September Results

This morning, I closed my final September options position. See this post for info on when I entered.

Here is a list of the results and some commentary on each:

$SPY Long Double Diagonal (sept/oct 94/95/106/107)

entered on 8/12 @ 1.18 debit

risked 11% of my portfolio

closed on 9/2 @ 1.65 credit

Net result after commissions: 17% profit on risk capital, 21 days held.

Notes: No adjustments were made.

$DIA Long Butterfly (Sept 88/93/98)

entered on 8/12 @ 1.65 debit

risked 8.5% of my portfolio

closed on 9/2 @ 2.25 credit

Net result after commissions: 29% profit on risk capital, 21 days held.

Notes: No adjustments were made.

$SPY Short Iron Condor (Sept 90/92/110/112)

entered on 8/11 @ .35 credit

risked 8.5% of my portfolio

covered short call option on 9/2 @ .04 debit

covered short put option on 9/10 @ .05 debit

Net result after commissions: 12% profit on risk capital, 30 days held.

Notes: only the short options were exited. I still maintain long Sept 90 puts and long Sept 112 calls at zero cost basis. These are essentially free lottery tickets in case the market makes an EXTREME move between now and September expiration (7 days from now).

$QQQQ Long 1-month Calendar (Sept/Oct 40 puts)

entered on 8/12 @ .49 debit

risked 5% of my portfolio

closed on 9/11 @ .56 credit

Net result after commissions: 4% profit on risk capital, held 30 days.

Notes: no adjustments were made.

Summary:

The returns on these four positions averaged 15.5% each and the average hold period was 26 days. As a whole, their gains represented a 5.6% return for my portfolio.

None of these positions required any adjustments, owing to the fact that the stock indexes mostly traded in a range during this time period. A strong move up in the 5 most recent trading days negatively effected the calendar spread in $QQQQ, but thankfully we were still able to exit at a small profit.

One position that was entered in August, but still on the books is a 3-month calendar spread. The september short strike was rolled into October for a .52 credit. This position -when closed - will be counted towards November results.

PS. Still waiting on a calender spread for October to be executed. Once this gets done, I'll publish my open positions for October expiry.

Activity =/= Profitability =/= Success

A lesson I've learned repeatedly throughout my trading career is: Do not confuse Activity or Action with Profitability.

Too many times in the past when I've struggled, my natural response was to DO MORE: More action. More activity. More analysis. More study. More volume. More more more....

And while perhaps short term the results were favorable or encouraging, long-term the results would inevitably be the same: FAIL - back to the drawing board.

Recently, I found myself defending against my natural impulses again to DO MORE. Nearly all my September options positions have drawn to a close - with good results. (As soon as my last September positions are closed, I will post the results). But I find myself trying to tweak my well designed system.

I see that I have had great results in the past 6 weeks, but I worry that perhaps I'm tricking myself because the market pretty much fell asleep (which is good for options income strategies that maximize profit when the market goes nowhere). I've had great success targeting 30 - 40% gains in my positions. But I'm asking myself: "Did I get lucky?" "Am I being too greedy?" "Should I target 10% position gains instead - aiming for a high percentage of wins?"

To this point, I've successfully resisted the urge to tinker with my system. It's worked so far, don't mess with it. Let it prove to me that it needs to be fixed first.

The best way for me to fight these urges is to fill my day with other activities. To this end, I've been pretty successful. The beauty of my trading strategy is that it doesn't require me to monitor the market while it is open. So, I've used this time to immerse myself in the vast interweb of amazing knowledge, education, and insight within the blogosphere. I've also gotten involved with a start-up restaurant here in Chicago, as well as networked with some others in the Chicago trading scene to investigate opening a trading office where I could get involved in trader education, recruiting, risk-management, systems development, and mentorship - something that has always interested me.

I also have been reading books a lot more recently, which is a good escape - especially when the topics being read are educational, personal improvement, or inspirational in nature. It helps keep me focused and grounded.

