Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

My Lil’ Options Account

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I trade actively every market of the day of the year, and that trading is within the confines of a hedge fund I manage.

A month ago, however, I opened up a tiny ($10,000) options account for a personal trade here and there. I haven't traded options in a long, long time – – but, for whatever reason, I decided it was time to give it a shot, and I deliberately did so with an amount of money I didn't need to care about.

I'm glad I did, because I find myself in this situation:

+ I started off with a $10,000 account on April 11th;

+ I built it up to a 50% gain last week and, out of the blue, I decided to wire myself back those $10,000 in original funds.

+ Thus, I am left with "pure" profit in the account (which currently is just a shade under $7,000, meaning about a 70% gain in a month's time).

I've only placed a handful of trades in the account, and most of them have (obviously) worked out. I trade conservatively, purchasing deep in-the-money options that don't expire for a while. The irony here is that my "conservative" trading has yielded results like this. It's a nice feeling.

But the far better feeling is this: no one can hurt me in this account. Abby Joseph Cohen can't. Mark Zuckberberg can't. Lloyd Blankfein can't. And, most of that, that disgusting waste-of-life Benjamin Bernanke can't. Because I've got my principal back, you blood-sucking leeches.

I've never done this little "trick" with an account before, in which I extract the principal. And, yes, I realize it's probably a rookie mindset to think of this as "house money". But the cold fact of the matter is that my disposition toward this account is marvelously detached.

I shall keep you posted, from time to time, as to my continued progress on this little psychological experiment of mine.

0514-haters

Hedging Update: Social Media Stocks

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Hey fellow Slopers,

Sorry for being scarce recently — I was under the weather for a stretch, but am back in action now.

After seeing Tim's post today on Zynga and Facebook ("Remember to Get Excited About Facebook's IPO"), I thought I'd take another look at the hedging costs of Zynga and a couple of other currently-public social media stocks. First though, a couple of links related to the Zynga and Facebook that might be of interest.

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Day Trading Tactics! (by mmTesla)

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This post is going to serve as a primer for future posts detailing day trading tactics/analysis, homework, finding your set-ups and eventually breaking down given set-ups that occurred throughout the week. I think the natural progression of posts will be best suited for everyone. This will be geared solely toward the ES, though the same tactics apply damn near everywhere.

First lets examine what you need to pay attention to:

Opening range– Often referred to as the OR, IB or opening 30. Basically it’s the first 30 minutes of market action during regular trading hours.

Why is it important?

Read about the initial balance and opening types in Mind over Markets, or the PDF called 10 o’clock bulls.

What to focus on?

The high and low and of course the application of this context (get to that in later posts). The opening 30 gives a heads up as to who is in charge, if we go to the high of the OR and we get a reversal printed, that means a hell of a lot more than a reversal just occurring somewhere. Again if you read those two books it’ll become abundantly clear.

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In Times Like These (by Mark St. Cyr)

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The late Paul Harvey once said, In times like these it helps to recall there have always been times like these.  I think those words may be more relevant today than the day he coined them.

All across the airwaves and print you'll be bombarded with clarion calls. You must tax. You mustn't tax. The rich are hurting you. The rich will save you. There are no job opportunities. There are now opportunities like never before. Each side yelling and screaming as if things like this have never been seen before. What most never realize is that their view of history begins and ends with the day they were born. Lip service will be given to history, but in the practical application of their own lives its treated as a segment from Mystery Science Theater 3000.

My purpose is not to give you the impression of right or wrong on anything taking place. That decision is up to you. All I'm pointing out is in what some see as 'This time it's different' Thinking with a clear head away from the trumpets can sometimes help in understanding and in lessening the pounding headaches.

We are currently in a malaise of problems stemming from what is now called the 'Great financial collapse of '08” or the 'Great Recession.' We're doomed forever is the call of many.

However we did have a great financial crash and depression in the 1920’s through 30’s. Some of the greatest advancements and tragedies happened after. Airplanes, autos, medicine. Along with World War. But we made it through and I'll contend better than before. However it doesn't start or stop there. For people before us when the 1920’s and 30’s were taking place ce many had seen Civil War, crippling poverty and more. I would imagine many thought the same thing as many of us do right now.
Imagine just how absurd you would sound telling someone at Valley Forge shortly after one of their extremities were just removed because of frostbite (and with no anesthesia) the difficulties we face today. Would you think they would have a little better perspective on things that us?

I personally had the privilege of growing up not only knowing, but living with my Great Grandparents, and Great Aunt. I was able to have first hand accounts of what is like to live and work during the Great Depression, World War 1, along with recounts of their parents (That would be my Great, Great!) trials and tribulations going back as far as picking out family among the war dead during the Spanish-American war.

I was fortunate to have that ability. I often think because I did I'm able to see things just a bit more clearly or to put things into perspective better.

I myself see great opportunities ahead. I am not Pollyanna in my view that it will be clear sailing from here. Rougher waters might lay ahead. But we are captains of our own ships. And you can not, and will not ever find new horizons, new worlds, or new treasures tied up at the docks. Would any weathered captain not set sail for open water because a new crew were hand wringing about what lay ahead because they just witnessed their first hurricane while on land?

If we are truly what many like to call themselves be it entrepreneurs or more. Then chart your course, and set your sail because one thing remains the same.

To quote William H. Shedd, 'A ship is safe in harbor, but that's not what a ship was built for!'

Looking Back At Last Week’s Mini ‘Flash Crash’ In Gold

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Looking Back At Last Week's Gold 'Flash Crash'

Hello fellow Slopers,

Reviewing last week's Slope posts, I noticed Gary Tanashian's bullish guest take on gold last Wednesday ("Why Gold & Why Now?"). Gary reiterated the long-term bullish case for gold in the wake of Tuesday's sell-off. In this weekend's FT, John Dizard's column on the sell off ("Gold flash crash rouses suspicions of witchraft") offered some support for the bullish case, to the extent that it suggested last Tuesday's shock likely wasn't a harbinger of another significant correction.

Dizard's columns are usually worth reading in full, and this one is no exception, but this was his argument in a nutshell: Dizard cited research by fixed income strategist David Goldman. who noted that gold and TIPS are both highly correlated, since “they are both deep out of the money options on catastrophic changes in the price level”; since TIPS didn't react nearly as strongly as gold on Tuesday, Goldman argued that indicated the sell-off in gold wasn't that significant.

Neverthless, for gold longs who want to hedge their bets, at the bottom of this post I've included a screen capture of the optimal puts to hedge the gold-tracking ETF GLD against a greater-than-20% drop over the next several months. Before that, though, a quick reminder about optimal puts, and a look at how the cost of hedging GLD fluctuated last Tuesday, before and after Bernanke moved the markets.

About Optimal Puts

Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. Portfolio Armor (available on the web and as an Apple iOS app) uses an algorithm developed by a finance Ph.D. to sort through and analyze all of the available puts for your position, scanning for the optimal ones.

Hedging GLD With Optimal Puts Last Tuesday — Before And After Bernanke

By coincidence, I happened to look at the cost of hedging GLD Tuesday morning, prior to the Bernanke excitement. I tweeted this from the Portfolio Armor account at the time:

Less than two hours later I noted that the cost of hedging GLD against a greater than 20% drop (from its then-lower price) had jumped more than 50%: