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Options expiration strategy

Here are a couple ideas to mull over. All information is current as of market close on 12-9-10.

GENZ has very high Implied volatility right now, and is showing low movement in the underlying. Puts at strike 65 and 62.5 present a nice opportunity. Information on them is presented below. The 62.5 put is slightly more OTM so is therefore less risky, but is also worth half as much. The theoretical price of the 62.5 put is very far below the bid rate. The ATM implied vol is 27.83 vs historical vol of 8.89. The standard deviation of the underlying calculated using the IV is 2.9, however since the IV is incredibly high I guage the actual SD closer to 1 (2.9/( This means the 62.5 put is almost out of range if the underlying moves 1 SD per trading day towards the strike. The 65 strike put is also a good choice, more risk = more reward. Keep in mind these numbers are bound to change every day.

The formula used to calc SD = [stock price * IV * (the square root of days left til expiration)]/(square root of days in the year).                     = (69.99*.2783*2.8284)/18.8414

BBY is another  choice to write options before expiration. The 45 and 44 strike calls are expensive in terms of IV vs HV. Theoretical pricing is much less than the market rate, which is always good for a call writer. The chart of the underlying looks top heavy, so I’m not worried about a jump in the underlying before expiration.

Euro Banks

Looking through the usual mid-week market noise, an article on Bloomberg.com caught my attention. Link:
“Banks in Europe Fail Stress Tests With No Authority”


The general thesis of the article is that the Euro stress tests have caused less confidence in the Euro banks, and thus weakness in the european stock markets. This should jump out as a fundamental problem, because all of us know deep down that the financial sector is a major driving force of market performance.

“Investors have less confidence in European banks than in their U.S. competitors. The price-to-book ratio of the 50 largest European banks is 0.76, compared with 0.97 for the top 50 U.S. banks, Bloomberg data show. That means the market value of European lenders is on average only 76 percent of the value of their assets, suggesting investors don’t believe banks’ assets are worth what they say they are. In 2007, the ratios for European and U.S. banks were 2.15 and 2.14.”

Though the ratio has halved in the last few years, the interesting point is the level of distrust from European investors. This ratio is very dependent on internal accounting numbers (book numbers). Something to notice is that European companies already use IFRS accounting procedures, and the US will be switching, from GAAP, to them in the near future. How will this effect American confidence levels over the next decade?

One of the main problems that Euro regulators have run into is that the EU is a conglomerate of individual countries, not a system of states governed by one body. Their tests may have had intrinsic weakness due to nationalism and other preexisting difficulties. This could be a hint into the future of the EU, in terms of whether it will become more unified (like the USA after the Civil War) or if the nationalist/protectionary sentiment that has always existed in the area grow stronger.

A lot of this article, and my thoughts, are fragmented opinions on a problem that will most likely correct itself. If I can leave you with one idea, it is that the financial sector in Europe is currently depressed but stable, which means it is also cheap. Every trader knows, buy low and sell high.

Elizabeth Edward’s Journey and Life Lessons….

JORDANA BALSAM posts about Top stock tips from elite, quantitative and analytical traders

Posted on December 8, 2010 by elitetradingtips JORDANA BALSAM

“The days of our lives, for all of us, are numbered. We know that. And, yes, there are certainly times when we aren’t able to muster as much strength and patience as we would like. It’s called being human. But I have found that in the simple act of living with hope, and in the daily effort to have a positive impact in the world, the days I do have are made all the more meaningful and precious. And for that I am grateful. ……“With love, Elizabeth.”

That was one of Elizabeth Edwards last postings on Facebook before she passed away from what she did not want to refer to as a “battle” with Cancer at the age of 61.

Elizabeth was ambitious in her own right, a shrewd attorney who even though hers and John’s careers took off and they earned millions, still opted to commemorate anniversaries at Wendy’s, where they celebrated their first year of marriage.

Some may say her most demoralizing and lowest point occurred when she was publicly humiliated by John’s infidelity that came to the public eye as she suffered from cancer.  I would have to disagree and say that her lowest point came years before, in 1996, when she suffered the most devastating pain in the world; that of losing a child.

Although broken, she persevered and just 2 years later, gave birth to her third child at the age of 48. She did not let loss stop her from living her life, at an age where most women slow down and even become grandmothers, she  endured painful fertility treatments and gave birth to her youngest, Jack.

Perhaps most remarkably was her public advocacy for social issues such as health care, bankruptcy reform and same sex marriage. She wrote two memoirs chronicling her cancer remission, her husband’s infidelity, the death of her father and her son and ultimately, she ended her marriage.

I suppose we can all learn from Elizabeth Edward’s life. How she composed herself with dignity even when inside she must have been filled with aching pain. Yes, I can compare Elizabeth’s story to anything in life that inspires us, such as working on our inner image of ourselves to improve our outer image. But I am merely going to sum up this post the way Elizabeth would have done; with dignity and grace and a reminder to always attempt to greet each and every day of your life with a simple act of kindness and  a positive outlook, even when things seem dire.

