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Engineering Professor (EngProf6)

        Hybrid Timing Model for Analyzing Stocks and Indices

 

Date:  Monday, December 18, 2006     (after the close) 

 

 I cannot update the full web site today because of other commitments. However, I have posted my comments for today on this page. I have also updated ‘My Journey’. And yes, I did make a trade today.             

 

 ‘My Journey’ has been initiated. Click on the following link to get to see my account and trades. Find out what positions I am holding and where the $5K is at. December expiry is behind us. See what I am planning for January ’07.

 

                   Click Here to Link to ‘My Journey’

 

Check out my mailbag for new postings (as of Dec 17’06). 

                                I have added 10 new letters (and my responses)

If you wrote to me recently – check it out.

I have had a number of letters. Thanks to all – you brighten up my days.

                                              

            You will find some interesting questions and comments. You may even find something you wrote. The Mailbag is located near the end of this web page.

 

I have now implemented version 4.0 with a filter. The tabulation of results in the tables are without the filter. The day to day comments are based on the results with the filter. Note that the number of moves in the tables (no filter – raw data) are reduced to as little as ¼ when the filter is implemented. In addition, I am also using hourly data to increase the resolution of my trading moves.

 

 

 

On Wednesday (Oct 18) I introduced version 4.0 with a filter. It is now Dec 16 and I still strongly believe “This is it”   (more than ever).

 

During the month of Oct I developed a firm hold on the modeling work I am conducting. The results you will see and which I will use on my journey are looking great. In addition, I have now successfully adapted the model to an hourly basis. This will make investing (on a short term basis) so much easier. You should note that there are 2 modes for a primary direction (i.e. move): 1) red – down, or 2) green – up. In addition, for each there is also the subsets of 1) turbulence or 2) clear trend. So there are a total of 4 possibilities. If we are in a primary up trend, we can be in ‘clear’ mode or ‘turbulence’ mode. The same applies for the primary down trend. The label turbulence is used to signify the presence of an opposing force that is trying to suppress the primary trend. 

 

I have reinstated the countdown. Several wrote to tell me that this feature is important. I agree. I had only taken it off for maintenance. The countdown can appear at 2 locations. If the trend is ‘clear’, then it appears on the top line with the primary trend. If the trend is being influenced by turbulence, then the countdown refers to the turbulent portion and is shown on the line with the turbulence label.

 

If you are new to this site, be patient, scroll down a couple of pages and you will find what the model is forecasting for the following 15 issues:

DIA, SPY, QQQQ, OIH, SMH, IWM, OEX, EWJ and XLF  {these are based on specific market averages} and,  AAPL, AKAM, ET, GOOG, STX and WMT

 

 

 

 

 

Check out the links at the bottom of this page.     

    

There are 2 classes of investors I would like to reach, in particular. If you are involved with options, you should consider what I have to say. You are in the first category. If you trade on the short term (a couple of weeks on average), then you are in the other category of investor I am interested in. I would like to hear the ideas and opinions from members of both categories.

 

One feature of my analysis is that I have a count down to a reversal for each entity. Thus, if we consider stock XYZ, my model tells you the current trend direction of the stock. Moreover, it tells you how many days remain before the current trend for XYZ reverses. This information can help you plan upcoming moves.

 

Some comments about technical models and how they perform as compiled by ‘tradingmarkets’. Click here.

 

 

 

                                         

 

          My Comments on the Markets

 

My Comments after Tuesday (December 5):

 

On Tuesday, I took a big step towards being professional. I pulled the plug on ET. The model did not like the position I had assumed, so I did not hesitate to liquidate. That is the way it should be. I took the funds and went long GOOG. I shorted the Dec 490 put and I bought the Dec 480 put for a credit of $4.60. These are Dec contracts that only have 8 days left. So now I have SPY Dec puts and GOOG Dec puts. Don’t let the idea of puts fool you – I am bullish. That’s also a reason why put/call ratios are no longer significant. My AKAM position is for Jan. Now mind you I will liquidate whenever the model tells me to.

 

The markets continue in up trends. I think it is important that regardless of what you are doing you should be aware of the markets and their direction. Most typical issues tend to move with the markets. It is the reason why I do not like to take positions that are contrary to the market direction. Look at my comments for STX below.

 

My Comments after Wednesday (December 6):

 

The markets did little today. There was an upward move by GOOG but then it faded. With regards to my positions, I liquidated AKAM – no not because of AKAM. In fact, AKAM at this point looks really good – it is aligned with QQQQ. Given this, I want to go into QQQQ (Dec). My AKAM position was for Jan. The Dec position in AKAM is not attractive enough for me given the availability of QQQQ. So tomorrow (Thursday) I will get a credit put spread (bullish) for Dec QQQQ. Come back to see what position I have set up.

 

The markets are in up trends. Little else can be said. I do have a comment about AAPL. It is currently under the influence of turbulence. Go to the AAPL section below to find out how turbulence is defined. In a few days AAPL will revert back to a clear up trend. I know many of you will be happy when this occurs. Stay tuned. The target is the middle of next week.

