Hello silk- I have investments in real estate as well, so I hadn't really considered trading on someone else's time other than my own. I'm flattered you'd consider me in your same boat, as I have no doubt that you have a far more knowledge than me in bond markets, regulations, etc. I am curious though, how money is made at a prop firm. Are traders paid on salary, or is it more like a percentage pay-out?
Hello Jeff- I appreciate your advice, and I'm glad to see their are others who were in a similar boat, and who are still trading successfully. I do have much to consider. You mention trading in pairs. I've considered the strategy but have never tried it, at least intentionally. I understand the concept enough, I think, but finding the right pair seems to be pretty daunting for me. Take Directv (DTV) again for example. I mentioned earlier that it seems to outperform its competitors year after year, but that isn't always the case. Over the last 5 yrs DTV has dominated Dish, but over the last year Dish takes the cake. So I'm not sure how, or even IF this should be a pairs play. They both report earnings NOV 6, so at least there wouldn't be a lay over. Also, a couple of others that come to mind are Nucor (NUE) and United States Steel (X) corporations. Seems to me that Nucor is no doubt the better company, but I'm pretty sure as soon as I go long on NUE and short X, just for the sake of following the strategy, NUE would drop and X would start to climb. I've traded both of these stocks successfully, but only trading on an individual basis.
Here's an example of a pairs trade I did in Feb 2012 at the bottom of this page: MT was uptrending and pulled backed to a support moving average. The Target was a move up to the prior rally high and the stop was -20%. IYT just formed a 10dma/20dma bearish cross. Target was a drop to the last support level and stop was -20%. Before triggering the trades, I made sure that there was at least a minimum profit of 40% available on both stocks if they hit there individual stock price targets. That way if one stock stopped out, I would still end up with 20% overall on the pairs trade. Jeff -------------------------------------------------------------------------------- Quote from jeffalvinson: (page 79, "My option trades" thread) 02-21-12 09:00 AM This morning I bought calls on MT, target=23.50 and puts on IYT, target= 91. -------------------------------------------------------------------------------- Quote from jeffalvinson: (page 84, "My option trades" thread) 02-23-12 07:11 AM This turned out to be a nice pairs trade: The MT calls stopped out at -20%. The IYT puts hit the 91 target and sold at +40%.
trader198, Read the date (2/21/2012) when I entered that MT trade and then look at this attached chart of MT on 2/21/2012 (the trade entry date). Its a 3 month chart starting from December 1, 2011 to February 21, 2012. At that time (over 8 months ago), MT was in a short term uptrend. jeff
Firstly, you should be pretty happy with a 20-30% gain. Most people would kill to consistently hit this number on an annual basis. Second, as mentioned from put seller, managing risk should be your first thought. Think, "how much can I lose?" Rather than, "how much can I make?" Some simple option adjustments can accomplish your goals. You could do spreads from the start for one. Or, if you prefer to trade with outright calls/puts you could establish a "profit collar." Once your calls are up 30% simply sell a higher strike call and buy a lower strike put. Little room to the upside, cushion on the downside
<<< Firstly, you should be pretty happy with a 20-30% gain. Most people would kill to consistently hit this number on an annual basis. Second, as mentioned from put seller, managing risk should be your first thought. Think, "how much can I lose?" Rather than, "how much can I make?" >>> Not just how much can you win or lose, but what does "common sense analysis" tell you, is the "probability" of the trade winning or losing. Afterall, the higher your % return goal, the lower your "probabiltiy" of actually achieving it.