It has often been said that in trading, the hardest part is "sitting on your hands and doing nothing". And this is in most cases the most profitable approach. I need to remind myself of this, and writing this post is one way I've helped remind myself of it's importance.

Stay focused on the long-term results. If I can continue to earn 5-10% returns each month - does it matter how much activity it required to achieve it? Does it matter how many trades I did, or how many hours I stared at a trading screen? NO.

The only thing that matters is the bottom line.

Chicago Urban Planners: Time to Switch to Eastern Time Zone

Maybe its the cool, rainy weather of the last couple days here in Chicago. I know the calendar says August 28... but it feels like the middle of fall. And the sun sets tonight at 7:31pm! What???? Where is my evening sunshine? Where did summer go?

I've lived in Chicago for over 6 years now, and I have a growing distaste for the Central Time Zone. Well, to be precise, I have an issue with Chicago's place within it.

For those who are geographically challenged, Chicago sits on the extreme eastern edge of the central time zone along the southwestern edge of Lake Michigan (you can view the above map). As such, Chicago enjoys early mornings, but then suffers from early evenings. This is frustrating in the summer, and damn shitty in the winter!

At some point in history, some city or state fathers got together and decided that the residents of northwestern Indiana who work in Chicago are inconvenienced by the fact that they live in one time zone, but work in another - even though their commute to work was only a 45 minute drive - and therefore something must be done about this. So the masterminds decided to amend the time zone line (previously the Illinois - Indiana state borders) and move the line east approximately 25 miles to accommodate the Indiana suburbs that service Chicago (again, see above map). Seems reasonable enough.

However, why keep it like that? Instead of moving the line 25 miles to the east to accommodate Indiana, why don't we instead shift the line about 25 - 50 miles WEST of the state line around Chicago's suburbs and exurbs and then put us ALL in the eastern time zone?

A small list of the benefits:

• Later daylight which everyone enjoys. No more leaving work in January at 5pm to a PITCH BLACK night.
• Greater energy efficiency - less time at night for appliances (lights, TVs, air conditioners, etc) to be running.
• Chicago's financial markets which are synced to New York and Boston markets will be on par working hours.
• Television listings would be less confusing.
• More daylight means sunnier dispositions (I'm sure a psychologist more qualified than me can substantiate this somehow).

The two biggest arguments I hear against this idea are these:

• Waking up to a darker morning is hard
• I don't want my children waiting for a school bus in the dark
• Nighttime sporting events will be on later, and I can't stay up!

These are valid arguments I suppose, but here are my thoughts on that:

Yes, waking up in the dark kinda sucks. But I think its a small price to pay for more daylight hours to enjoy your evening with.

Parents don't want their children going to school in the dark for fear of their safety. Valid concern. However, my argument to them would be: Is your child safer in the dark at 6am or 6pm? The criminal element is far less likely to be active at 6am than at 6pm. So, if we can keep the sun shining a little later in the day, my guess is crime might actually decrease (wild assumption, I'm sure. But the point is, you'll feel safer knowing your kids are coming home from school and soccer practice while the sun is still shining).

As far as the television argument, there used to be a time when this held water. However, in today's TiVo time shifting world, the actual timing of television broadcasts is far less important. I can only speak for myself, but 95% of the television I watch now are programs (shows, sporting events) which I recorded and am watching at a far more convenient time for me.

I'm sure I'm missing some other important reasons that support keeping the zone as is. I'd love to hear what they are. Please feel free to comment below what some of these issues are. I'd like to compile a real list of pros and cons for presentation to some deciding body some day.

That reminds me: Who would I even talk to about changing this? Who has the authority to make such a change? Any insight on this would be helpful as well.

Ladies and Gentlemen of Chicago, this would seem to me to require minor and simple change to accomplish - as simple as changing your clocks to daylight savings time...and the benefits would FAR exceed the negatives. Anybody with me?

