Today I received an e-mail and a posting from Antonio with some questions about this Blog, the PCCRC and the DVD’s that I have produced. I think that they may be relevant to many of you first time visitors, so I will comment in as much detail as possible.
Antonio: I have been reading a lot on your BLOG this weekend and I like your trading system a lot.
Juan said: You can learn all that I have to teach on the PCCRC if you go through the many articles I have published in the subject. At the bottom of this page, you’d see a hyperlink labeled “older posts”. You could go back until you see older articles. Near the top of this page, there is a popup menu labeled “Blog Archive”. You can go back to January 2006, when I published a Tutorial on how to enter the PCCRC, which would be a good place to start.
http://stockoftheday.blogspot.com/2006/01/real-time-tutorial-create-pccrc.html
Antonio said: Like you, I have spent $$ in training on options, read many books (the good ones - not the beginners type) and traded many strategies trying to find the "holy grail".
Juan said: My motivation in adapting the PCCRC for my usage was to find a trade that would take advantage of Delta, Vega and Theta. This is such a carefully hedged position that I believe it is as close to the “holy grail” as I’d ever get.
Antonio said: With respect to the PCCRC I have some caveats that would like clarified.
1. It seems you are inherently bullish biased on the choosing of the stocks albeit protected on the downside. However, if the stock moves to the downside what happens if you are exercised?
1.a. You loose the Time Value of the Long?
1.b. What has been your experience in being exercised?
Juan said: First, let’s clarify the terminology, so we all talk apples and apples and not apples and oranges. To EXERCISE refers to the buyer of an option “exercising the right to buy shares of the underlying at the strike price at any time before expiration”. You cannot be exercised. IF you do NOT sell the option before expiration, and it expires in the money (ITM) your broker assumes that you are exercising your right, and come Monday morning, you’d have the shares in your account.
On the other hand, if you are the seller of an option, at any time you may be ASSIGNED stock that the buyer has decided to exercise. If the underlying is going down and you have a short PUT, you may be assigned long stock.
Generally speaking, you are not likely to be assigned unless you are near expiration or the short put is deep in the money. I have noticed with experience, that if a stock declines and volatility on the options increases, then you are not likely to be assigned. Rather, if the stock declines with low IV, you may well be assigned. Of course I have been assigned enough to know that this is no big deal, other than the minor inconvenience to follow these instructions:
Supposed I have 10 long April puts and 5 short Jan puts at a strike price of 50 on XYZ, and the stock is now $41/share. Tomorrow, Monday morning, I have 500 shares of XYZ. Rather than panic, I simply set an order to sell 5 Feb puts at the same strike price with a limit price and a “trigger” order to sell the long stock at the market as soon as the first order is filled. I would NOT touch my long puts in any way, unless I wanted to exit the position altogether, in which case you’d close all legs of the PCCRC at one, and when filled, sell the stock again using a trigger order. Talk to your broker about that.
NEVER, repeat NEVER EXERCISE a long put to cover an assigned stock. You would indeed lose the time value of your long with months to expiration. Always SELL your long option and then sell the stock. OR open a new short for the following month.
In my experience, assignment happens when within the last week before expiration. This is why I recommend doing your rollovers one week before expiration, to reduce the likelihood of being assigned. I also have noticed that trading low IV stocks (like any of the DOW component, for example) is more likely to be assigned, because the time value is so low, that someone finds an advantage on exercising the option for arbitrage reasons. I simply avoid low IV stocks (>30%IV). Finally, you may be assigned if the stock goes down significantly in low IV. This is the worse case scenario for the PCCRC. You may consider the trade a loser and move on, or do the rollover. If you follow my rules, this would be a rare occurrence.
Antonio said: 2. I believe 2008 will be a bearish year. How do you adapt the PCCRC strategy for a bearish trend? Or you just run with the bullish stocks available?
