3.8
     

     

    -390.76

     

    ---
     09/14/2012  10:57:28

     

    Sold 1 AAPL Sep 14 2012 690.0 Call @ 5.25
     

     

    514.22

     

    ---
     09/14/2012  10:49:06

     

    Bought 1 AAPL Sep 14 2012 690.0 Call @ 4.55
     

     

    -465.76

     

    ---
     09/13/2012  12:31:47

     

    Sold 1 AAPL Sep 14 2012 680.0 Call @ 3.5
     

     

    339.23

     

    ---
     09/13/2012  12:12:52

     

    Bought 1 AAPL Sep 14 2012 680.0 Call @ 3.1
     

     

    -320.76

     

    ---
     09/11/2012  13:30:19

     

    Sold 1 AAPL Sep 14 2012 680.0 Call @ 3.4
     

     

    329.23

     

    ---
     09/11/2012  11:50:05

     

    Bought 1 AAPL Sep 14 2012 680.0 Call @ 3.9
     

     

    -400.76

     

    ---
     09/07/2012  11:22:02

     

    Sold 1 AAPL Sep 7 2012 675.0 Call @ 5.25
     

     

    514.22

     

    ---
     09/07/2012  11:04:46

     

    Bought 1 AAPL Sep 7 2012 675.0 Call @ 4.55
     

     

    -465.76

     

    ---
     09/04/2012  10:58:49

     

    Sold 1 AAPL Sep 7 2012 660.0 Put @ 4.15
     

     

    404.23

     

    ---
     09/04/2012  09:33:55

     

    Bought 1 AAPL Sep 7 2012 660.0 Put @ 3.4
     

     

    -350.76

     

    ---
     08/30/2012  11:17:44

     

    Sold 3 GOOG Aug 31 2012 690.0 Call @ 1.3
     

     

    377.69

     

    ---
     08/30/2012  10:54:32

     

    Bought 3 GOOG Aug 31 2012 690.0 Call @ 1.3
     

     

    -402.30

     

    ---
     08/29/2012  13:26:42

     

    Sold 1 AAPL Aug 31 2012 675.0 Call @ 4.05
     

     

    394.23

     

    ---
     08/29/2012  13:11:17

     

    Bought 1 AAPL Aug 31 2012 675.0 Call @ 3.8
     

     

    -390.76

     

    ---
     08/24/2012  13:57:53

     

    Sold 1 AAPL Aug 24 2012 670.0 Put @ 3.35
     

     

    324.23

     

    ---
     08/24/2012  13:51:41

     

    Bought 1 AAPL Aug 24 2012 670.0 Put @ 2.27
     

     

    -237.76

     

    ---
     08/23/2012  13:53:30

     

    Sold 3 AAPL Aug 24 2012 675.0 Call @ 1.2
     

     

    347.69

     

    ---
     08/23/2012  13:27:06

     

    Bought 3 AAPL Aug 24 2012 675.0 Call @ 0.93
     

     

    -291.30
    22 Nov 2012, 12:12 PM Reply Like
  • jebruchis
    , contributor
    Comments (4) | Send Message
     
    I have found that Kevin's system has merit. He has tried to explain it as concisely as possible but it takes a lot of practice to get a real feel for it. Posting buys and sells doesn't mean one understands or feels the system. I have been virtual trading this system for a week now and I am having about 66% success. The main thing I' m doing is noting why some trades don't work and making sure the same mistake is not made again. For instance, only trade between 10:30 and 2:30 EST so as to minmize holding trades overnight and to minimize tying up capital. Make sure all indicators are maxed out. I want to see both FSO cycles hitting below 10 or above 90 before buying. Don't fudge on indicators. Make sure the indicator limits given by Kevin are well exceeded until you gain enough
    experience with the system to make personal adjustments. Try to start with making only one trade a day until you have the feel. I try not to buy puts on a day a stock is skyrocketing and vice versa. Tey will work but the odds are it will take considerable time for the trade to develop. I like the FSO indicators best when they make tight
    (Approximately hourly)
    22 Nov 2012, 01:42 PM Reply Like
  • jebruchis
    , contributor
    Comments (4) | Send Message
     
    I apologize for the typos in my post. I am typing on a tablet computer and somehow the publish button was hit prematurely. I will post my trading results for next week at the end of the week with additional commentary.
    23 Nov 2012, 09:50 PM Reply Like
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