Those of you who want to see an index of my movies, go to this address, from there you can view any of them. They are date too:
http://www.pathometrix.com/Movies/
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I have good money accumulated in this IGT trade, so what do I do know to make sure I keep those profits, yet stain in the trade for further gains?
Consider transforming a CRC into a PCCRC
http://www.pathometrix.com/Movies/IGT.mov
IMPORTANT NOTE: I forgot to metion in the video clip that the stop loss on the CRC is no longer needed. You will notice in the very last portion of the movie, that I have cancelled my contingency order.
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11 comments:
Juan,
Thanks for the video clip. I like the idea of locking in profits, for a pullback.
What though are you planning on doing when the pullback occurs?
The reason I ask, is the money management aspect here and this is where I hope to open the discussion.
1, 3, 2, 1 is apparently the betting system for blackjack, when you are on a winning streak. You picked out AAPL and FDX and you and I were in those trades for a short time and took a profit. However, both of us and others did not take full advantage of that rise and increase our outlay when the share just kept going.
I spoke about a lecture by Nigel Hawkes, who obtains a 40% accuracy, but when he uses the form of increasing the stake on a winning run, claims to make 7 for every 1 he loses. Now at the moment, I cannot substantiate those claims and I am going to find out more.
However, I would like to propose that for 2006, that we all at least consider this money management style.
For a start we can review those trades that passed the test of your system back from when you started this Blog and use that as a possible evaluation point.
For any statistical reliability, the higher the number the greater the reliability (n>=30).
Happy New Year to you.
The lesson from our experience, I believe, is that the big movers are, at some point, identified by my system, but the problem is that many of them are false starts. AMLN, FDX, AAPL and IGT were good candidates. The question is how to stay on these trades when their rallies are showing signs of weakness.
You would remember that FDX's first stop made you (us) concerned that a pullback was in the works, I left the trade, but there was no clear pullback. The stock continued to rally. A modification LIKE the one I described for IGT would have worked for FDX just fine. As FDX continue to rally, all that we had to lament was that our Delta was smaller.
Modification from CRC into PCCRC offers one more advantage: you make Vega and Theta work for you too. As in a carriage pulled by 3 horses, however, the overall performance is limited by the weaker of the three, but as a group, they pull more wait than one horse.
Be carefull when you do that, not to do it with stocks with high IV.
I take on board your point about IV and of course that will affect the overall cost of 'gearing up' positions in a 1, 3, 2, 1 ratio as the trade goes in the direction that you have predicted.
I find this all fascinating and course, the concept of locking in profits with a PCCRC appeals.
What about this scenario;
Your system triggers, you place one CRC, it rises and then you detect a weakness, so create a PCCRC, it falls as you predict, then you add two further CRCs to the PCCRC (3CRC + 1PRC). It rises and shows weakening, you add either one or two PRCs.
Then next part becomes dependent on your PRC position size and then next stock price movement.
Take a look at this trade, it could have been the path for the FDX trade. Of course, buying a PRC to ad to a CRC and thus making a PCCRC increases your costs. The PCCRC is safer, as long as you enter low IV trades. That was certainly the case with FDX. Use Platinum to follow the trade:
http://platinum.optionetics.com/cgi-bin/platinumv30/op4email.php?trade_name=FDX|Oct05-Jan06|85|Call™_date=2005-09-21&sym=FDX&num_legs=16&tra0=5:J05:85.000:3.700:FDX:2005-10-21:0.00000000:FFFF99:0:0&tra1=-5:J05:85.000:1.050:FDX:2005-09-21:18.07399940:FFFF99:0:0&tra2=5:V05:90.000:1.450:FDX:2005-10-21:0.00000000:FFFF99:0:0&tra3=-5:V05:90.000:3:FDX:2005-10-12:18.56299973:FFFF99:0:0&tra4=5:K05:85.000:11.200:FDX:2005-11-11:53.88299942:E8E8E8:0:0&tra5=-5:K05:85.000:4.700:FDX:2005-10-21:24.64500046:E8E8E8:0:0&tra6=5:W05:90.000:0.150:F! DX:2005-11-11:33.19499969:E8E8E8:0:0&tra7=-5:W05:90.000:2.800! :FDX:2005-10-21:21.53199959:E8E8E8:0:0&tra8=5:L05:85.000:15.700:FDX:2005-12-15:169.94299316:FFCCFF:0:0&tra9=-5:L05:85.000:11.200:FDX:2005-11-11:0.00000000:FFCCFF:0:0&tra10=6:X05:90.000:0.05:FDX:2005-12-15:108.56900024:FFCCFF:0:0&tra11=-6:X05:90.000:0.550:FDX:2005-11-11:22.29899979:FFCCFF:0:0&tra12=10:A06:85.000:3.600:FDX:2005-09-21:20.92000008:99FF66:0:0&tra13=-10:A06:85.000:16.100:FDX:2005-12-15:33.34500122:99FF66:0:0&tra14=10:M06:90.000:5.600:FDX:2005-10-12:24.28100014:66CCFF:0:0&tra15=-10:M06:90.000:0.600:FDX:2005-12-15:31.99099922:66CCFF:0:0
In reply to Fortitude:
> take on board your point about IV and of course that will affect the overall cost of 'gearing up' positions in a 1, 3, 2, 1 ratio as the trade goes in the direction that you have predicted.
Use your Delta, Vega and Theta numbers to guide you as to what the most appropriate transformatio would be. In most cases, I want to keep Delta positive, and Theta near negative. Vega should be positive regardless.
