Option Wizard®

New book gives the step-by-step how to's on delta neutral, income style options trading

2012-03-01T09:11:00.008-08:00

Call to your attention our new title, just published: Option Wizards®: real life success stories from the financial markets.

We take five top traders, who have been successful over time, and break down their methods step by step. All in one place. Others pay thousands for this information, and find it a bargain. Here it is for you, now for the first-time in handy book form.

Buy direct from publisher or Amazon.

The book also includes book reviews, and other features published by the author for trade publications Technical Analysis Stocks & Commodities, SFO and Futures.

Available for only a relative few days, we are impressed with the initial interest. Appears we have struck a chord.

More information, table of contents, etc. on the web site. Reviewers, and bloggers, please request your review copy. Will be sent immediately.

Follow up, Pfizer

2012-02-07T07:17:00.000-08:00

While we're reporting results, give a look to the piece we wrote for Seeking Alpha on Pfizer (PFE). Another success. Most letter writers and pundits want you to think they never have losers, so at this point, I should mention, that is not the case here --- or anywhere else.

Follow up, gold, OWTM gold

2012-02-07T06:59:00.000-08:00

Back on Dec. 23, we called your attention to a potential buying situation in gold, based on our reading of commercial net short position. It's something we follow weekly in a spreadsheet we call Option Wizard® Trading Method Gold.

How did it fare?

The week following our post, gold declined from a Friday close of 1605 to 1565, but rebounded from there for the gain we had foreseen, based on past history:

1725.40	2/3/12	209,862
1737.50	1/27/12	179,768
1666.60	1/20/12	172,976
1637.20	1/13/12	166,574
1616.60	1/6/12	161,843
1565.00	12/30/11	163,932
1605.00	12/23/11	164,554

Plus 8% from 1605 to 1737.50, with a $40 drawdown along the way. It's never easy, but tools like this can help put the odds in your favor.

Barrons Roundtable Results 2011

2012-01-15T05:17:00.000-08:00

In today's issue, Barrons gave you a ton of data, but no summaries of how their celebrated stock pickers fared. So we did it ourselves and share it with you here:

Fred Hickey's Picks	9.24%
Bill Gross's Picks	8.35%
Mario Gabelli's Picks	6.07%
Abby Joseph Cohen's Picks	-2.68%
Meryl Witmer's Picks	-3.94%
Oscar Schafer's Picks	-6.14%
Felix Zulauf's Picks	-13.28%
Scott Black's Picks	-13.64%
Marc Faber's Picks	-14.26%
Archie MacAllaster's Picks	-27.82%	-5.81% avg

The publications own picks fared poorly as well, its bull picks losing 6.9%; its bearish picks fell 16.9%, however.

Touchdowns and Fumbles

By ANDREW BARY

Our bullish 2011 stock picks trailed the market, although our bearish calls did well. An A for PriceSmart and Mistras Group. An F for MF Global, RIM, Bank of America.

It wasn't a great year for Barron's bullish stock picks, but our bearish selections handily topped the market.

Shares of the 97 companies we wrote about favorably in 2011 fell, on average, 6.9%, compared with a 2.4% decline in their benchmarks, measured from the Friday before publication through year-end.

The disappointing 2011 showing came after two straight years in which our picks had beaten the market. We have been doing this report card annually since early 2004, with a tally of the prior year's picks and pans in January and a midyear update in July.

Our bullish picks trailed the averages in 2007 and 2008, but topped them each year from 2003 through 2006. For the performance of each of our stock picks and pans from recent years see—2011 Scorecard and 2010 Scorecard.

Our biggest 2011 winners were midsize companies like Price-Smart (ticker: PSMT), a fast-growing warehouse-club operator in the Caribbean and Latin America, and Mistras Group (MG), a provider of sensors to monitor the structural integrity of bridges, nuclear plants and other structures. Another touchdown: International Coal Group, which was acquired by Arch Coal (ACI) a few months after our bullish article ran last February.

We unfortunately had some big—at least 40%—losers, including MF Global, Research In Motion (RIMM), Bank of America (BAC), Nintendo (NTDOY) Juniper Networks (JNPR) and Morgan Stanley (MS). In our worst fumble, we were upbeat on former CEO Jon Corzine's effort to transform MF Global from a money-losing futures broker into a profitable, diversified securities outfit. Some losers have rallied in 2012, although both PriceSmart and Mistras are down from their year-end levels. It's early to judge many of our 2011 picks and pans, since we like to see how they do over 12 to 18 months.

Our bearish picks fell 16.9% on average, versus a 4.5% drop in their benchmarks. Of the 30 companies we panned, 21 declined, many substantially. We were correctly bearish on mortgage insurer PMI Group (PPMIQ), which filed for bankruptcy protection, and First Solar (FSLR), which was stung by a glut of solar panels. We also were skeptical on many hyped initial public offerings of companies with little or no profits, including those of LinkedIn (LNKD), Groupon (GRPN), Zipcar (ZIP) and Dunkin' Brands (DNKN), all of which have dropped.