VIX spikes related to S&P movement

The 18 level on the VIX chart has strongly held up as support over the last two months. The latest spikes off this support level has correlated with moves in the S&P. There are four arrows on each chart, the red one shows Oct 13 when the VIX hit 18 but the S&P did not move; the green arrows show correlating movements. So the question is, will the VIX finally make it below 18 with the S&P surging to new highs or will it respect these levels?

The dates of the arrows are 10/13/10 (red); 11/4/10-11/8/10 (green); 11/19/10 (green); 12/3/10-current (green).

Options play: Open a long straddle ATM on the S&P. Weeklys may be a good financing tool to add to this using either OEX or SPX options. VIX options can also be used to accomplish this strategy.

If you are bullish on the VIX and confident in the range trading it has displayed, then buying VXV futures may be worth checking into.

Curly’s Gold (Or some other commodity)

Some people buy a fast shiny car, some train for their first marathon, some get a RX for Viagra. Whatever the escape, its very common for individuals to experience a midlife crisis when middle age approaches.

One of my favorite Billy Crystal movies (which I appreciate even more as i age) is “ City Slickers” where Billy’s character Mitch, a middle aged salesman, and his close friends go out west on a guys trip and ultimately find themselves hearing about the “meaning of life” from an experienced cowboy, Curly,  who has clearly lived a long fulfilling life:

Curly: Do you know what the secret of life is?

[holds up one finger]

Curly: This.

Mitch: Your finger?

Curly: One thing. Just one thing. You stick to that and the rest don’t mean shit.

Mitch: But, what is the “one thing?”

Curly:  [smiles] That’s what *you* have to find out.

Curly’s single finger sums it all up. ONE thing. If we all just focused on finding ONE thing that we are good at, that we can excel at or improve, all will fall into place.

Many professional traders are experiencing the same type of mid life crisis. They have endured long careers that have suddenly come to a halt and they are going around searching for a new way to make things work. There is a tendency for older traders to start overanalyzing and get caught up with all the noise surrounding the market and in turn they try too many things at once, which ultimately doesn’t pan out to anything.

When you act like  a chicken without a head and try to do a million things at once, you wind up lost, frazzled and disorganized.

Curly’s advice to the meaning of life is simple and true and applies to trading as well: its about finding one methodology, one strategy, one type of trade set up that works consistently and focus on that.

Insight on the S&P with option trade strategy and Tip for gauging Unemployment numbers

Taking a look at the S&P 500 since the market bottom we can see that the market bounced off the 38.2 Fibonacci level in beginning of July (orange lines). I do not use Fibonacci levels regularly for trading but have tried to keep it in my toolset for events like this. Please throw any comments or insight on this back to me, I’m interested to learn more about Fib analysis. I think if the S&P can break through resistance this may be something to keep in mind for longer term holding strategies.

The three arrows designate a reverse head and shoulder pattern, volume didn’t follow however.

Once again, this chart was constructed on Freestockcharts.com

The second chart is a closer look at the S&P 500, spanning about 7 months. You can see where it bounces from the 38.2 fib level clearly here.

An option trading strategy for the near term is opening a long straddle. This is possible using ATM options on the SPY. While the index has shown strength lately, it may not be lasting or solidly founded. Quick news stories are the catalyst lately for big intraday moves. However, the news on similar events changes from week to week and this should be viewed as weakness because it definitely doesn’t make for a strong bullish market. Unemployment data seems to have taken the lead as most important market driver. While the numbers fluctuate, they are not moving steadily lower and confirming a strong economic turn; sideways movement is never strength. Being based in Detroit, I can assure you, the numbers aren’t accurate (in a bad way) and won’t be improving quickly.

*See quick note/tip on trading Unemployment numbers at the end.

If the index is unable to break through to new highs above 1225, look for another correction to the 1180 level (take-profit zone on the straddle; also another good area to open a quick new long straddle). If the 1180 is broken and confirmed, look for the index to fall to the 1130 area (white horizontal line). A more complicated strategy would be to manipulate delta neutral positions on these levels.

*Note: I am currently a senior at the University of Michigan. While job hunting over the last year or so I have noticed one way to guage unemployment numbers, though it isn’t numerically precise. Sign up for websites that are compilation job listings such as Doostang.com and efinancialcareers.com. Then subscribe to their new postings in cities such as Chicago, NYC, Boston, SF, and yes even Detroit. When postings on the website increase look for a data jump about a month later, vice-versa when they decrease. The major cities may give you short-term/long-term insight on the economic situation, while somewhere like Detroit will be able to show the long-term picture as it will be the last to rise, and must be fundamentally healthy to begin growth. This is all subjective, so use at your own discretion.

Hope this helps,

More about Me

To spice up my blog a bit, I will add a few more details about myself.

I love gambling…I play blackjack, and in learning craps and poker.  I’ve been to Vegas twice and am going again for New Years this year.  I’m not sure by how much, but I am up probably a few thousand playing blackjack over the course of my gambling career (I don’t play with a ton of money, so I would say this is pretty good).

