Option Fanatic, RIA (Part 1)
Posted by Mark on May 30, 2014 at 07:12 | Last modified: April 25, 2014 08:55Trading has given me freedom to retire from corporate America and to successfully pay the bills as an entrepreneur for six years running. Today I begin deliberation over whether to go into business trading other people’s money (OPM).
Part of me has trouble understanding why I even entertain such an idea. I am admittedly somewhat jaded with regard to the financial industry. This very blog has made common usage of the term optionScam.com!
Short of sticking heads in the sand and blocking out all media, I am sometimes surprised how anybody can have a positive view of the industry. I agree that we shouldn’t necessarily believe everything we hear. Nevertheless, stories about investor fraud, Bernie Madoff, Ponzi schemes, and financial corruption in the name of the almighty ravage informational websites, television programming, books, and magazines to such an extent that some negative influence would seem to be inevitable.
Trading money for myself is one thing but doing so for others would be a jump to the dark side. I would become part and parcel of an industry riddled by greed. Do I want to risk being perceived in this light?
As long as something sets me apart from other financial advisors and money managers, the answer is yes. For me personally, this is necessary to at least ward off cognitive dissonance (hypocrisy). Let’s put an asterisk by this point to be revisited later.
Since I have been successful making money for myself, wondering why I don’t apply myself to make money for others is the next logical step. If one store is operating successfully then common business practice is to open a second location. This idea dovetails nicely with the reality that I have time, which I currently spend on “optional” activities, that could be allocated to trading OPM instead.
I will continue analysis of this point in my next post.
Categories: About Me | Comments (1) | PermalinkCareer Update (Part 2)
Posted by Mark on May 27, 2014 at 06:58 | Last modified: April 23, 2014 07:07In the last post I explained how much of what I do during my work day may be seen as an inefficient use of time. When I feel this way, I look toward other things I might do to improve that efficiency.
For the most part, my work day consists of blogging, listening to trading calls, reading articles on trading strategy, backtesting, trading my own account, and managing positions. The latter two items are solely responsible for profit generation. These two items also take much less time than the first four.
While all this is taking place, in the background I have a short list of untapped interests that includes:
1. Assembling a group of talented high school students who want to learn about investing.
2. Collaborating with a business student to develop trading systems in exchange for
discussion about my 6+ years of experience in the business.
3. Hiring a freelancer to teach me the ins and outs of a system development platform
enabling me to do the work myself.
4. Working to develop an approach to day trading futures.
5. Organizing an option trader Meetup where experienced traders share ideas and/or
research.
6. Managing money for others.
When income generation is consistent, part of me feels I should revel in the moment as a successful entrepreneur and just work hard to keep doing what I’m doing. I feel thankful for this opportunity and will ride the wave as long as I can. I’m a big believer in Karma and to this end, I feel it couldn’t hurt to “give back” while I am enjoying personal success. This is the motivation behind items #1 and #5.
Items #2-4 are more transparent with regard to income generation.
That leaves item #6 for my next post.
Categories: About Me | Comments (2) | PermalinkCareer Update (Part 1)
Posted by Mark on May 22, 2014 at 07:40 | Last modified: May 11, 2015 07:25I am now in my seventh year of trading for a living. I spend my days blogging, listening to trading calls, reading articles on trading strategy, backtesting, trading my own account, and managing positions.
The minimal time necessary to trade and manage positions is what translates to income generation. When family life gets complex between shuttling the kids back and forth, helping out around the house, etc., my work time slips. Although I spend less time blogging, listening to trading calls, reading articles, and backtesting, I am still able to trade and monitor positions.
I know that blogging, listening to trading calls, reading articles on trading strategy, and backtesting are all important activities for the development of future streams of income that I hope to one day implement. Since they are not generating income now, I can’t help but feel the activities to be somewhat optional… like busywork created just to occupy my days.
If that is the case then why not do something else to generate more income right now?
Flashing back to my pharmacy career, this reminds me of a prevalent attitude toward managing high blood pressure (hypertension). Treating hypertension is hard work: consistent medication, adherence to a strict diet, and regular exercise. Since hypertension won’t kill me today, the payoff for my hard work is not apparent. I may be rewarded later with longer life but even then I could never know. Alternative universes are only perceivable in the realm of science fiction.