Our worst bearish call was Questcor Pharmaceuticals (QCOR), which soared after we questioned its growth prospects a year ago. We gave up on that call in a follow-up article in May. If we decide to retract a bullish or bearish call, often by abandoning a loser, we stop the clock at the time the follow-up article appears, not at year-end.

Our tally doesn't include industry articles that deal with many companies. It also doesn't reflect our columnists' picks and pans; they do their own report cards. We try to measure stocks against appropriate benchmarks, using the Standard & Poor's 500 for large-cap companies, the S&P 400 Mid-Cap index for midsize companies, and the Russell 2000 for small stocks.

====================================================================

Some years ago, we did an exhaustive study of Barrons picks. Results were no better than 50-50.

Here are the individual picks from the experts summarized above:

Scott Black's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
JoS. A. Bank Clothiers	JOSB	$40.49	$48.76	20.40%
Aecom Technology	ACM	26.77	20.57	-23.20%
China XD Plastics	CXDC	5.7	5.34	-6.30%
Methanex	MEOH	29.02	22.82	-21.40%
Vale	VALE	34.98	21.45	-38.70%
General Cable	BGC	33.71	25.01	-25.80%
TTM Technologies	TTMI	14.03	10.96	-21.90%
Arrow Electronics	ARW	34.71	37.41	7.80%

Abby Joseph Cohen's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
General Electric	GE	$18.43	$17.91	-2.80%
United Parcel Service	UPS	72.15	73.19	1.40%
ExxonMobil	XOM	75.59	84.76	12.10%
Roche Holding	RHHBY	35.32	42.55	20.50%
Procter & Gamble*	PG	64.5	66.71	3.40%
TRAVEL/LODGING
Shangri-La Asia	0069.Hong Kong	HK$21.60	HK$ 13.40	-38.00%
InterContinental Hotels	IHG	$20.71	$17.99	-13.10%
Walt Disney	DIS	39.45	37.5	-4.90%
*Goldman Sachs suspended coverage on 5/19/11, after analyst left firm.

Marc Faber's Picks
Investment	Ticker	1/7/11 Price	12/30/2011	Change
ENERGY
Chevron	CVX	$91.19	106.4	16.70%
ExxonMobil	XOM	75.59	84.76	12.10%
Occidental Petroleum	OXY	96.19	93.7	-2.60%
Chesapeake Energy	CHK	26.95	22.29	-17.30%
SouthGobi Resources	SGQ.Canada	C$13.50	C$ 6.00	-55.60%
SWISS INSURANCE STOCKS
Zurich Financial	ZURN.Switzerland	248.80CHF	212.50 CHF	-14.60%
Swiss Life	SLHN.Switzerland	142.7	86.4	-39.50%
Swiss Re	SREN.Switzerland	52.6	47.87	-9.00%
GOLD
Newmont Mining	NEM	$56.89	60.01	5.50%
Buy: Barrick Gold	ABX	49.1	45.25	-7.80%
Sell: Barrick Gold options*		4.15
ASIAN STOCKS
Chang Mai Ram Medical**	CMR.Thailand	46.00baht	50.00 baht	8.70%
AEON Thana Sinsap	AEONTS.Thailand	32.5	28.5	-12.30%
MCOT	MCOT.Thailand	29	26.75	-7.80%
Ascott Residence Trust	A68U.Singapore	S$ 1.24	S$ 0.99	-20.20%
JAPANESE STOCKS
Nomura Holdings	NMR	$6.52	$2.98	-54.30%
NTT DoCoMo	DCM	17.11	18.35	7.20%
Mizuho Financial	MFG	3.88	2.68	-30.90%
Mitsubishi UFJ Financial	MTU	5.31	4.19	-21.10%
OTHER
Market Vectors Gulf States Index	MES	$24.13	$19.56	-18.90%
Oslo Bors	OSLO.Norway	77.00NOK	59.00 NOK	-23.40%
*July 2011 50 calls were trading at $4.15 on 1/7/11 and the stock traded at $50.25 on call expiration date.
**Removed pick in June; stock was up 41.3% through 6/6/11.

Mario Gabelli's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
Genuine Parts	GPC	$50.98	$61.20	20.00%
National Fuel Gas	NFG	68.39	55.58	-18.70%
Fortune Brands*	BEAM	61.47	68.26	11.00%
Sara Lee	SLE	17.43	18.92	8.50%
Madison Square Garden	MSG	24.93	28.64	14.90%
Energizer Holdings	ENR	72.3	77.48	7.20%
Thomas & Betts	TNB	47.6	54.6	14.70%
Crane	CR	41.65	46.71	12.10%
Millicom International Cellular**	MIICF	95.98	100.99	8.60%
U.S. Cellular	USM	49.52	43.63	-11.90%
Brink's	BCO	26.76	26.88	0.40%
2011 Roundtable Report Card

*Fortune Brands changed its name to Beam in October 2011 and spun off its security business as Fortune Brands Home & Security (FBHS). Price change reflects a 12/30/11 closing price of $51.23 for BEAM and $17.03 for FBHS.
**Price change adjusted to reflect $3 special dividend paid in December 2011

Bill Gross's Picks
	Ticker	1/7/11 Price/Yield	12/30/11 Price/Yield	Total Return
FUND
Pimco Corporate Opportunity Fund*	PTY	$17.17/12.0%	$17.37/11.9%	13.20%
Company
Annaly Capital Management	NLY	$17.78/14.4%	$15.96/14.2%	3.50%
*Includes special dividend.

