$10,000 Income Portfolio

[AGHFX]

I have a question for, I guess anyone who is active in this thread. I've been following it for a while and I find GOB's journal pretty inspirational. I would create an entirely new thread for this but my question doesn't require much of an answer and it's a result of reading this thread. I, myself, am in my third year of university right now and am studying accounting. I'm doing co-ops pursuing my CA designation but I'm also taking extra finance courses and for the past year or so I have been reading investment blogs and journals every day. I saw a couple books referenced on here that are helpful to learn more about options trading. I'm wondering, however, if taking the Canadian Securities Course will help at all? Also, my university unfortunately doesn't have a trading club like GOB mentioned, but we do have a Bloomberg Terminal that I can easily book time on to become "Bloomberg Certified." I have been active in my own investing over the past couple months and I have learned a lot through this forum and my own experience but I'd like to know if you guys think these courses hold great benefit.

Thank you

[GOB]

Hi AGHFX

If you are just intending to trade for yourself, I don't see much value in taking courses to get designations. I didn't study finance and I never took any courses. Everything I've learned is self-taught from reading extensively and studying the markets on my own time and out of interest. I firmly believe that thanks to the power of the internet, an incredible amount of knowledge can be attained for zero cost. I believe I know more than 95% of analysts that cover Apple (at least more than they publicly disclose).

The key ingredient is to absorb a large quantity of information. Look at both positive and negative articles, then connect the dots and figure out what makes sense. The exact same information is available to all of us, yet go to the AAPL thread and see the vast differences in opinion. The skill is sorting out the gold from the crap that's out there. I don't really think this can be taught.

Basic options (the ones I trade) are fairly simple to understand after some studying. If you want to delve deeper into the math though they get quite complex. Lenphturn seems to know quite a lot about the intricacies of option - I do not. I think money can be made with my simple level of understanding, but deeper knowledge would allow me to optimise and probably improve my results.

[Lephturn]

I have a question for, I guess anyone who is active in this thread. I've been following it for a while and I find GOB's journal pretty inspirational. I would create an entirely new thread for this but my question doesn't require much of an answer and it's a result of reading this thread. I, myself, am in my third year of university right now and am studying accounting. I'm doing co-ops pursuing my CA designation but I'm also taking extra finance courses and for the past year or so I have been reading investment blogs and journals every day. I saw a couple books referenced on here that are helpful to learn more about options trading. I'm wondering, however, if taking the Canadian Securities Course will help at all? Also, my university unfortunately doesn't have a trading club like GOB mentioned, but we do have a Bloomberg Terminal that I can easily book time on to become "Bloomberg Certified." I have been active in my own investing over the past couple months and I have learned a lot through this forum and my own experience but I'd like to know if you guys think these courses hold great benefit.
Thank you

Do the Canadian Securities Course. It is a really good foundation in finance and will provide an excellent base for making financial and investment decisions for the rest of your life. Every young person should complete this course. Correction... everybody should complete this course. Complete this and you are financially literate and can build on that from there.

In terms of the Bloomberg course - well only if you plan to go to work for a major financial institution. Those Bloomberg terminals are very expensive, so you won't have access to one as an individual investor unless you are extremely successful! I would focus on your CSC and then go here: http://education.optionseducation.org/login/index.php and work through all of their free material to get yourself a good grounding in options fundamentals. Get that done and we can give you some solid book recommendations as well. You would do well to start with "Options as a Strategic Investment" by Lawrence G. McMillan, and there are lots to read from there.

[Dopplegangerr]

Seriously GOB I dont know how you do it, and I am not even going to try and emulate it because I think I would just get smoked. You, Lephturn and any other apple options traders have got real guts because this bull seems real dangerous to me. Keep up the good work and keep the reports coming, just love reading them

[humble_pie]

lepht on your aapl put spread set forth above, might i ask you couple of questions.