 

My Comments after Friday (December 8):

 

Friday (or should I say this weekend) was a turning point for me (no not the markets – they remain in up mode). For the past 5 weeks I have traded a substantial number of bullish and bearish spreads in a number of different issues. I survived BUT I have to admit it was not easy. I spread myself much too thin. In addition, the way the options, especially spreads are traded drained my energy. Instead of enjoying ‘the game’, I started to ‘dislike’ it. I felt like I was being taken for a ride. What I concluded was that I cannot continue to trade option spreads. I refuse to trade naked options – they are a rip-off in my mind. So I am looking at trading futures on stock indices. I really like what I see. I’ve spent the last week looking at the possibility. Unless something unforeseen happens, I want to go that route.

 

I will continue with this web site. But if I go into futures, I will focus on producing timing for the market averages like the S&P, Nasdaq, Dow, and Russell. I certainly plan to continue My Journey. In fact, when I started Nov 1, I felt that the odds to achieve my objective were probably 1 out of 3 (i.e. 33%). I now feel that the odds have increased to 2 out 3 (i.e. 66%). So, as you can see, I am not disappointed, I am encouraged. What I am looking for is the ‘way’ to achieve my objective.

 

As a final point, there were several aspects that I did not like about option spreads. One was the overcharging on the quotes – the gap between the bid and ask is usually ridiculous (especially for spreads). The other aspect that I have grown to really dislike is the fact that with a spread you have one leg of the trade that loses money. So you make on one side and lose on the other. In itself this is OK, however, there are times when even with a large move you don’t make that much because you make the difference. The last thing I don’t like is that if you hold a spread you are cutting yourself off from ‘relatively large moves’ because the potential profit of the spread is capped.

 

If you have some thoughts about what I have said or are planning, please share them with me at engprof6@hotmail.com

 

 My Comments after Friday (December 15):

 

I struggled this past week. I had long positions in GOOG and QQQQ which were expiring on Friday the 15th. The model worked great but I struggled. I made a couple of mistakes that put me in the dog house. But I realigned with the model and let it take over. On Thursday morning it got me out of a jam. I am back in the driver’s seat.

 

I have updated all the issues that follow. Most are in up trends. The markets remain in up trends. A reversal to the down side is not yet on the horizon. At this time I have decided to keep my options account and to open a futures trading account.

 

After reviewing the data from the model, I have come up with two interesting up moves. They are based on AAPL and GOOG. I have looked at the hourly data and have found that AAPL will become a buy at 12:30 on Monday while GOOG will become a buy on Tuesday morning. These are simply mathematical calculations, which can and will change depending on what the trading will look like. Regardless, I will get credit put spreads (bullish) for the 2 issues. I will get into AAPL on Monday and I will get into GOOG on Tuesday. Come back Monday evening to find out what I ended up doing.

 

And finally a message for my AKAM friends: AKAM on Friday went into turbulence mode for a couple of weeks. Thus, my conclusion is that there is little upside potential for AKAM for the next few weeks. However, it should be noted that the up trend remains intact. It’s just that the turbulence will hold AKAM back.

 

 My Comments after Monday (December 18):

 

The following is a posting I am making today (Monday evening) on the message boards. It summarizes my thoughts for today.

Wasn’t today a treat! NOT!

 

Yesterday I mentioned 3 stocks: AKAM, AAPL and GOOG. Today, all 3 were in the spotlight and all were down sharply. I had said that AKAM had finished going up for the time being. I also said that I was going into AAPL on Monday. I did so at 1:30 pm. I jumped the gun a bit. The model pushed back the entry point to 3:30 pm on Monday. So be it.

 

With regards to GOOG, I had said to wait until Tuesday to get in. Well that advice still stands (and of course was timely). The revised entry point on Tuesday for GOOG is 12:30 pm. I plan to get a bullish credit spread on GOOG at that time.

 

Trading is tough. To succeed (i.e. do better than buy and hold), you need to have a ‘system’, whether it’s mathematical, behavioral etc.. I would be interested in knowing what ‘systems’ people use. Send me an email to engprof6@hotmail.com and tell me what you are doing.

 

Before signing off, I would like to add that today’s action has altered little with regards to the overall markets. Most trends are still up.

 

Good luck to all.

 

 

SPECIAL SECTION (under construction)

 

 (How To) Grow $5,000 into $1 Million, Quickly

 

See how my trading is taking shape – click the link below. Send me your feedback.

                Click Here to Link to My Journey’

 

Stay Tuned. You will get the opportunity to follow me as I embark on ‘my journey’ to grow $5 thousand dollars into One Million Dollars – Quickly.

 

The starting date was initially set for Oct. 1, 2006. However, given the revised version of the model (3.5) which I am trying to implement for all 15 issues, a more realistic starting point is Nov. 1.