Fred Hickey's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
Sprott Physical Gold Trust	PHYS	$11.85	$13.80	16.50%
Yamana Gold	AUY	11.86	14.69	23.90%
Newmont Mining	NEM	56.89	60.01	5.50%
eBay	EBAY	27.7	30.33	9.50%
Microsoft	MSFT	28.6	25.96	-9.20%
BONDS		1/7/11 Price/Yield	12/30/11 Price/Yield
2-Yr Canadian Government Bonds		$99.61/1.7%	$100.10/0.95%

Archie MacAllaster's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
Manulife Financial	MFC	$17.75	$10.62	-40.20%
Hartford Financial Services Warrants	HIG/WS	19.11	9.14	-52.20%
Wells Fargo	WFC	31.5	27.56	-12.50%
MetLife	MET	46.07	31.18	-32.30%
Delta Air Lines	DAL	13	8.09	-37.80%
Allied World Assurance	AWH	58.23	62.93	8.10%

Oscar Schafer's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
Sensata Technologies Holding	ST	$30.47	$26.28	-13.80%
NXP Semiconductors	NXPI	22.92	15.37	-32.90%
Hertz Global Holdings	HTZ	14.39	11.72	-18.60%
Quantum	QTM	4.3	2.4	-44.20%
Mako Surgical	MAKO	14.1	25.21	78.80%

Meryl Witmer's Picks
Company	Ticker	1/7/11 Price	12/30/2011	Change
Rockwood Holdings	ROC	$39.67	$39.37	-0.80%
Tronox	TROX	94.5	120	27.00%
Six Flags Entertainment	SIX	28.29	41.24	45.80%
Collective Brands	PSS	20.94	14.37	-31.40%
Spansion	CODE	20.88	8.28	-60.30%

Felix Zulauf's Picks
LONG	Ticker	1/7/11 Price	12/30/2011	Change
CBOE VIX futures*		$21.00	$27.15	29.30%
iPath DJ-UBS Grains Subindex Total Return ETN	JJG	51.12	45.03	-11.90%
Uranium Participation	U.Canada	C$8.05	C$ 5.62	-30.20%
SHORT		1/7/11 Price	12/30/2011
Italian government bond futures**		€ 109.10	€ 91.61	-16.00%
Euro Stoxx Bank Index futures**		158.9	99.2	-37.60%
*February 2011 contract and February 2012 contract
**March 2011 contract and March 2012 contract

Sources: Bloomberg, Pimco

CNBC adds mentor Dan Sheridan to OPTIONS ACTION program Dec. 30

2011-12-27T05:09:00.000-08:00

Dan Sheridan, options mentor, makes his first appearance on CNBC's OPTIONS ACTION this Friday, December 30, 2011.

SHOW TIMES

Fridays, 5p ET
Saturday, 6a ET
Sunday, 6a ET

Set your DVR.

More about Dan and his mentoring program.

Commercial net short drops 12% in todays' COT

2011-12-23T12:53:00.000-08:00

We're speaking of gold futures. The last time commercials so lightened up on their short hedges (end of September), gold bulked up about 150 molto pronto in the subsequent weeks. This is not an ironclad promise the yellow metal will repeat the performance right here, right now, and there are distinct deflationary pressures weighing on gold just now, but we find this indicator to be meaningful, and a year-end spurt in gold would be much in character with the perverse nature of the markets, i.e. a rally now that all the guru's (Gartmann et al) have said the "bull is dead," "I've sold all my gold," etc. etc. etc.

(See earlier posts here.)

Speaking of gold, that's what the three kings brought the young and future King, gold, incense and myrrh. Read about the significance of these gifts.

Merry Christmas to all our readers.

GOLD	COT REPORT	COMMERCIALS NET SHORT
1605.00	12/23/11	164,554
1597.50	12/16/11	186,217
1715.00	12/9/11	201,500
1745.30	12/2/11	193,545
1688.50	11/25/11	192,413
1719.00	11/18/11	204,163
1773.00	11/11/11	196,935
1749.00	11/4/11	182,400
1744.40	10/28/11	168,114
1638.70	10/21/11	159,153
1680.00	10/14/11	168,478
1652.00	10/7/11	164,751
1624.80	9/30/11	166,683
1647.00	9/23/11	197,628
1809.60	9/16/11	210,468
1859.40	9/9/11	227,714
1881.90	9/2/11	217,355
1813.70	8/26/11	230,436

Working on two features for trade press

2011-12-06T13:36:00.001-08:00

One condor trader, one calendar, completely different approaches, both successful. More on these later....

Pfizer: An Option-Enhanced Approach

2011-11-30T04:56:00.000-08:00

We have just contributed our first feature to Seeking Alpha:

http://seekingalpha.com/article/310892-pfizer-an-option-enhanced-approach

We invite you to give it a look.

Score one for our COT Tracker: Option Wizard® Trading Method Gold

2011-11-01T04:19:00.001-07:00

In our last post, we said:

Short term? OPTION WIZARD TRADING METHOD GOLD is signaling that a short term bottom might be in via a precipitous drop to below 200,000 contracts in commercial net short positions as follows. See below)

Gold was $1624 when we wrote those words. The situation didn't feel bullish, it felt more like everything was going to fall off a cliff, Europe, metals, stocks, bonds.

Le Grande Implosion seemed to be at hand.

Nevertheless, the hard, cold numbers of Option Wizard® Trading Method Gold won the day. Here we were, not even 30 days later, as of Friday, Oct. 28 close: $1,743.40, when these words were written (the market has since backed off).

Plus 7.2%, one month (or so) gain.

Maybe Ms. Gisele Bündchen has changed her payment preferences since her last and famous pronouncement?

Krugerrands.....Maple Leafs anyone....? Gisele, please write, tell me what you're thinking....

Next for gold

2011-10-02T10:25:00.000-07:00

As little as four years ago, there was no financial hand-wringing surrounding Europe. World financial angst was concentrated on the U.S. dollar. Remember when supermodels demanded to be paid not in dollars, but in Euros? Seems like prehistory now....

Now it seems the whole world is watching the Euro's weakest link, Greece. When, not if, it defaults, will it take down Euro banks, governments....? When they fall into the Atlantic, will the ensuing tsunami submerge our own shores...?

Which financial phenomenon will play the role of Grim Financial Reaper, Deflation or Inflation? Or will we continue to soldier on, wobble on, in the uneasy equilibrium beyond these two cosmic forces?

And what of gold?

Of the long term, we confess we don't know, save for the famous words of one noted economist, that in the long term, we'll all dead (fairly obvious, but J. M. Keynes surely got a lot of quotes out of it.)

Short term? OPTION WIZARD TRADING METHOD GOLD is signaling that a short term bottom might be in via a precipitous drop to below 200,000 contracts in commercial net short positions as follows.

Gold	Change	Date	COMMERCIALS NET SHORT
1624.80	-22.20	9/30/11	166,683
1647.00	-162.60	9/23/11	197,628
1809.60	-49.80	9/16/11	210,468
1859.40	-22.50	9/9/11	227,714
1881.90	68.20	9/2/11	217,355
1813.70	-32.70	8/26/11	230,436
1846.40	101.20	8/19/11	248,847
1745.20	86.90	8/12/11	249,206
1658.30	33.40	8/5/11	287,634
1624.90	22.50	7/29/11	282,973
1602.40	8.30	7/22/11	263,814
1594.10	50.10	7/15/11	244,249
1544.00	57.70	7/8/11	202,002
1486.30	-13.30	7/1/11	208,755
1499.60	-37.90	6/24/11	251,247
1537.50	5.00	6/17/11	237,429
1532.50	-9.80	6/10/11	247,684
1542.30	6.80	6/3/11	240,508
1535.50	22.00	5/27/11	217,237
1513.50	19.80	5/20/11	206,949
1493.70	1.00	5/13/11	221,581
1492.70	-73.00	5/6/11	240,102
1565.70	60.70	4/29/11	248,994
1505.00	18.60	4/22/11	266,548

It may be instructive to look at what happened the last time commercial net short's declined to this level.

Gold	Change	Date	COMMERCIALS NET SHORT
1486.40	11.50	4/15/11	253,688
1474.90	46.30	4/8/11	258,665
1428.60	-1.60	4/1/11	240,769
1430.20	10.50	3/25/11	224,799
1419.70	0.20	3/18/11	220,154
1419.50	-10.00	3/11/11	247,464
1429.50	20.90	3/4/11	250,596
1408.60	19.50	2/25/11	231,806
1389.10	33.20	2/18/11	218,626
1355.90	7.00	2/11/11	209,911
1348.90	11.00	2/4/11	193,197
1337.90	-4.00	1/28/11	197,483

About $150 to the plus for gold, from January to April.

However, having pointed these situations out:

Could gold revisit its recent low? Could it move sideways for an extended time? Yes, and yes. Could it make new low's? Yes, again. With Europe primed and awaiting crisis, anything and everything is possible. But the commercials (producers) tend to have the best handle on the market, and this indicator tends to work over time.

That it doesn't "feel right" after the recent drubbing the shiny metal has taken is perhaps another powerful endorsement. That some of the gold miners turned up or acted firm Friday, when gold itself was struggling, is another positive. Historically, miners have tended to lead the actual metal....