- was there a particular reason to close this spread on 17 september ? aapl has flown higher since, spread had about 3 more weeks to run, another approach might have been to let it gently expire or not close until the very last few days when - if present circumstances continue - the buyback cost could have been pennies.

- what truly interests me is what would have happened if aapl had declined since 22 august. Both your puts would have become more expensive; however mathygreeky suggests to me that the price of the one to buy back (the oct 615P) would alas have risen farther & faster than the price of the one to sell (the oct 585P). This would have been unfortunate.

however, in the larger picture all would have been well *unless* aapl had taken an apocalyptic lunar crash & plunged to levels like 560 or 575.

assuming a mild drop to a level north of 615, all of your original profit would have survived intact, is this not so ? Possibly your margin position might have deteriorated very slightly, but not enough to cause trouble.

in case of apocalyptic lunar crash, there would have been at least 2 positive exit points. One the one hand you would have had your good old 585P to bail you out if necessary. This would have produced a modest loss of $3000 per contract.

but much better would have been the other hand, which is that the short 615P could have been rolled over (or repaired or adjusted, as the terminology goes) to a 590P or a 600P, say, with a forward date; so no assignment would have occurred. All would have been well & the original profit from the august 22 sale would have been protected.

i'm rambling on about all this to point out that option trading is far less risky than is generally assumed. Almost always - i'd say 98% of the time - there are graceful exit dancing steps that can be executed.

[humble_pie]

... I'd like to know ...

such an extreme contrast between gob's advice to options newcomers & lephturn's !

gob ever the practical empiricist. Lepht the euclidian mathematician.

AFX i believe that for you, with your efficient academic approach, commencing the study of options with McMillan might not be a mind-numbing paralyzer. But for other people this daunting tome & others like it have been killers. Literally these giant theoretical texts have frightened them as option neonates into their trading graves before they ever got started.

i am definitely on gob's end of the spectrum. There's a kind of easy spiralling learning procedure, but i think it should be a practicum. It should be based on actual trading experiences imho. Tiny experiences at first. Read a little, buy or sell an option, track your option's price progress in relation to the underlying, just watching this spread as it shifts day by day will teach a lot, read some more, another option trade, etc.

as gob says, the internet is an astonishing source of powerful tools & resources. For option newcomers, i happen to like a small booklet from the montreal exchange website. It may not suit AFX as he seems to be an excellent & highly-motivated student, but still i think its slim 50 pages are worth checking out. Scroll down in the principal left column to Equity Options Reference Manual. MX website has excellent teaching webinars, too, at every level.

http://m-x.ca/educ_guides_strat_en.php

a big welcome to you & best wishes for great success.

[Lephturn]

AFX i believe that for you, with your efficient academic approach, commencing the study of options with McMillan might not be a mind-numbing paralyzer. But for other people this daunting tome & others like it have been killers. Literally these giant theoretical texts have frightened them as option neonates into their trading graves before they ever got started.

I wouldn't recommend anybody start cold with McMillan - but if you do the OIC education track online first, McMillan should be reasonable. Given AGHFX's course of study, I think it's reasonable, where something that is TOO basic may well be a waste of time.

[Lephturn]

lepht on your aapl put spread set forth above, might i ask you couple of questions.

- was there a particular reason to close this spread on 17 september ? aapl has flown higher since, spread had about 3 more weeks to run, another approach might have been to let it gently expire or not close until the very last few days when - if present circumstances continue - the buyback cost could have been pennies.

- what truly interests me is what would have happened if aapl had declined since 22 august. Both your puts would have become more expensive; however mathygreeky suggests to me that the price of the one to buy back (the oct 615P) would alas have risen farther & faster than the price of the one to sell (the oct 585P). This would have been unfortunate.