 

 

 

I have decided to remove the next day outlook. It is too much work for me to write. It detracts from the analysis because you the reader do not see all the data. So, in an effort to simplify the presentation, I am going back to the way it was – only focused on the primary trend.  

 

You should note that the tables that follow for some of the issues will only be updated on weekends. On Dec 17, I updated the tables and there were changes to all the issues. The results are up to Dec 14’06.

 

 

ETF                     Forecast

 

DIA        Primary Direction: UP   Started on   xx    Days Remaining: 4 

              Starting Price:   xx       Current Price:     124.15   

Clear Up Trend

Dow Industrials Fund (DIA) is in a primary UP cycle.  Based on what the model is seeing, we could have another 4 days of up trending markets. And then we have turbulence. We will re-evaluate the situation as new data comes in. One should note that the current up trend started around July 20 when DIA was about 110. At this time the model does not yet see a possible reversal. Stay tuned.

CLICK HERE  --- to view the results for DIA as generated by the model (version 4.0) for 2006   [New  Dec 14]

 

 

SPY       Primary Direction: UP   Started on   xx    Days Remaining: 4 

              Starting Price:   xx       Current Price:     142.34

Clear Up Trend

S&P 500 Fund (SPY) is in a primary UP cycle. SPY like DIA has 4 days left and then there is turbulence. What will happen then is uncertain. Stay tuned.

CLICK HERE  --- to view the results for SPY as generated by the model (version 4.0) for 2006 

 [New  Dec 14]

 

 

QQQQ  Primary Direction: UP   Started on   xx    Days Remaining: 8 

              Starting Price:     xx     Current Price:       44.43 

Clear Up Trend

NASDAQ 100 Fund (QQQQ) is in a primary UP cycle. The QQQQ will go into turbulence mode in 8 days. What will then happen is uncertain. I would like to point out that the current up trend for QQQQ started in mid-August. So the markets have been good for quite a few months. But sooner or later a down trend will appear. At this time, the model does not see the reversal yet. Stay tuned.

                             CLICK HERE  --- to view the results for QQQQ as generated by the model (version 4.0) for 2006 

 [New  Dec 14]

 

 

OIH        Primary Direction: UP   Started on   Wednesday, November 15    Days Remaining: xx 

              Starting Price:     140.82     Current Price:       149.60          Profit:  8.78

Turbulence          Days Remaining:  7

Oil Services Holders (OIH) is in a primary UP cycle, however, OIH is now in turbulence mode for 7 days. While the up trend remains, the imposition of turbulence will suppress gains. Keep watching.

Remember, turbulence is a secondary force that opposes the primary force. A clear up trend has no opposing force. However, an up trend with turbulence implies a primary up force with a secondary down force. The result is instability. Turbulence also implies a certain level of randomness. These comments apply to all stocks.

                             CLICK HERE  --- to view the results for OIH as generated by the model (version 4.0) for 2006  [New Dec 14]

                                     

 

SMH      Primary Direction: UP   Started on   xx       Days Remaining: 7 

              Starting Price:     xx     Current Price:       34.26 

Clear Up Trend

Semiconductors Holders (SMH) is in a primary UP cycle. Beyond the 7 days, we are looking at a down cycle. Will that, if it happens, pull the markets down? Stay tuned.  

 

IWM       Primary Direction: UP   Started on   xx       Days Remaining: 7 

              Starting Price:     xx     Current Price:       78.90 

Clear Up Trend

Russell’s 2000 (IWM) is in a primary UP cycle. IWM has 7 days of up trend and then there is turbulence or maybe even a down cycle.

 

OEX      Primary Direction: UP   Started on   xx    Days Remaining: 4 

              Starting Price:     xx     Current Price:       663.11                

Clear Up Trend

The S&P 100 Index (OEX) is in a primary UP cycle for the next 4 days. OEX now resembles DIA and SPY.

              CLICK HERE  --- to view the results for OEX as generated by the model (version 4.0) for 2006

[New  Dec 14]

 

                   

EWJ      Primary Direction: UP   Started on   xx    Days Remaining: xx 

              Starting Price:     xx     Current Price:       14.15                  

Turbulence          Days Remaining:  9

The Japan Fund (EWJ) is in a primary UP cycle which is now in turbulence mode for 9 days. As I’ve stated in the past, turbulence leads to limited gains in an up trend. 

 

 XLF      Primary Direction: UP   Started on   xx    Days Remaining: 4 

Starting Price:     xx     Current Price:       36.60 

Clear Up Trend

The Finance Index (XLF) is in a primary up cycle for the next 4 days. After that, we are looking at turbulence. Stay tuned.

       

                  

 

 

Stock                  Forecast

 

AAPL    Primary Direction: UP   Started on   xx    Days Remaining:  13

              Starting Price:  xx        Current Price:  87.72

               Clear Up Trend

Apple Computer (AAPL) is in a primary UP cycle. On the hourly model, AAPL goes into up mode at 12:30 on Monday. I plan to get a credit put spread (bullish) on Monday. Stay tuned.