"This is John Galt speaking..."

"The only proper purpose of a government is to protect man's rights, which means: to protect him from physical violence. A proper government is only a policeman, acting as an agent of man's self-defense, and, as such, may resort to force only against those who start the use of force. The only proper functions of a government are: the police, to protect you from criminals; the army, to protect you from foreign invaders; and the courts, to protect your property and contracts from breach or fraud by others, to settle disputes by rational rules, according to objective law. But a government that initiates the employment of force against men who had forced no one, the employment of armed compulsion against disarmed victims, is a nightmare infernal machine designed to annihilate morality: such a government reverses its only moral purpose and switches from the role of protector to the role of man's deadliest enemy, from the role of policeman to the role of a criminal vested with the right to the wielding of violence against victims deprived of the right of self-defense. Such a government substitutes for morality the following rule of social conduct: you may do whatever you please to your neighbor, provided your gang is bigger than his."

This is a snippet from John Galt's address to the nation, taken from Atlas Shrugged by Ayn Rand. If you haven't yet read this book, I suppose there is no need to anymore - you are living it.

This book should be REQUIRED reading for any human attempting to start a business or hold public office. Most business owners are quite familiar with the concepts expounded in this book, whether they've read it or not. Sadly, it seems none of our elected officials (regardless of political affiliation) seem to have even the slightest grasp of what is important.

This book was written in the 1940s and 1950s. The author's prediction of the future state of the world and the state of this country is frighteningly close to what is happening today in slow motion and what our future holds along our current path.

Call me a "Slow Adopter"

You might also call me "Captain Obvious."

I read newspapers. Specifically: Investors Business Daily, Wall Street Journal, and occasionally the local rag Chicago Tribune. And while I'm sure it hurts them to write it, I've read within their pages over the years about the sad decline of readership which is forcing many long-time newspapers to close up shop. The culprit? The evil free environs of this thing Al Gore invented - the Interweb or Internet or something like that. Something that one disgraced Senator (oxymoron?) once said: "...this internet thingee is all just pipes." Sorry I can't remember the Senator's name or what exactly his quote was - but you get my point.

The internet is making everything free. So why pay for a newspaper subscription when the same newspaper publishes all its content online for free? Perhaps here's another name you can call me: "Nostalgic." Maybe I just like getting ink smeared on my fingers and pants. Or maybe its because me first job as a child was as newspaper delivery boy for the Metro Community News and then The Buffalo News in Buffalo, NY. I dunno.

Well...all that changed today.

Surely, I'm not the first to notice this, in fact - I wouldn't be surprised if I was one of the last remaining holdouts. Yes, its true - everything I've ever needed to know can easily and quickly be found free on the internet! And more importantly, I can only be presented with articles I truly want to read.

I've had some time over the last week to really focus on my Trading business. While doing some online research, I've accidentally stumbled upon some very informative and helpful blogs. Reading these blogs has invigorated me and inspired me to seek out other similar blogs. And with each blog I read, I seem to always be coming across a cross-reference to another blog that I then immediately find useful and interesting. This branching out continues and now I'm finding that I have a pretty impressive stable of blogs that I now read almost religiously.

Its gotten to a point where I've now organized my blogs into 4 categories: Trading Blogs, Policy Blogs (politics), Business Blogs, and Thinking/Educational Blogs.

And I've noticed that in spending 30 minutes each morning parsing through this treasure trove of opinions, advice, strategy, and information - I find myself FAR more informed of the world around me than I would spending 2 hours with my newspapers. In addition to being better informed, I also feel like I'm getting EDUCATED each day as well - which I'm sad to say is a rarer occurrence when reading newspapers these days.

Yes, I'm a slow adopter. I know there are millions of "netizens" out there who have smugly known this for years. Sadly, this is just example #185 of how Sean is a slow learner. While I consider myself relatively smart as compared to the average American... my curse is that I learn slowly. Sometimes VERY FRUSTRATINGLY SLOWLY, as my nearly 12 year trading career can certainly stand as example #1.