October SFO magazine will include our review of new Excel for options book

2011-09-06T11:12:00.000-07:00

Our review of Microsoft Excel for Stock and Option Traders: Build Your Own Analytical Tools for Higher Returns by Jeff Augen is slated for October SFO magazine. (Free subscription)

OWSOSB straddle: + 29% 13 days

2011-08-01T12:31:00.000-07:00

Credit: Option Wizard® Simplified Options Strategy (SOS) Backtester.

7/19/2011 11:06:54 BOT SPY 100 AUG 11 133 PUT @3.25 NASDAQ
7/19/2011 11:17:19 BOT SPY 100 AUG 11 133 CALL @1.96 CBOE
8/1/2011 13:00:23 SOLD STRADDLE SPY 100 AUG 11 133 CALL/PUT @6.20

Potential for snapback rally if D.C. avoids ritual suicide....I'm thinking they will....we'll see, in any case, it is the right thing to do and the right time to exit....

SPY from 135 handle to 131 in a heartbeat

2011-07-12T00:25:00.001-07:00

Starting from June 28, overbought situation in SPY as "described" by new Option Wizard® Simplified Options Strategy (SOS) Backtester.

The "red lights" were "on":

94	22	286	Tue-28-Jun-11	129.61
96	41	314	Wed-29-Jun-11	130.72
96	66	352	Thu-30-Jun-11	131.97
98	90	432	Fri-1-Jul-11	133.92
95	97	479	Tue-5-Jul-11	133.81
96	97	481	Wed-6-Jul-11	133.97
93	97	478	Thu-7-Jul-11	135.36
67	93	449	Fri-8-Jul-11	134.4
8	81	359	Mon-11-Jul-11	131.97

Backtesting Options Strategies

2011-07-01T06:13:00.000-07:00

Our feature appears in July issue, TECHNICAL ANALYSIS OF STOCKS AND COMMODITIES. Page 38-41. Available at newsstands or traders.com.

When men weep and gnash their teeth: The Next Financial Crisis Will Be Hellish And It’s On Its Way

2011-06-07T09:42:00.000-07:00

According to author Addison Wiggin, we haven't solved a thing (or learned a thing).

e.g. 51:1 leverage at the Fed. A 2% move wipes out our Central Bank.

Forbes via 321gold.com. Invite you to read and ponder......

Feature slated: "Sample Variance" for options backtesting

2011-04-28T18:59:00.000-07:00

Our feature "Sample Variance" will appear in the July 2011 issue of Technical Analysis of Stocks and Commodities. It covers how to use this approach to quickly and easily backtest options strategies, as does our newest product, Option Wizard® Simplified Options Strategy (SOS) Backtester.

Option Wizard® Simplified Options Strategy (SOS) Backtester shows that despite earthquakes, tsunami's and nuclear catastrophes, probabilities prevail

2011-03-19T10:55:00.001-07:00

On Wed. March 16, 2011, we used the new Option Wizard® Simplified Options Strategy (SOS) Backtester to determine some expiration probabilities for SPY.

Previous close: SPY 128.56 Tues Mar 15, 2011

THE PROBABILITIES FOR SPY CLOSE 2 DAYS LATER:


136	0.79%
134	1.97%
132	6.71%
130	22.11%
128	54.64%
126	11.69%
124	4.11%
122	1.66%
120	0.95%
118	0.63%

So where did it close, Friday, March 18, 2011 -- options expiration?

127.76

Very near our highest probability 128, which Option Wizard® put at 54% probability. Doesn't mean SPY couldn't have closed at 136 or 118, it could have. Theoretically. But where should we put our confidence? Where should we place our positions.

Btw, I mentioned this exercise to a colleague as I was doing it. He is a financial engineer, Chicago firm, fan of fat tails, black swans, and N. Taleb. He scoffed. I understood, he had/has a point.

Still, even in a week (a prior month) of

Big moves, bull & bear
Aftermath: Earthquake, 5th worst
Aftermath: Tsunami
Ongoing and raging and worsening nuclear catastrophe

It is perhaps nothing short of amazing that plain, vanilla probabilities --prevailed.

OWTM Gold signal update -- still climbing....

2011-03-05T12:14:00.000-08:00

1429.50	3/4/11
1408.60	2/25/11
1389.10	2/18/11
1355.90	2/11/11
1348.90	2/4/11
1337.90	1/28/11
1341.90	1/21/11

Signal update: gold (good), SPX (too early)

2011-02-19T01:38:00.000-08:00

Since our Jan. 21, 2011 call, looking for a near-term bottom in gold, and based on our program Option Wizard® Trading Method Gold, after a rather slight $4 more to the downside, we have been some $48 to the good on gold:

1389.10	2/18/11
1355.90	2/11/11
1348.90	2/4/11
1337.90	1/28/11
1341.90	1/21/11

On Jan. 7, 2011 we posed the question: is the SPX running out of steam?