CLICK HERE  --- to view the results for AAPL as generated by the model (version 4.0) for 2006  

[New Dec 14]

 

AKAM   Primary Direction: UP   Started on   Thursday, Nov 30    Days Remaining:  xx

Starting Price:  48.87        Current Price:  56.39           Profit:  7.52

Turbulence          Days Remaining:  14

Akamai Technologies (AKAM) is now in a primary UP cycle but on Friday turbulence came into the picture. For now the strong up trend has run its course. But the up trend remains intact. However, the turbulence opposes the primary up trend.

CLICK HERE  --- to view the results for AKAM as generated by the model (version 4.0) for 2006  [New  Dec 14]

 

ET         Primary Direction: DOWN   Started on   xx       Days Remaining: xx

Starting Price:  xx        Current Price:  23.19          

Turbulence          Days Remaining:  8

E*Trade (ET) is in a primary DOWN cycle. ET is now in turbulence mode. 

 

GOOG  Primary Direction: UP   Started on   xx    Days Remaining:  8 

              Starting Price:    xx        Current Price:    480.30  

               Clear Up Trend

Google (GOOG) is in a primary UP cycle. The hourly model has GOOG reversing to the up side on Tuesday morning. I am considering establishing a bullish position at that time. Stay tuned.

CLICK HERE  --- to view the results for GOOG as generated by the model (version 4.0) for 2006 

[New Dec 14]

 

 

STX       Primary Direction: UP   Started on   Wednesday, December 13    Days Remaining:  10 

              Starting Price:    26.10        Current Price:    26.73        Profit:  0.63

               Clear Up Trend

Seagate Technologies (STX) is in a primary UP cycle. We finally have STX realigned with the model. Stay tuned.

CLICK HERE  --- to view the results for STX as generated by the model (version 4.0) for 2006     [New  Dec 14]

 

 

WMT     Primary Direction: DOWN   Started on   xx       Days Remaining:  xx 

              Starting Price:    xx        Current Price:    46.45       

Turbulence          Days Remaining:  6

Wal-Mart (WMT) is in a primary DOWN cycle that is now 6 days long but under the influence of turbulence.

 

 

 

SPECIAL SECTION (under construction)

 

 (How To) Grow Your Wealth Quickly

and, after I complete my objective,

Anyone Can Make a Million Quickly

 

Introduction

I have invested over the years but I’ve had difficulty making a good return. In retrospect, I didn’t have the discipline or a model to be ‘successful’. All this changed when I started to use a model of price movements. It just so happens that I developed what I refer to as the hybrid timing model which evaluates cyclic price movements in the financial markets.

 

My past investment universe included stocks, options and futures. Again, in retrospect, I could not succeed because I was not able to get a handle on the time trends of the issues I was investing in. So about 7 years ago, I stopped my active investing strategy (except for a few buy and hold stocks). During this time, I fiddled with mathematics to try to get a handle on how short term moves occurred in the markets.

 

In early 2006 I came to the conclusion that the model I had developed was of sufficient accuracy to be of value in the short term investing arena. During the last 4 months I have been posting some of the real time results from the model on this web site. I am very pleased with the results. Recently, I started to invest (with real money) in some of the issues I follow (in particular, the market barometers). I started with stocks (or ETF’s) but I have now moved to options for my speculation funds.

 

My Target

I have set a target for myself. My objective is to convert $5,000 into 1 million dollars in 2 years. Hence, the title of my work: ‘Grow Your Wealth Quickly’. My plan is to use options to carry this out. My official starting point for this endeavor is Oct. 1, 2006 (revised to Nov. 1’06). I realize this is a lofty goal but I feel I am up to it. I will report my progress on this site. It will be one heck of a show, in real time. You will get to see with real money what can be accomplished with the model.

 

Methodology

Based on what I have learned, I have concluded that one needs to use options (or futures) to make money quickly (or to loose it quickly). One problem with the simple buying of call and put options is that this practice is a bit like buying lottery tickets. The odds are stacked against the buyer. Investing in stocks is much safer but too slow for accumulating wealth quickly. Thus, several conclusions I have made, regarding my speculative funds, are:

1)    I will not invest in stocks,

2)    I will invest in options,

3)    I will focus on credit option spreads.

 

So what are option spreads? Simply put, an option spread is a strategy (in its simplest form) that involves 2 calls (or 2 puts). The investor buys 1 call and sells short another call with a different strike price. For a credit spread, the investor sells a more valuable option and buys a cheaper option for a net credit to one’s account. This can be done with both calls and puts.

 

Examples of Credit Spreads

Let’s consider the SPY ETF that mirrors the S&P500. I am writing this on Sunday, July 30’06. Let’s consider the August 2006 contracts. Credit spreads can be created with calls if you think the trend is down. Credit spreads for an up market would be created with puts.

 

Consider the following credit spread involving calls (down SPY trend):

Buy:  August 129 SPY   @  $1.10

Sell:  August  127 SPY  @  $2.35

The cash SPY when these option prices were retrieved was $127.98.