Juan said: As an elliottician (Elliott wave analyst), I have been skeptical to the current bull market from the beginning (back in April 2003). My believe is that a second strong bear market is about to begin. The irony is that I have been waiting for 4 years, and it has not yet happened. This is one more reason I was so comfortable with the PCCRC. The reality is that the PCCRC is as bullish as it is bearish, however, your question reflects what most people fail to see: the PCCRC is as Vega sensitive as it is Delta sensitive. IF a stock goes Up, chances are your PCCRC becomes DELTA-dependent. That is, you can count on losing any volatility gains, but as it is usually the case, Delta carries the day, to assure you profits. If a stock goes down on bad news, chances are you’ll profit from both Vega and delta gains. In fact, my best month this year was in Aug. when the stock market went down with a volatility spike. Take a look at the VIX and you’ll understand why I increased my account by 75% when the SPX increased less than 5%. But it was not all volatility. My approach, which consists of picking stocks that report great earnings, usually result in strong moves. You’d be surprised to know that one of my best trades resulted from a strong decline in GOOG share price in November. By replacing the long calls with higher strike price calls, you take profits for one thing, but this also leaves the door open for further gains on the upside as well as the downside.
Take this trade on GOOG as an example:
http://stockoftheday.blogspot.com/2007/11/if-you-are-new-to-options-believe.html
Antonio said: 3. I used Optionetics and after using the TOS platform quit their service. Any thing that Optionetics provides that TOS does not?
I have been a subscriber of optionetics platinum from 2003. I think that its back-testing capabilities propelled me into the trading stratosphere, putting my learning into warp speed. But the TOS people have promised a back-testing functionality for their platform early this year.
In addition, I used Platinum to locate the “high fliers”. The best performing stocks over the last 90 days, with >1,000,000 shares traded on the average day, and with a minimum price of $30/share. But that is also easily programmable in programs like Telechart 2000. TOS does not have this capability.
The highflier strategy is nothing, if you cannot select low IV stocks, see the IV chart and make sure that the IV/SV ratio is low. Fortunately, these are things you can easily get from TOS now a days.
The only one thing left form Platinum to do that cannot be done elsewhere is the IV skew. But I rarely use that strategy any more. Furthermore, in the scan tab of TOS you could find stocks with high IV front month, and low IV back month, but only first and second month. I prefer to go long 3-4 months into the future.
Antonio said: If possible I would like to take a look at one of your videos before buying the set of DVD's. Also the $50 additional what does provide? Do you have a trial version?
Juan: I don’t think that it is very clear what my effort is all about, hence this kinds of questions, which pop up once in a while, so it is my responsibility to explain my position.
First of all, EVERYTHING you’d ever need to know about the PCCRC is already published at one time or another in this blog. The DVD’s and access to my blog are entirely optional. I created this blog as a way to exchange ideas with other advanced options’ trader, until it became obvious that the PCCRC was giving the best results. I began to promote it, because I truly believe that it is likely to produce great results in your trading too. I have NEVER charged anything for that information, I don’t think I could, hence I ask that people “pay if forward” by doing something great for other 3 people, as a way to create good will in the world.
Over the years, I was posting Quicktime videos in this blog, but as the readership of the blog increased, I started to have warnings from my web-hosting provider asking for more money due to increased transit. I was already offering my articles and videos for free, I did not think I should pay for the downloads, so I removed the videos from the web, put them in a DVD. In addition, I created a series of tutorial videos in which I showed how I opened a paper trading account, entered a number of trades, and ended up with 20% profits in one month. ALL real time. In addition, I also created a tutorial series using the Elliott wave to trade options. I offered them at a price that would pay for my cost of production and delivery, no more, no less ($50). There is simply no monetary value that could be assigned to that effort, so all I ask is that people pay it forward. I am happy with the profits I can make for myself. I am not selling ANYTHING.
Just the same, people wanted me to continue to publish videos. So I decided to limit the downloads. For that I opened a private blog were people have access to follow up videos, now reaching dozens of hours of tutorials. All I ask is that people pay a ONE TIME fee of $50, so that I can continue to pay my web hosting. I charge NOTHING for my effort.
I insist, all these material is optional, and you do NOT require any of it to successfully implement the PCCRC. However, it the paper trading account and videos are clearly evidence that I have done it REAL TIME.
Here is the link for more information about the Videos and private blog:
http://stockoftheday.blogspot.com/2007/10/httphomepage.html
Be sure to listen to my interview with Tim Bourquin and place your comments at the bottom of the page in the interview.
http://www.traderinterviews.com/
Check also the idea lab and leave your comment next to my PCCRC.
http://www.traderinterviews.com/idealab/
Thank you to Antonio, and all of you requesting my DVD’s please send me an e-mail to paperprofit1@gmal.com.