Basically simply because I had the majority of the value out of the trade. I didn't pick the timing, I simply put a limit order in for the spread and let it sit there. I think the real question is - why did I target that sell point? Well nothing complex - I had 80% of the value I could possibly get out of that spread. My thinking is that I don't want to have to think too much about it - I put the spread on and then bracketed it with an OCO order (Once Cancels Other) that gets me out at about 80% profit or if AAPL trades below I think $ 627 is the trigger I set. As I work and have many tiny children running around, I can't manage it intra-day easily and I don't want to rely on "judgement". I want to enter the trade with hard and pre-set exits.

Don't get me wrong - I still review my positions daily and would potentially do something like close the short side but leave the long side on if AAPL was moving down strongly and I could win that way. What I do not like is rolling. I think rolling is extremely dangerous because it allows be to fool myself into thinking I am not taking a loss. It also entices me to make additional trades on the same security where my forecast was just proven horribly wrong. It further gets me to take a trade that might not be the best trade to make out there to try and "get back to even" with a revenge trade on the same security. Rolling trades leads me into an emotional death valley from which my account may never escape!

So - if I put a spread on in AAPL and it moves against me and hits my stop - I'm out. I was wrong. I will review that trade, why I put it on, what rules I put in place, and if I followed my rules. That is far better for my process than rolling it. If I take a loss and I'm out, I can still do another trade if it looks like a good risk/reward/probability, but it is a separate event.

As I get better here I could work in doing more adjustments - but I think I'll need to plan them out ahead of time. For example build into my trade plan "if stock moves X by Y time I may adjust the position by.... etc. I'm sure more experience traders could do a better job of it - but for me rolling out a losing trade is just too emotionally dangerous. I'd have to plan the adjustments in advance and set some clear rules to determine when I'd adjust and how.

[GOB]

Sep 20

Bought to Close: 1 AAPL 21SEP12 $695.00 P @ $2.21: -$222.06 (Total profit $202.25)
Sold: 1 AAPL 28SEP12 $695.00 P @ $7.15: +$713.92

Could have had the SEP28 $695 for $8.00 with a little patience...oh well

[humble_pie]

lepht thanks so much for sharing. It fascinates me how our 2 approaches are polar opposites. Yet they both work.

for me rolling is not a death trap, it's a profitable credit operation 95% of the time. There are several excellent illustrations here in this thread.

gob has been rolling up with stunning profits for some time now. (EDIT he just posted that he rolled flat for another profit.)

but for accurate illustration let us suppose that aapl is plunging to around 650 & gob decides he's going to ratchet down his 695 put strike price.

a series of credit spreads stretches before him. Even rolling as briefly as into october 650P (note the drop in strike price) will net him 2.50 credit, or 250.00. He'll get to keep all accumulated profit to date, his margin will continue looking good, he can continue trading, plus he won't be assigned.

the farther out in time gob might go with 650P (i'm using 650s because they have elevated open interests), the bigger the credit spread that he would collect.

lepht the way i see it, the alternative you are proposing - ie passively accept cruel assignment at 695 & attempt subsequently to analyze the "mistake" - does seem like the real death trap to me. There gob would be, paying 695 for a 650 stock & having no chance to trade his way around this until stock might slowly creep its way back up the ladder.

no chance to trade because margin would have taken a severe wallop with the 695 assignment.

of course for the real gob, all this is gossamer theory, because the real gob would probably accept such an apolyptic lunar assignment with good grace. But i wonder whether he'd spend any time "analyzing" his "mistake."

... I could work in doing more adjustments - but I think I'll need to plan them out ahead of time. For example build into my trade plan "if stock moves X by Y time I may adjust the position by.... etc. I'm sure more experience traders could do a better job of it - but for me rolling out a losing trade is just too emotionally dangerous. I'd have to plan the adjustments in advance and set some clear rules to determine when I'd adjust and how.

this is my polar opposite again. Precisely what i find so intriguing about options is courting an unknown future. I wouldn't dream of planning any strategies out. I always have a rough idea of where they could go, but i never prepick an exit point or anything else. I love adventuring along like huck finn ...