In this case you would be credited with $1.25 (less commissions). The maximum loss that you can incur is $2.00. Thus, in initiating this spread, you would be required to deposit $0.75 which would be coupled with the $1.25 credit for a total of $2.00 (the maximum loss). The spread has an intrinsic value of $0.98. If by expiration (in 3 weeks), the SPY has dropped to 127 (or lower), you pocket the credit of $1.25 you received. If the SPY closes at expiration at 128, you get to keep $0.25 of the $1.25 credit. If SPY closes at $129 (or higher), you give back the $1.25 credit plus the $0.75 you deposited. The bottom line is that you are risking $0.75 to have it become anywhere from zero to $2.00. If you are good at identifying trends, you will be a winner.

 

Another credit spread involving calls of SPY is:

Buy:  August 130 SPY  @  $0.70

Sell:  August 128 SPY  @  $1.65

This spread would yield you a credit of $0.95. The intrinsic value of this spread is zero. You would risk $1.05 to enter this spread. If the SPY remains unchanged (or goes down) by expiration, you pocket the entire $0.95.

 

Why a credit spread and not a debit spread. My simple answer at this point is because of the eventuality that the market (SPY) reverses. Let’s assume the SPY has just entered a down trend. You decide to sell the Aug 127 at $2.35 and buy the Aug 129 at $1.10 for a credit of $1.25. The cash SPY is 128. Let’s further assume you were right with the trend and 2 weeks later the SPY is at 127 (a drop of 1). At that point in time, there may be an issue you will need to deal with. Expiration may (for arguments sake) be 1 or 2 weeks away. You need to go into a credit spread involving puts. So what does one do with the call spread. With regards to the calls you can close the spread completely or you may buy back the call you shorted (and hopefully you will be able to buy it with the funds you received as credit). If you only buy the call you shorted, you would be left holding the call you bought. If you are right about the reversal to the up side, that call will increase in price. At the same time, you would initialize a credit spread with puts.

 

Food For Thought

A $1,000 investment if doubled ten times in a row would be worth over 1 million dollars. Can it be done? Yes – maybe not 10 in a row, but… What you need is to have a good handle on the trend. I plan to do it. This is my Tour de France. Stay Tuned. Naturally, your comments are welcome.

 

To Be Continued….

 

                  

 

 

 

                                    MY MAILBAG

 

I have received some mail as of Nov 26 which I would like to share with you. The responses I have provided were written on Sunday, Dec 17’06. Enjoy.

 

 Message #1:

Header:        Great Work

Time:           December 17, 2006 10:53:50 AM

Text:

Just wanted to drop a line that, you are doing amazing work. I have been following your daily commentary and most of the time you are dead right. I am starting to get faith in your model and would trade as per your model.

Keep up the great work. I am sure in a short time you will get lot of followers. Then you can start charging for your work.

Thanks for giving the hope that there is a big fortune in stock market.

Thank you so much for your efforts, they are inspiring.

 

My Reply to Message #1:

Your vote of confidence is greatly appreciated. It is individuals like you that keep me going. I believe the model is really good. What I need to do on a personal level is to react more quickly. When the model takes a stand you can’t waive for days on end especially since there is a clock that is ticking. What is important is to be able to say, I made a mistake – take the loss and move on. If I can learn to do that effectively, I have little doubt that the million mark is within grasp.

 

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Message #2:

Header:      Short Iron Condor 

Time:        December 17, 2006 1:32:04 AM

Text:

When you think a stock isn't going to move that much a short iron condor can be an interesting play.   It consists of both a credit call spread and a credit put spread in the same month.  If there isn't any overlap between the spread you only have to put up margin for one side because you can only lose on one side.   For example you had a 141/139 put spread on the spy, if you also had a 143/145 call spread that would have been a short iron condor.

If you put up one side at a time, or leg into all positions it is possible to get more the 100% credit, although a good condor is normally around 50% credit.   This is a fast but very stressful way to grow money.   It is adjustable, but the adjustments (as typical with credit spreads) are complex.

Congrats on getting pass Dec above 5k!  I lost about 4k in DEC.   Currently I have positions in ANF, GOOG & MSFT.   With MSFT I'm playing with a combo (short put, long call)   The idea is to have the position for free, but it does entail the same risk as owning the stock.   There is a slight offset since you get interest on the cash put up for the margin requirement.  The position moves $.10 per $.10 move in the stock price.

 

 

My Reply to Message #2:

Hi, WK.  As I’ve stated in the past, and I will state again – your comments are always welcome. I think however, you are making life too difficult. I am looking for simple trading strategies. That is one reason I am considering futures. Incidentally, I have applied to open a futures account but I’ve decided to keep my options trading going. My confidence is climbing. I feel I can overcome the mistakes I have made in the past.