7-Jan-11

1,271.50

-2.35

-0.18%

Now we have our answer: no...at least, not yet. (1343.01, close, Friday, February 18, 2011.) And the way things are going, we could as easily pose the question, will the market ever go down again? We think we know the answer to that one: a) eventually and b) when you least expect it and c) when everyone is "all in." Again, stay tuned. We will be.

New: two-click options strategy backtesting

2011-02-04T06:57:00.000-08:00

Say you're interested to initiate a condor or calendar or butterfly on, let's say, the RUT (Russell 2000), but you'd really like to know how many times it has moved more than, say, 6%, in say, 20 days, over the last 5 years.

And how does that compare to the SPX or SPY --- or the DIA, or QQQQs? Which trade is best -- in terms of "variance?" Actual market movement?

Now, you can find out in seconds via the new Option Wizard® Simplified Options Strategy (SOS) Backtester.

This will be of special interest to those among the options community who have spent hundreds of hours (literally) clicking through data, day-by-day, in other programs -- and we know there are legions of you other there (and we have been among you).

We use sample variance, and the (still amazing) power of Microsoft Excel and Visual Basic.

More info...

Gold nearing a bottom?

2011-01-21T12:49:00.000-08:00

This indicator is not foolproof, just one of many indicators. Still, over time, the big commercials have an excellent track record. At high net shorts, the market is poised to decline; at relatively lower net shorts, the market is poised to bottom, and perhaps rise.

For your consideration, (you can purchase the full file from the OW store):

		COMMERCIALS NET SHORT
1341.90	1/21/11	206,471
1359.10	1/14/11	225,064
1369.60	1/7/11	254,582
1421.20	12/31/10	259,770
1384.00	12/24/10	251,808
1375.50	12/17/10	268,135
1387.10	12/10/10	278,673
1408.50	12/3/10	270,469
1364.00	11/26/10	263,893
1352.20	11/19/10	264,908
1368.40	11/12/10	290,953
1394.20	11/5/10	276,612
1358.10	10/29/10	282,435
1327.70	10/22/10	293,082
1366.90	10/15/10	300,022
1345.90	10/8/10	299,498
1317.40	10/1/10	302,740
1297.00	9/24/10	292,308
1274.30	9/17/10	292,939
1246.70	9/10/10	287,680
1247.70	9/3/10	284,561
1235.90	8/27/10	264,300
1227.50	8/20/10	249,570
1215.40	8/13/10	230,980
1207.75	8/6/10	222,029
1182.10	7/30/10	227,555
1188.30	7/23/10	215,664
1190.80	7/16/10	248,348
1209.60	7/9/10	249,142
1211.70	7/2/10	289,956
1254.40	6/25/10	288,916
1257.00	6/18/10	278,944
1226.90	6/11/10	273,577
1217.40	6/4/10	267,623
1216.00	5/28/10	268,379
1177.00	5/21/10	279,744
1234.80	5/14/10	282,644
1209.20	5/7/10	271,586
1178.30	4/30/10	265,522
1155.20	4/23/10	257,396
1135.50	4/16/10	263,484
1161.00	4/9/10	244,906
1127.00	4/2/10	207,691
1107.80	3/26/10	223,823
1106.60	3/19/10	242,295
1102.60	3/12/10	251,787
1132.00	3/5/10	251,537
1116.70	2/26/10	238,044
1117.70	2/19/10	219,878
1091.20	2/12/10	213,427
1065.30	2/5/10	244,579
1080.60	1/29/10	248,618
1092.30	1/22/10	273,647
1130.40	1/15/10	282,488
1136.60	1/8/10	278,551
1095.00	1/1/10	278,942
1104.50	12/25/09	285,665
1112.50	12/18/09	303,791
1115.00	12/11/09	299,186
1161.40	12/4/09	308,231
1166.50	11/27/09	306,104
1150.10	11/20/09	281,546
1118.50	11/13/09	282,784
1097.00	11/6/09	283,852

Scan Wizard™ poses the question: is the SPX rally losing steam?

2011-01-09T15:57:00.000-08:00

The SPX has pressed mightily ahead since Dec. 1. When the optimized slow Force Index (here still positive 3.7 million) turns negative, Scan Wizard™ will go short. Are we close? Another potential warning sign is the unusually low volatility, at least for recent years, which Scan Wizard™ measures at 13.3% (100 DMA).

Our feeling is with the slow turn in employment, improvement in corporate profits, etc. the retreat may be only a classic 5% to 10% bull market correction, but that's still 60 to 120 points. Could we go back to 1210, or even 1150? So far the bull has mightily resisted any effort to rein him in. Stay tuned, meanwhile, we invite your free Scan Wizard™ trial.