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13 comments:
Juan, thank you for your enlighting commentaries.
I apologize for my loose terminology between Exercised and Assigned as well as if there was any misunderstandings on the DVD issue.
I very much appreciate your kindness and I learned about you from the interview with Tim Bourquin. I also voted and left commentaries in the ideaLab.
I will pay it forward.
A E Senior
Thank you so much for your important questions and the opportunity to clarify my position.
I am grateful for your comments in the idea lab, others may be curious to come here. The more the merrier.
The Exercise vs. assigned is a common confusion. I know because I used to do it all the time. But it is important to keep the semantics clear for the sake of accurate communication. I hope I was clear in my explanation. Assignment is not a big deal, I would classify it as a minor annoyance, although at first I used to panic. When I used to trade with Interactive Broker, they liquidated some of my positions because i did not sell my long stock soon after the opening on the day I was assigned. ThinkorSwim give you a grace period of one trading day for you to deal with your assigned stock position. It is a huge difference.
Hi Juan,
I've read about 90% of your blog. It appears that the PCCRC method of selecting stock with a 10% jump after earnings or some other fundamentally significant news is the most consistent. Another good thing about that is it appears that you can find and qualify stocks using TOS only for this one specific method. If that is the case Juan I would like to suggest a video with a demo of this if you already haven't done so in your private blog. I'm asking because i'm new to TOS and still learning the tricks of the trade with this system.
Thanks
Al
SG, indeed my preferred methodology is to choose stocks that jump 10% in a single day (you can see them right away in the early morning). Then be sure that the is a strong fundamental reason for the stock to jump that much. It is not enough that the stock may have exceeded expectations, although that helps. I am particularly interested in stock that raise guidance going forward.
I have also found that stock that jump 10% in association with buyout rumors have turned into big winners, but the likelyhood of success may be lower. These are rarer cases of course. They usually have high IV in the front month and low in the back month.
My DVD #3 shows how I select stocks using the SCAN tab in TOS and how I enter the positions using TOS ANALYZE tab. In addition, in this video series, I demonstrate how I entered a series of trades that caused my TOS paper trading account to increase. There is so much video tutorial material, that you'd spend hours viewing them all.
However, there is no reason why you couldn't figure it all out by reading my blog and ask for assistance from TOS. I have!
Thanks Juan, i'm playing with TOS as we speak. I will order the dvds shortly. Thanks again. I will be paying it forward. My goal to pay off my girlfriends student loan ($10K)in the new year using a $50K account once i get proficient with this system of trading. So my goal is a 20% ROI or about $1K a month. I was thinking that even in the event that we will be entering a bear market in the months or years to come Vega will be on our side as bear markets tend to have historically higher volatility. My concern is that opportunities may not present themselves as often such as the 10% jump in stocks.
I did notice that at first you dabbled with using 5% increase over a period of a few days then changed to 10%. Although the strategy itself is sound i think we will need to more ways of identifying candidates in different markets in keeping with the theme of the strategy.
Good Luck everyone and happy new years to you and your loved ones.
SG350 said: My goal to pay off my girlfriends student loan ($10K)in the new year using a $50K account once i get proficient with this system of trading. So my goal is a 20% ROI or about $1K a month.
Juan said: There is power in the declaration of a goal. You’d be surprised but when you do so, now you have all of us on your side, we all want you to pay your debts and to move forward in your life. This collective is on your side, and the power or our intention will help you. Congratulations, you are already in the path to what you seek.
I am also very touched by your statement of ROI which is very specific, perhaps challenging but very realistic. Perhaps your earnings may not be as regular but I would suggest that you review your achievements every 6 months. There will be great months and not so great ones. Give yourself the full 6 months to meet your goal, then you may even increase it for the next 6 months.
The only thing I would do differently, would be to pay all my debts before investing. There is always a risk involved in investing. Paying loans is a sure thing reduction of your debt. I listen to Dave Ramsey show in iTunes podcasts. If you DO pay your girlfriends debt, be sure that you do it without expecting anything in return. Your goodwill will generate good will toward you.
And here is a secret: When I started my “pay it forward” mission, my account has grown like never before. I truly believe that the more you “pay it forward” the larger your returns will be.