It makes sense why many hypertensives have trouble following doctors’ orders. All those lifestyle changes sometimes seem like a waste of time.
Similarly, because most time is spent on activities that don’t translate to immediate profitability, I don’t miss them when work time gets short. Upon detached reflection in other sporadic moments, I catch myself feeling they are a flat-out waste of time.
Logically speaking, whether it takes five hours per week or 50, if I can pay the bills on a regular basis and have money left over for select luxuries then I am successful and I should be proud of myself for that.
Sometimes I am.
But sometimes I’m not because I feel otherwise: if I can convert some of my spare time into profit-generating activity then I should still aim to do better.
Categories: About Me | Comments (2) | PermalinkCovered Calls and Cash Secured Puts (Part 40)
Posted by Mark on May 5, 2014 at 03:48 | Last modified: March 25, 2014 15:09To implement DCA in a market crash, spare cash would be required. The 15% annualized return MacDuff advertises with the Math Exercise would no longer apply because the deleveraged portfolio would be making less. How does this add up?
More recently, MacDuff has advised being fully invested. This eliminates the possibility of DCA and potentially resolves the discrepancy described above.
What happens when stocks tank?
On the call side I can sell premium at near-the-money strikes, which will enable me to continue generating cash.
What happens when a V-bottom prints (e.g. March 10, 2009) and stocks catapult higher through my lowered strikes?
MacDuff argues we are now better prepared for this situation thanks to narrower strike availability and weekly options that offer the potential for supercharged annualized returns.
What happens when I have to look months to years out in time to roll for a credit? Neither weeklies nor narrower strikes are going to save me.
In some cases, no available options will provide for a credit roll. I cannot take assignment at the [substantially] lowered strike because that would lock in a big loss. In 2009, I suspect this might have described most [if not all] of my positions.
My only other option would be to roll for a debit and hope the market cooperates and allows me to escape whole. “Hope is not a trading strategy” and I cannot begin to imagine my degree of insomnia if most of my positions were in that boat.
Until and unless MacDuff can give me some response to these difficult issues, I will have significant doubts about SysCW. One may argue “no trading system is perfect and losses are a part of the game” but MacDuff never shows any losses in his book nor in his tutorials.
How Madoff-esque is that?
Furthermore, what I have described here is more than “occasional losses.” What I have described is catastrophic loss running rampant across most of the portfolio. This is a risk that deserves a response and a remedy before SysCW qualifies as a viable trading system.
Categories: Option Trading, System Development | Comments (2) | PermalinkCovered Calls and Cash Secured Puts (Part 39)
Posted by Mark on May 2, 2014 at 06:49 | Last modified: March 25, 2014 14:03Once upon a time (one month ago), this space focused specifically about CCs and CSPs. My last post waxed eloquent about some optionScam.com aspects of the industry. Next I want to combine these two branches of inquiry and focus specifically on Rich MacDuff’s SysCW.
One of the biggest problems I have with SysCW is the exclusion of portfolio considerations. The SysCW tutorials and book include tens to hundreds of examples of successful positions.
Some were easy.
Some required more management.
Some involved dollar cost averaging (DCA).
Taken one at a time, MacDuff found a way to make every single position go back to cash profitably. For me, this was the primary appeal of SysCW: management strategies exist to handle most any situation imaginable.
Indeed, SysCW does offer tools to successfully manage most any situation… when looking at positions one at a time.
This is not the case when full attention is paid to portfolio considerations and that, in my opinion, is where SysCW begins to break down. What happens when another 2008-like crash occurs and all positions lose significant value? MacDuff has argued I can close profitable positions and use that money to aid losing ones. By definition, though, correlation goes to one in a severe market crash. No profitable positions are likely to exist in a violent bear market.
In Systematic Covered Writing (2011), MacDuff introduces DCA as a position management tool. Perhaps a market crash will require DCA and to do this I need significant cash on the sidelines. If I have significant cash on the sidelines then I will not realize 15%+ on my entire portfolio, which is what MacDuff repeatedly insists to be possible with the SysCW.
Something just doesn’t add up [yet].
I will continue this discussion in the next post.
Categories: Money Management, Option Trading, System Development | Comments (1) | Permalink