> I find this all fascinating and course, the concept of locking in profits with a PCCRC appeals.
Yes, you are locking in your profits, but you are doubling your cash in the trade. That may be alright in these confusing markets.
> What about this scenario; Your system triggers, you place one CRC, it rises and then you detect a weakness, so create a PCCRC, it falls as you predict, then you add two further CRCs to the PCCRC (3CRC + 1PRC). It rises and shows weakening, you add either one or two PRCs.
I suppose that could be a plan. There are other ways to modify PCCRC's. As expiration approaches, you could extend to next month, you could sell additional shorts. You could substitute the strike price of your longs.... I will be entering more examples as we go. Be sure to examine all video clips again and again, and pay close attention to my observations on IV. Also, carefull with too many transformations. Make sure you do them on winning trades only.
>Then next part becomes dependent on your PRC position size and then next stock price movement.
The main reason of the transformation is to benefit from Vega increases and to protect against Theta decay. Keep that in mind.
Here is another area where improvement can be achieved.
The video showcase at this site: chartbender.com presents an objective method to visualize and assess the effect of IV, stock price and time on the cost of a spread; something not available in Platinum. I believe the approach will improve our edge when entering, adjusting and exiting a trade, especially the PCCRC which is very sensitive to IV.
You can register for the free tools, however, it will only perform part of the analysis.
Juan,
On the FDX case study, the IV of the long Jan options were near multiyear high at the time of conversion to PCCRC in October. If an IV crush were to occur after that without a big rally in the stock price, the profit generated would have been wiped out. Therefore, it looks like a high risk adjustment.
Reply to HK:
>The video showcase at this site: chartbender.com presents an objective method to visualize and assess the effect of IV, stock price and time on the cost of a spread; something not available in Platinum. I believe the approach will improve our edge when entering, adjusting and exiting a trade, especially the PCCRC which is very sensitive to IV.
As far as you can tell, is this a good substitute for Platinum? I am impressed with the videos I saw... Now you can tell how easy it is without an accent to worry about (hehehe).
The videos are worth viewing even if you have no intention of getting the subscription, if only to understand how IV affects our trades. If you already have platinum, it would be hard to justify yet another software to do the same thing!, only in a different way.
Perhaps we can help each other here. A trade that I find using Platinum, could be evaluated by you using Chartbender.com. I could post your charts here.... Perhaps!?!?!?
As far as I can tell, the free tools require a 1 week free trial (they take your credit card, anyway).
reply to HK:
>On the FDX case study, the IV of the long Jan options were near multiyear high at the time of conversion to PCCRC in October. If an IV crush were to occur after that without a big rally in the stock price, the profit generated would have been wiped out. Therefore, it looks like a high risk adjustment.
I suppose. I did not look at it so carefully. Another approach, since the options were high, would have been to sell more front month options, or simply rollover the free longs to a higher strike price. I will demonstrate next.
My first objective has been fulfilled, namely;
“The reason I ask, is the money management aspect here and this is where I hope to open the discussion.”
HK, thanks for the further info.
Juan,
A couple of comments you have made;
RE: “The question is how to stay on these trades when their rallies are showing signs of weakness.”
RE: “You would remember that FDX's first stop made you (us) concerned that a pullback was in the works, I left the trade, but there was no clear pullback.”
I quote, from Steven Poser (Applying Elliott Wave Profitably, Wiley Trading), end of page 35 and onto page 36;
“There are many other indicators that you can use to help you determine if a move is at or near an end. Momentum, trend lines, ADX and oscillators all have a place in your analysis. For example, third waves usually see Welles Wilder’s Relative Strength Index (RSI) and other momentum indicators confirm price action. One of the most common mistakes analysts make id to look for a major reversal when RSI is very high in an uptrend. In a third wave, RSI can remain overbought for a very long period. Although an RSI of 75 (14-day) might herald an upcoming period of range trading (a fourth wave), it is highly unlikely that a final top would be in at that point. An example of this comes from research I performed in the late 1990s on the US Treasury bond futures. I found that even though high 14-day RSIs (above 78) typically warned of impending corrections, they almost never signaled a major top IF THIS WAS THE FIRST TIME RSI REACHED THAT HIGH LEVEL in that active market cycle. You want to combine price target tools with momentum and retrace levels to help you pinpoint where to start looking for the consolidation to begin.
Momentum indicators classically diverge at the end of moves. This is quite common at the end of a fifth wave or a C wave. Of course, a mere divergence is not enough to signal the end of a trend. The beauty of EWT is that there are so many tools to help you pinpoint where the trend might end. Adding comfort of confirmation from a indicator or two is an added bonus.
Elliott Wave analysts excel at trading against the majority. Although countless technicians and fundamental analysts might be screaming buy or sell, just because a moving average broke or momentum failed to confirm a move, the Elliottician can calmly look at his wave counts and retrace and target measures to determine whether the crowd is correct or not. The crowd is not always wrong. When the market is in a third wave or in a major C wave you should be trading or investing with the crowd. Knowing where you are in a wave cycle allows you to overcome your natural desire, whether you tend to always fade or always succumb to the markets.”
Interesting thoughts to read… **Smiles**
Juan,
On Chartbender:- I like what they showed in the video. It seems that the complete IV analyser is only available in their 'Pro' version. It would be difficult to justify a subscription just to use the IV function.
The free tools provided does not include the P/L plotting. No intention to take up the 1 week free trial owing to the credit card requirement. Therefore, have no idea whether it could be a substitute for Platinum.
Would you pls take a look at my comments under the PCCRC clip 4 posting.
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