I also play golf and tennis, and am currently assistant coaching for the Cornell Varsity Volleyball team.

I’m from St. Louis, MO (or the dirty South)…home of Nelly and the Arch!

I enjoy reading Ayn Rand, and could be described as quasi-liberatarian.

I enjoy learning about quant trading strategies, but also like doing fundamental analysis.  I really like more macro perspectives, which is why I think basic materials will be a good sector for me, as commodities seem to be very affected by macro moves.

In the future, I hope to be working in S&T in New York City.

You can also learn a bit more about me via:


Back to Basics

Posted on November 29, 2010 by elitetradingtips


Many months ago I attended a fitness conference where all the self proclaimed gurus in the fitness industry performed their newest top tier workouts for other elite athletes to take back to perform for their own clients. These uber athletes were balancing so many things on a BOSU they made the performers in cirque du soleil look clumsy.

What a show!…Until one of them lost balance and broke their ankle. Then all bets were off.   I found myself quietly paying tribute to Jane Fonda.   Jane. One of the most famous fitness icons.  Like Madonna did for pop culture and fishnets, Jane did for basic leg lifts. That woman had it right on.

Why do we feel the need to reinvent the wheel? Or in this case the medicine ball? There is no reason to balance standing on your head blindfolded while juggling 3 BOSU balls on your toes. Back to basics. Jane Fonda. Her simple aerobics and easy to follow routines actually worked. Why do we assume they are no longer effective?

Consider this: The same simple workouts that have been around forever actually do work. What if we dropped the intricate equipment and balancing act and did- gasp! dare I say it?: – Basic aerobics and calisthenics??? You can get MORE THAN an effective workout by just going for a run or doing some squats, push ups and sit ups. ( Or take a yoga class or Pilates even though they are soooooo 2005. ) Or try Plyometrics, which have been around since the Ancient Greeks obsessed over their bodies.

Remember Gilad? Another original back to basics fitness icon who made exercise TV popular. This Israeli born hunk made housewives feel like they were right there along with him and his solid gold dancer look alike crew doing aerobics in thong leotards on the beaches of Hawaii. Love how he always put his “Imma” right in front of the camera to encourage the over 50 crowd. He was another fitness pioneer who had it right. Simple easy to follow moves set to music and a glorious background. Very motivating and VERY effective.

Over the holidays the gyms were packed and as I squeezed my way into the back of a group exercise class I took a look around and noticed that there were people of all shapes, sizes and ages. Once the class began I could not help laughing to myself at how ridiculous this instructor was. Her frenetic and fast pace made the very difficult moves even more strenuous. I consider myself in pretty good shape and yet I felt exhausted from the demanding performance she commanded. Her hyperactive pace and extreme movements were so perplexing and confusing that I did not feel “challenged” but rather, annoyed. I had to walk out, but not before I overheard a woman say she hurt herself. These trainers seemed to have sold their clients on the elaborate new moves (perhaps the very same maneuvers they picked up at a fitness conference) when their clients clearly could not perform them. Her class was packed and yet it seemed as though very few people actually had the basics down first before attempting to try these onerous moves.

People often like gimmicks when they don’t even know the basics.

This back to basics rule can be applied to trading. It seems like every trading firm believes they have some special secret sauce or proprietary analytics that provides them with a competitive edge in the market. I’m not referring to the high frequency trading type category as those strategies have more to do with access than to creative analysis.

I am speaking of the average trader or fund.

I am well aware of the prop funds that are closing. Yes, the game is changing and certain strategies no longer work consistently or even at all but there are many other action plans that continue to work well. You don’t have to rewrite the playbook or create some magical formulas to excel at this game. In fact, basic technical setups have worked almost magically this year for both short term and longer term trading.

For instance, there was a set up for a long entry in late August around 1040 in the S&P 500. There was another long entry from a breakout at 1130 from a classic head and shoulders reversal pattern. The rally has been halted around the 61.8% retracement from the all time high in the S&P from 1576 to March 2009 lows of 660 which should have been a sign to be more cautious on the long side or possibly move toward the short side.  This information is basic technical analysis and you don’t need proprietary algorithms to spot them. The key is to learn the elemental principals of trading and keep up to date with them on a daily basis and that will keep you in trading shape.

Similarly, you don’t need to rely on some new age workout program to get you in great physical shape when the basics work even better and less likely to cause injury.

Disclaimer: Trading and investing can result in loss of capital. The above is not a solicitation to buy or sell securities and should be used solely for educational purposes.


Jordana Balsam


NOPE:  Cute hedge fund  analyst entering office this morning



Hi, my name is Wing-Ho Choi. I am the president and cofounder of the Current Events in Finance (CEF) student organization at Cornell University. I am a master of engineering candidate at Cornell’s financial engineering program and hold dual bachelor degrees in finance and economics from Arizona State University. CEF holds weekly general meetings where we meet to discuss and share different points of view about recent financial news. I am currently a member of the Technology sector analyst team for CEF’s investment fund.