Mostly Dead is Not All Dead

In The Princess Bride Miracle Max explained that mostly dead is not the same thing as all dead. Likewise, I've learned (the hard way) that having indicators that are mostly there is not the same thing as having indicators that are all there.

Patience is not my strong suit. Yesterday, I jumped into a trade that was mostly there because I thought I could get a head start on the move. Of course, I was wrong because the indicators were not all there. I exited with a push only having to pay $30 in round trip commissions.

No trades today, though, because my indicators are only mostly there. (See, I can be taught.) I look forward to things settling down and getting back into some profitable trades. I don't care which way the market decides to move--just pick a direction and get out of this chop.

I'll drink to that! Here's one for being teachable :-)

MOST vs. ALL

mmm ,

Did you mean that you don't have to trust on one indicator ?

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optiontrader101
Did you mean that you don't have to trust on one indicator ?

I mean that if, for example, I am using MACD and RSI as trading indicators, then I should wait for BOTH of them to be signaling a trade and not jump into a trade when only one indicator is signaling.

Robert I love your posts! Today S/O and I had a chance to get into a real money trade on NFLX ( we will trade FP's with E's) but when that option glitch happened we decided that perhaps the market maker was still messing with options so we rode the virtual trade.

I really don't like missing a $1,020 profit but then I wouldnt have like the market maker making a of me.

Just a question, but are the market makers really moving the option prices that much any more? With all the electronic order matching would it not be more likely that the high frequency traders and trading robots are the ones "messing" with the prices? I saw a video on Tasty Trade yesterday where Tom Sosnoff and his guest seemed to be saying that the market maker role is much less prevalent than it used to be.

So I'm in a trade, and the stock has moved up 7 dollars in the last 2 hours, but the option has only gone up $1.40 over this same time period. WT Heck is going on???


Update:
Now, over the last 12 minutes it as jumped 2 bucks higher. Makes me wanna choke someone:-)



Edited 1 time(s). Last edit at 05/21/2014 03:01PM by RichieRick.

RichieRick,

This is common with OTM and ATM options as their deltas are relatively low. Out of curiosity, what type of option was it and where was the delta at?

I don't look at the Delta, so I wouldn't know. It was 3 strikes IN the money calls.

Consider looking at where the delta is on your next trade. This metric is a major influencing factor for how close an option's price follows it's underlier. The higher the number, the more in-step it is dollar-for-dollar with the stock. EX: a stock with a delta of .98 will move .98 cents for every dollar of price movement. The caveat is that the higher the delta, the more expensive it is.

Anyway, hopefully this served to help you understand "WT heck is going on."

I am riding through this choppy period as well. I am taking time to use On Demand and practice. I have learned that this period is normal and when it rears it's ugly head, I step away from the challenge and stick to my rules. If the kill is there, I take it, if not, I remain hiding in the bushes!

Just remember not to eat or drink to much before hiding. It reduces the risk of using the bathroom on yourself while in the hide :-)

Thats GREAT Robert ,,

really that's what I'm doing to make more than one indicator together to give signals in the same time for the probability of the next day.

Dan wrote... "the market maker role is much less prevalent than it used to be."

I like Tom Sosnoff better than Crammer. Sosnoff is one smart cookie.

That said I don't get that he has said that "high frequency traders and trading robots are the ones "messing" with the prices" therefore making market makers roles less prevalent. What I have understood from him is that high frequency traders are market makers.

You can't have a market without market makers. Someone has to be willing to buy and another willing to sell. That is a market maker.



Edited 1 time(s). Last edit at 05/22/2014 10:16AM by Darcy2.

Darcy,

To be more specific, by "market maker" I meant the specialist who stood in the pit and was required by the exchange to provide liquidity in certain issues assigned to him or her. I believe the exchanges like the CBOE offer monetary incentives to traders who "provide liquidity." I suppose this can easily be high frequency trading robots or anyone else. I guess my major point is that with electronic exchanges, the role of the individual in the pit who could move prices around has greatly diminished.

Dan,

Sure but we also need to remember that the NASDAQ has no physical floor trading. It is electronic or computer generated market makers. NFLX is a NASDAQ stock which is the one that went up a $1.00 while the call option went down.

I think we are talkig about the same just in different ways.