SG350: I was thinking that even in the event that we will be entering a bear market in the months or years to come Vega will be on our side as bear markets tend to have historically higher volatility. My concern is that opportunities may not present themselves as often such as the 10% jump in stocks.
Juan said: With the PCCRC you expect Vega to work for you in a declining market. There are plenty of high fliers that may fall like bricks if a bear market begins to occur. However, we don’t really now what is going to happen. The only way to can assure success is not to have a bias at all. That is what the PCCRC provides. I continue to be bearish, eventhough my biggest winners have been to the upside in 2007, a market that was quite erratic, at best.
SG350: I did notice that at first you dabbled with using 5% increase over a period of a few days then changed to 10%. Although the strategy itself is sound i think we will need to more ways of identifying candidates in different markets in keeping with the theme of the strategy.
Juan said: If you have a means of locating stocks with 10% increase in price over a period of days, then by all means. Platinum does find such candidates. Be sure that the news justify not only that increase but continued rally. Sometimes, at first, stocks go down or sideways, then, suddenly they break out to the upside. We’ll see what is in store for us!
thanks Juan! I look forward to everyones support on my goal for 2008. Cheers to a great 2008!
Hi Juan,
My account will only allow me to buy a put or buy a call or sell a covered call. Will my account work with your method, giving these limitations? Thanks!
Well, you may have this limitation for one or two reasons.
1. You are a beginner, and your broker does not trust that you have sufficient knowledge to trade spreads.
2. You are trading in an IRA account, and some brokers do not allow spreads in IRA accounts.
Ironically, a vertical spread such as a bull call spread is actually safer than a covered call. Why? because a bull call spread has a limited risk. With a covered call, you may still lose a great deal of money if the stock goes to zero.
ThinkorSwim and OptionsXPress, that I know of, allow spreads in IRA accounts, so if your what you have is an IRA account and your broker does not allow spreads, I suggest you look at ThinkorSwim, which, by the way, has a platform with risk graph capabilities, a feature that others lack, and that would come in very handy when trading PCCRC's.
So assuming that your account would allow spreads but your broker has limited your power, you may ask them to increase it, so that you can enter spreads. They would probably ask you that you have some basic knowledge and experience trading options. In that case, you need to ask them.
To be able to trade spreads, you are going to need a margin account, because you must sell options (along with your long options) to be able to play the spreads. If you have been trading options for a while, I can't imagine that they would deny you that capability.
The PCCRC has a limited risk because the number of shorts is always LESS than the number of longs. When you trade bull call spreads, and other spreads, the risk is also limited because the number of shorts equals the number of shorts.
It is ironic, but I regards PCCRC's are less risky than stock, naked options and even other spreads.
So my suggestion is: talk to your broker, explain to the what you are going to do, and trade cautiously at first, limiting your risk to no more than 2% of your account per trade, you should be fine.
If you are a beginner, try my new Options 1.01 video series here:
http://stockofthedayii.blogspot.com/
Hi Juan,
I watched all of your first DVD last night, I was up until 3am. I am very impressed with your Elliot wave analysis. I checked the historical charts of all your paper trades and you were dead on more often than not.
I would be very interested to know what you think of Colgate Palmolive (CL) today. The Stochastics, MA, and volume all look good. With my very rudimentary Elliot Wave analysis skills I see what appears to be a wave 5 forming . With wave 4 having started on 12-14-07 and ending 1-2-08. Before I make this trade I would like to hear your comments. Thanks.
tirgertron, please send me an e-mail at paperprofit1@mac.com
Hello Juan...
I've noticed that you refer to "paper trading" a great deal in your blogs regarding pccrc. Although I assume you have real life experience with these, that was not clear in the blogs that I have read. Could you elaborate on this a bit?
Thanks
You are right, anonymous. I DO have my own real life account, which is almost exclusively PCCRC's, although I DO explore other strategies whenever I think they are a good idea.
That is different from the papertrading account which I trade publicly, under the scrutiny of the members of my group. They can all verify that the trades are done real time, so they know they are as close to reality as possible.
I DO however, want to keep my privacy in reference to my real cash accounts. I can assure you, that the results are quite similar to the paper trading account.
Juan
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