Time	Last	Change	% Change	Slow Force(12)	L/S Force	P/L
7-Jan-11	1,271.50	-2.35	-0.18%	3,712,409,367	-	-
6-Jan-11	1,273.85	-2.71	-0.21%	6,480,216,769	-	-
5-Jan-11	1,276.56	6.36	0.50%	11,961,571,555	-	-
4-Jan-11	1,270.20	-1.67	-0.13%	6,821,729,210	-	-
3-Jan-11	1,271.87	14.23	1.13%	15,948,844,587	-	-
31-Dec-10	1,257.64	-0.24	-0.02%	4,028,670,501	-	-
30-Dec-10	1,257.88	-1.9	-0.15%	4,142,333,174	-	-
29-Dec-10	1,259.78	1.27	0.10%	4,994,736,185	-	-
28-Dec-10	1,258.51	0.97	0.08%	7,316,390,020	-	-
27-Dec-10	1,257.54	0.77	0.06%	8,690,868,649	-	-
23-Dec-10	1,256.77	-2.07	-0.16%	9,606,399,685	-	-
22-Dec-10	1,258.84	4.24	0.34%	11,227,631,560	-	-
21-Dec-10	1,254.60	7.52	0.60%	12,109,166,162	-	-
20-Dec-10	1,247.08	3.17	0.25%	9,774,479,404	-	-
17-Dec-10	1,243.91	1.04	0.08%	14,249,844,586	-	-
16-Dec-10	1,242.87	7.64	0.62%	25,362,403,019	-	-
15-Dec-10	1,235.23	-6.36	-0.51%	14,886,418,601	-	-
14-Dec-10	1,241.59	1.13	0.09%	19,292,469,457	-	-
13-Dec-10	1,240.46	0.06	0.00%	17,465,106,521	-	-
10-Dec-10	1,240.40	7.4	0.60%	24,782,592,298	-	-
9-Dec-10	1,233.00	4.72	0.38%	15,784,798,546	-	-
8-Dec-10	1,228.28	4.53	0.37%	13,582,022,169	-	-
7-Dec-10	1,223.75	0.63	0.05%	11,467,704,151	-	-
6-Dec-10	1,223.12	-1.59	-0.13%	16,779,695,900	-	-
3-Dec-10	1,224.71	3.18	0.26%	18,740,053,058	-	-
2-Dec-10	1,221.53	15.46	1.28%	15,660,536,203	-	-
1-Dec-10	1,206.07	25.52	2.16%	12,667,703,010	LONG	65.43
30-Nov-10	1,180.55	-7.21	-0.61%	-13,057,740,116	-	-
29-Nov-10	1,187.76	-1.64	-0.14%	-10,178,049,070	-	-
26-Nov-10	1,189.40	-8.95	-0.75%	-8,569,272,688	-	-
24-Nov-10	1,198.35	17.62	1.49%	-4,940,900,931	-	-
23-Nov-10	1,180.73	-17.11	-1.43%	-21,140,261,108	-	-
22-Nov-10	1,197.84	-1.89	-0.16%	-8,363,546,215	SHORT	-8.23

Book review: Iron Condor: neutral strategy for uncommon profit

2011-01-05T09:45:00.001-08:00

by ERNIE ZERENNER & Michael Phillips, Marketplace Books, Glenelg, Maryland

Our favorite part of Iron Condor: neutral strategy for uncommon profit was the track record. We are rather partial to track records, not everybody provides one, but they surely should. The authors' track record was somewhat buried in Chapter 6, in fact the thought occurred that this should be moved up to Ch. 1 to command the reader’s attention and diligence going forward. It cites results from 2005 to 2009, as follows:

Meridian 2-4% max expected profit per month, yearly performance: 85% 41% 13% 29% 43%
Optimum 6-8% max expected profit per month, yearly performance: 79% 81% 45% 53% 107%

Otherwise, a rather general book, with a few good nuggets strewn throughout, that seems more an introduction to the author’s newsletters than hard-core instruction.

On page 3, the authors begin as follows: “A significant amount of stock option literature tends to focus heavily on the Greeks; Delta, Gamma, Vega, Theta, etc. The Greek-related material proffered by many financial authors sounds sophisticated and intelligent, but in reality, an average reader is often left confused and bewildered by the material presented. In this book, discussions related to the “Greeks” will be avoided in order to offer practical information that any reader can understand.”

Not only are Greeks not employed, neither are formulas for things the authors use like “probability of success.” We were concerned; it's a bit like your pilot saying right before take off, I dispense with all this instrumentation, I prefer to fly 'visual only.' Still, somewhat hesitantly, knowing better, we boarded the flight.

We knew full well that only anecdotal generalities can follow without these precise mathematical tools, greeks and probabilities. And they do.

The risk management system here is based on a concept of exiting at 1% from the short strike, e.g. If your short put strike is 1100 on the SPX, on the way down, take off the short put credit spread at 1111. This would be nearly 50 delta, compared to other mentors’ teaching about exiting or rolling at 25 delta, so this method is going to generate a lot more short term pain, i.e. paper losses. This is not explained.