This weekend, I reviewed the data for all the issues I am following. I am going into credit put spreads in AAPL and GOOG. As an example, for GOOG this time it will be short the 480 put and buy the 470 put (Jan). I would like to get $4-5 credit. Last time we had the 480-490 combo. For AAPL  I am looking at the 85-90 put combo.

I’m sorry to hear about your loss. Let’s get back on track and turn this around.

 

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 Message #3:

Header:       Fighting the loss

Time:           December 13, 2006 3:05:56 PM

I have two put spreads that are in trouble (GOOG & COST).   I also have two that are looking good (SPY & XLE)   Costco annouces in the morning so I'm going ride to the open on that one.

Anyway my GOOG Dec.  480/490 credit put spread probably could have been closed for a loss of $2.50 or so a share today.  Instead I decided to fight, this may cause me to lose more, but the limit to my loss is now $4.14/share.   I may have to make more trades to avoid a loss.  The last time I did this it took about 20 trades.  (That was a short iron condor that had gone bad)  My $5.86 credit includes current commissions.   (BTW doing this trade blew my ablity to trade for the rest of the day as it left my interday buying power at -$39k)

In one trade (a condor spread) the Dec 480 put was rolled to a Jan 520 put and the short Dec 490 put was rolled to a short Jan 530 put.   This buys 4 weeks and I need a price spike up to the $520 level in ordet to get out for about $5.  It could happen, but it isn't something to bank on.  However, I gave my self time to think it out.

The odds are I would have been better off taking the loss.  Anyway, my next move would be to figure out how to increase the credit.   Or maybe I'll bite the bullet and take the loss.  My trade moved my $2.5 loss I would have taken today to a $3.84 loss. (per share)  Something had to give.   But now I have 4 more weeks.    I considered rolling to March, but I probably would have had to do a 540/550 or hight spread.   If there is a $25 move up soon, I can now roll to March for proabably another $1+ credit.

I was thinking that futures are just too risky since if the spot price moves against you you can easily burn up your margin.  However, I had forgotten just how risky credit spreads can be.   I knew there was a reason I stopped doing them!  :-)

Cheers and I hope things go better for you soon!

 

My Reply to Message #3:

Hi again WK. I am only going to trade in positions where I stand a chance. I took my loss in GOOG and will now re-establish the position but definitely not the 520/530 puts. As I stated in the previous message, I am looking at the 470/480 combo. I want to keep my trading as simple as possible. 

 

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Message #4:

Header:        Good Job! Options trading 

Time:           December 13, 2006 10:25:59 AM

Text:

You have stirred my interest with our message on google finance. I have visited your website, and even though I haven't had enough time to read your written accounts of the progress due to my exams, I have noticed what positions you are holding.

Let me introduce myself. My name is Ion and I am a 19 years old Finance student in Montreal, Canada. I have been interested by the stock market for umpteen years and I have won two TD Waterhouse stock market contests in my college (you know that kind of contest where they give you $100,000 imaginary money). Later on, I applied for university and a prominent person in there has offered me $10,000 to start trading on the market on his behalf, at a commission.

I eventually accepted, after a year (last summer) but at a lower sum, of $2000. I didn't have much time to trade due to my school but I was aware of the options advantages. Long story short, I almost doubled the money by investing $500 in amazon options, then it went downhill and two weeks ago I bought December calls in Apple to see $500 vanish. Now my account is worth around $1600.

I believe you're right. It's possible to attain a million by exponentially doubling the money. I have done the exact same calculations you did before I saw your post. I also realize that you follow straddle and other types of strategies, rather than investing in just one option, be it call or put, and sometimes you invest both ways. Do you also sell? I think your portofolio view of your positions is much more detailed than mine. Where I'm trading the rates are around $35-$40 per trade so I am a bit handicapped in that respect. Plus the conversion rates between US and Canadian dollars can get for or against me.

 

 

My Reply to Message #4:

Hi. I am very impressed. You are the second student that has written from Montreal. Thanks so much. I trade based on a mathematical model I developed. I am often asked what it considers. The answer is it considers very little. It is based on price action – not volumes – not news – not fundamentals. It does however have a cyclical component – it is not just a trend following algorithm like moving averages.  For example on Wednesday it said that GOOG had become a buy. (GOOG was trading at a low point at that time.) For AKAM, on Friday, the model said that the rise in AKAM was now stalling (turbulence) and yet AKAM was at a multi-year high. So far I have traded about 10 different issues (indices, oil, computers semis, financial etc) and I am pleased with the model’s performance.

With regards to brokerage firms, I used to be with Ameritrade (TD has now bought them). I am now with OptionsXpress. I think they are great. They charge $15 per transaction of up to 10 contracts and then additional contracts are $1.50 each. For futures trading I am looking at Xpresstrade (no relationship).