My IBD subscription ends this week. The WSJ subscription will be ending within a month or two. I don't plan on renewing. Sorry editors - you warned me this day would come.

And finally, here is the site that finally put me over the edge: www.khanacademy.org. This site has the very real possibility of literally changing the way the world educates its citizens. I am BLOWN AWAY. Thanks Sal!!

PS....in a future post, I'll give a list of all the blogs I follow if anyone is interested.

Is the stock market a dead asset class?

It should be no surprise to anyone that I do not consider myself a genius market prognosticator. Many people could have made small fortunes taking the opposite bet against my market predictions in the past - which makes me think: Why make predictions? Why take a bullish or bearish stance?

The real truth of the matter is, the majority of the time, markets are just going sideways. And in fact the stock market is only up or down a single-digit percentage (as measured by the S&P 500) for this entire decade!

Say what you will about the current statists, er politicians, in charge in congress and in the oval office... the way gov't is forcing itself further and further into our everyday lives and stifling business with new regulation upon new regulation and choking its citizens and businesses with inevitably more taxes and higher inflation...the future looks pretty bleak for American business and the stock market to make any more significant advances than it already has off of the March 2009 lows.

As such, it would appear to me that investing directly in the stock market right now would be a suckers' bet. The only strategies that would seem to make any sense are ones that trade for small swings within a range.

This is a major reason why I've adopted my latest approach to trading the markets. My options strategies are designed to be market-neutral. As long as the market doesn't move either up or down a significant percentage from month to month, my positions will achieve maximum profit. If, however, the market makes a significant move in either direction (it inevitably will from time to time), my positions can still profit with proper timely adjustments.

Think of me as an insurance company. I'm taking in premiums from others who are protecting themselves against the risk that the market will have violent swings in either direction. As long as I manage my risk appropriately and take in the proper premiums - in the long-run I should net a nice positive return.

There will still be innovation in America, and the next Google or Intel or Microsoft will most certainly hit the market soon and make fantastic gains for its early investors. But this money will go to the stock pickers - not to the indexers and mutual fund investors. There will always be money to be made for smart hard working stock pickers. As long as there is a market, there is opportunity. It's the buy-and-hold mutual fundies and index investors that will be frustrated by permanently lower rates of return.

Have I given up on America? Emphatically no! However, the reality is we are headed to a permanently slower GDP growth rate and we are at serious risk - long term - of losing our world leadership position as the home of innovation and freedom due to over-regulation and over-taxation.

Until America realizes it IS NOT infallible, this situation will not change. Many of the socialism-inspired ideas being bandied about in Washington have been tried in countries all around the world throughout history. And EVERY TIME it has failed. This is no accident. The mistake I fear America is making is that we think that because we are America - we will not fail. People believe we are the greatest country in the world with the greatest freedoms afforded to its citizens - therefore it is impossible for us to fail. Well, people seem to forget this isn't something we are entitled to. And it isn't something we should take for granted. It is hard work to maintain what made America great. We are slowing chipping away from its greatness.

The people of ancient Rome thought they had the greatest, most enlightened civilization in history. Then they took that for granted and destroyed themselves.

History repeats itself.

Current open positions

According to my plan (as described in the previous post), these are the positions I've established over the past week:

• 3-month Calendar in QQQQ: bought Dec/Sept 39 call spread @ 1.17
• Iron Condor in SPY: sold Sept 90/92/110/112 @ .35
• Butterfly in DIA: bought Sept 88/93/98 calls @ 1.65
• Double Diagonal in SPY: Oct/Sept 94/95/106/107 @ 1.18
• 1-month Calender in QQQQ: bought Oct/Sept 40 put spread @ .49

As adjustment are (inevitably) made, I will list them here.