While the pace of change in the options industry is fairly staggering, and accelerating, we must point out here that the text is abundant with obsolete information, including options symbology, and commissions (no mention of low rates from firms like OptionsHouse), and capability (there is exactly one mention of thinkorswim, which has emerged, according to most serious options traders, as the tech leader in the options brokerage field, and no discussion of what TOS can do.) The claim, “As of the writing of this book, optionsXpress and tradeMONSTER are known to provide contingent orders based on the price of the underlying equity,” leaves out TOS, and OH. TOS, e.g., has possibly has more capability in contingent orders than anyone, extending to volatilities, technical analysis, bids, asks, marks, etc.

In place of due diligence, we have a generous helping of self-serving direction to the author’s own software: “Investors should carefully investigate and evaluate brokers and third-party option tools, like PowerOptions (theirs), for trading iron condors.” Also: “Investors new to options might also consider an advisory newsletter service, like PowerOptionsApplied (theirs again).” No mention of anyone else, the words “Optionvue,” “Sheridan,” or “mentor” don’t arise here.

Curious that the last chapter mentions double diagonals, and butterflies, but not calendars, one of the easiest, most durable, and commission-light vehicles. Word "calendar" not found in text.

In recent months, many iron condor exponents have lamented the low volatilities that make adjusting (“rolling”) an iron condor position an unprofitable exercise. No discussion of that situation here, sorry to say.

This text is a reminder that the options strategist has to undertake his or her due diligence as much towards the reading matter of which they partake as they do with respect to market positions. There are a couple of things worth considering, but by and large, there is simply not enough here to justify the time or the $19.95 price (discounted on Amazon).

Postscript re track records: here's another track record, this one from the Options Linebacker service. Every such mentor should have a record.html page or similar, wouldn't you agree?

Best of 2010: The Quants by Scott Patterson

2011-01-01T12:42:00.000-08:00

The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, by Wall Street Journal reporter Scott Patterson, is the inside baseball story of the quest for The Truth on Wall Street. That is, the fountain of money that never stops flowing.

-- As made manifest from the odds, the probabilities.

-- As interpreted by the "quants," traders who believed, above all else, in the numbers, data, statistics.

And why not? That's not immediately pejorative, though Wall Street has gotten a very, very bad reputation of late. After all, odds, probabilities, are the stuff of everyday life. We don't think about them consciously. But they're there. You and I cross the street -- now -- because we see the odds of getting hit are nil. We didn't cross 10 seconds ago because we saw two semi's roaring towards us. We don't even think about these as "probabilities," per se. But they are. And for those who do think about probabilities, and in connection with financial markets, from a vast resource of education (preferably Phd) and erudition and experience, the rewards can be staggering, as in a million per minute.

Quant trading started in -- wait for it -- Las Vegas, where odds-making (not image, sorry Andre, our favorite LV homebay) is everything. This is where card counting got its start. Card counting is just probability analysis, on the fly. And card-counting, writ large, is quant trading. Card counting pioneer, Ed Thorp, was the progenitor of quant trading. Thorp begat Ken Griffin, Citadel. And on and on it went (and goes).

Some of the other featured players here include:

Cliff Asness, Goldman Sachs, Global Alpha, group leader, and founder AQR
Boaz Weinstein, Deutsch Bank
Peter Muller, Morgan Stanley

Author Patterson wields a deft pen, and never fails to grab the reader at the end of a section or chapter: you have to keep reading. Very entertaining. To peel back the layers of secrecy and expose the histories, successes, failures, personal peccadilloes -- the whole story of 'the quants' -- is a very great journalistic accomplishment. THE QUANTS is not an indictment, per se, of the entire enterprise of quantitative trading, but does indict extreme leverage and the perils it presents. Interestingly, Patterson follows the founder of the practice, Ed Thorp, who turns away from over-leverage, and generates excellent returns without it.

So, as per usual with Wall Street, we come back to the question of greed. Greed is good? Maybe like alcohol or fire or nuclear energy? A little bit, the right place, the right time. Managed. To overdo here is to destroy, and the problem is, we're all on the hook for it. THE QUANTS is big, intriguing, messy, clear, ambiguous, and provocative -- just like the financial industry it covers. It is, quite simply, a must read.

PS: Talk about "destroying Wall Street", as we were reading this volume, the Dow experienced the infamous May 6, 2010, "Flash Crash," for which many explanations have been offered, but the truth? We are still waiting; Wall Street doesn't tell all its secrets, not even to Mr. Patterson. As author Patterson wraps it up: "here come the quants." Indeed.

PPS We received from a Chicago quant this youtube.com video. Another cautionary quant tale, a good one, told in large part by a quant-turned-oysterman (he lives off his interest) and we recommend it to you:

Quotable:

"Beauty is the right level of complexity."
"Condensing 300 pages of prose to one equation = beauty to a mathematician."
"A major rethink is required if the world is to avoid a major mathematician-led market meltdown."

New list of blogs

2010-12-29T11:27:00.000-08:00

Invite you to give a look to http://option-wizard.com/blog