 

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Message #5:

Header:      Trade feedback

Time:          December 12, 2006 10:39:21 PM

Text:

I suggest you use your model to trade stock options only.  QQQQs and other index options are much more random and can turn quickly against you, usually intraday. Further, they do not stay on trend for extended periods of time like stocks can, and when they do, they move too slowly to present major profit opportunities with options.  I've traded both over the last 25 years, and while I've

occasionally been lucky with index options (and lucky really is the operative word), I've done much, much better with stock options, especially using a three month buy and hold calls approach.  It's also been easier to sleep at night.

Options should be used as a leveraged "creative financing" method of buying stocks that are on a clear trend.  Just my 2 cents.  Good luck.

 

 

My Reply to Message #5:

Your comments are worth noting. However, I do not necessarily share all your views. Trading indices is a more stable operation. It involves the law of averages. Naturally, the returns may not be as great. However, with spreads, the return for stocks and indices are essentially the same. In fact, for spreads, the indices have the advantage. If you are just buying calls and puts (with NO short component) then you have to do whatever you feel comfortable with. Good luck.

 

 

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Message #6:

Header:       Feedback on your forecasting model

Time:           December 4, 2006 6:35:58 PM

Text:

I have been using your forecasting in the last 6 weeks to help me with my trading.  It has worke very well!  The forecast will miss by at most 1 day.  The turbulence and trend forecasted on the indices  SPY, DIA, QQQQ has been amazing. The only mishap I have seen is OIH.  Even though the general trend is down, OIH started going up 2-3 days before elections.  That's probably a human psychology side that is hard to model.

I highly encourage you to consider trading futures with the 5k amount to get the leverage so you can accelerate your account to double every three months.

Keep up the good work.  I would in fact pay money to use your data as a service.  Therefore, consider providing autotrade services through ThinkOrSwim or OptionXpress :))

 

My Reply to Message #6:

Many thanks for your message. And yes I am considering futures (the e-minis on the indices).

 

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Message #7:

Header:        model 

Time:            December 4, 2006 2:20:29 PM

Text:

I stumbled upon your website this morning while perusing the news on AKAM.  While crude in design, the information and approach are intriguing.

A couple questions.....

Is there a link to your model that would allow us 'little people' to check it out?

Which brokerage are the slips from?  Mine (Scottrade) doesn't allow me to place credit or debit spreads due to the 'naked' nature of one side of the transaction. Also, how much does this brokerage of yours charge for options?  Scottrade is $7 + $1.25 per contract.  So in the credit/debit spread examples you showed, the commissions would have me losing money with each trade.

 

 

My Reply to Message #7:

I agree with you, my web page is definitely ‘crude’ in design. I don’t have the time to do more at this time. I am testing a concept. Before I decide what to do, I am keeping thinks on a low key. When I started this project, I said I would give myself until the end of the year to decide if I should continue. I’ve reached a conclusion. I will continue.

I use OptionsXpress. I am very happy with them. No complaints.

 

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Message #8:

Header:       The Journey...

Time:           November 29, 2006 1:31:40 PM

Text:

I found your page from your AKAM comment on the Google boards.

I'm really interested in what you're doing and the methods.  I'm not sure how it will all work out, but I'm a huge fan of modeling.  I know that automatic trades are a huge percentage of market traffic now.

I was wondering if you could tell me what factors you are taking into consideration.  Are you just doing a short term vs. long term comparison or?

Also, you should think about using a service like blogger to "push" your daily comments to your site.  Its easy, free and will make the whole project easier to follow and comprehend.

I wish you the best and I'm sure I'll be in touch.

 

 

My Reply to Message #8:

At this time, I will continue muddling along the way I’ve done it in the past few months. Remember, my primary objective is to show ‘it’ can be done. I have proposed to demonstrate this by making 1 million. Once I’ve done that – the sky will be the limit – do you agree. In the meantime, I will not change things much. In fact, if anything, I need to ‘clean’ up the web site and just keep the minimum on the main page and use links to reach the other material.

 

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Message #9:

Header:        Options

Time:            November 29, 2006 8:59:57 AM

Text:

I have been using your model for a little over a month. While I know this is a short time period, I have been extremely impressed. I have made a 20% return over that time by simply following your model but only purchasing LEAPS (calls or puts depending on the model).

I have traded LEAPS on SPY, QQQQ, DIA, IWM, ET, & AKAM. I know this involves more risk than your spreads. But by only using LEAPS instead of short term options I am able to limit the risk.

Good luck and THANKS!

 

 

My Reply to Message #9:

It sounds to me like you are doing just fine. Good luck.

 

 

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Message #10:

Header:         Vertical spreads ...

Time:             November 29, 2006 12:50:41 AM

Text:

I had followed your website since Sep  and had followed your advice to trade vertical spreads.  So far, I realise this is a bad idea.  Is frivolous since you have a "put aside 50% cash" risk management system.  Spreads are harder to establish and exit.  Also cost more commissions.

Since your engine can forecast a primary trend and its duration but is unable to predict price targets, it would be more effective to simply long ATM calls or puts.  For example, if your model forecasts that AAPL would be in Primary up trend till Apr 07, you should simply long Apr $90 calls.  You should either ignore turbulence or add new money during turbulence.  Sell the call in Apr or when Primary trend reverses.

 

My Reply to Message #10:

What you are saying is correct, however, I know what the model is capable of. And it is not capable of saying AAPL will be up until April. We are normally looking at a couple of weeks at a time. I agree that buying options is one way to invest. However, I find it difficult to pay so much for time premium. I think the writers have this game nailed down. The buyers are getting the shaft. You cannot win consistently by simply buying options – even with the model. At least that’s my view. Now with spreads, the odds are more balanced. You cannot make as much as buying an option. In fact, when one gets a spread, the maximum profit and loss are laid out. You know what the max risk and max reward are. For the case of buying options, you know the risk, however the reward is more open ended. But you pay for that privilege. 

 

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FORECASTING

 

Forecasting the markets is like forecasting the weather. Our knowledge base (I am referring to mankind) is such that the only reliable forecasts are short term. Long term forecasts for the weather or the markets are simply beyond our reach at this time.

 

Remember last year, the forecasters got caught up with the unusual number of hurricanes we were having. As a result their forecasts for 2006 were worrisome to say the least. We were told there would be as many and more. They weren’t forecasting, they were simply extrapolating. Now as we approach the 1 year anniversary of Katrina, we haven’t had any hurricanes to speak of.

 

Yes there is Ernesto on the horizon, but as I write this, he doesn’t know whether he should be a tropical storm or a hurricane. Try forecasting what will happen in the next 3 days. It’s not easy, even for the pros.

 

As I said, long term forecasting is beyond man’s capability at this time. Long term forecasting of the markets parallels that of forecasting the weather. It cannot be done with any degree of accuracy. It boils down to ‘A Random Walk Down Wall Street’. These are my personal views.

 

So what about short term forecasting? Well that is a different story. We can all agree that short term forecasting of the weather is a reality. It is within man’s grasp. Five or even ten day forecasts are generally quite accurate.

 

What I do is short term forecasting of the markets (without any detail). The model tracks the cyclic, short term trends and tells us what to look for. It assigns no magnitudes (not yet anyway). Remember, money management is equally important as the forecasting component. If you are careless and lose all your worth on a wrong move, then being right 80% of the time will amount to nothing. You need to be WISE. Good luck to all.

 

 

 

 

 

Announcement:

 

The following is an introduction as to what I am planning for the near future.

 

There are several reasons why I am publishing this web site. Two of them are: 1) to discipline myself when it comes to investing, and 2) to find a viable, winning strategy for investing in options. My unofficial name for this work is (How To) Grow Your Wealth Quickly. I will be using this heading more frequently in the future and it will be the title of a book I will write on the subject.

 

At this point, I am working on the ‘how to’ part of the program. I have already formulated a preliminary strategy which I am testing with my own money. The strategy is focused on options and more specifically the combination of buying credit spreads and the buying of straight calls and puts. I won’t say any more at this time besides stating that 90% of a winning strategy is centered on getting the direction of the move right. Given that the model can do this about 80% of the time, I am finding that being successful trading options is viable and is, indeed, quite profitable.

 

Soon, I will write more about my progress and my plans. Stay tuned.

 

 

 

 

Do you want to see past issues of this page? Click the link below.

 

                            Past Postings of This Page – Click Here

 

 

Questions, Comments, Suggestions or whatever else you may fancy 

are welcome. I can be reached at:

engprof6@hotmail.com

 

Please Note This Disclaimer:  The above results are generated from a mathematical model. It provides some insight into what may be expected in the short term (2 to 4 week cycles).  While reliability is of highest importance, life is such that the model is not always correct. Neither is past performance necessarily indicative of future performance. Stocks, markets, and options can change greatly in value in short time spans because of unpredictable events. The model cannot foresee such events. When they happen, the model’s performance will be poor and in some cases - wrong. The user is advised to be cautious and to try to couple the results for individual stocks to those for the market averages.

One last point I wish to emphasize. The accuracy of the model is also dependent on the entity that is analyzed. Some entities are more amenable to the type of analysis the hybrid timing engine performs. Others (especially those with elevated volatilities and/or irregular trading volumes) may not match the anticipated performance. It is up to you to satisfy yourself that the performance is adequate and to draw your own conclusions. 

 

Important Announcement (Click)

 

          [[ Find Out About the Model – click ]]

 

                            [[ See Past Postings of This Page – Click ]]

 

 

                 Why Are There Events That Go AGAINST the Model? – Click Here

 

          Interpretation of Signals - Click Here.

 

                   Find Out What Timing Did For AAPL - Click Here

 

You may have noted that what I originally called a mathematical model is now called a hybrid timing engine. The term hybrid comes about because of the method of conducting the analyses. It combines several techniques into one package. The term engine refers to ‘computational’ engine – a terminology that is frequently used by researchers. Thus, the model will henceforth be referred to as the ‘hybrid timing engine’ or the ‘hybrid computation engine’.