Every time when you hit a home run and make money you feel good about it, but the problem that most option traders often encountered is that they never make as much money as they should. They find it difficult to follow a trend long enough to make that home run. They are usually out when it swing to the opposite direction.

This may be true, but the reason isn’t because they are not prepared for it or that is something unexpected, it’s because they’ve stacked the odds against themselves. Options lose it value faster then if you are betting on the underlaying security itself, because of time decay and volatility not to mentioned that you are leveraging.

One of the most common mistakes options traders make is that they don’t give the trade enough time to be right. They freak out most of the time as options are a wasting asset, not perpetual investment instruments like stocks. The closer the option is to expiration, the faster the option premium decays.

Those who find themselves frequent lose out on their trades have maybe stacked the odds against themselves by buying near-term expiration options that give them too little time to be right. In most situations options premium erode fastest in the last 30 days, so it is wiser to buy at least 60 days or more to expiration in order to allow more time for an option to work in your favor.

Sometimes it’s difficult to guess the direction of the stock is heading, but human nature tends to be optimistic, even if it goes against you, you may still want to hang on. Buying options with longer expiration prevent you from losing too much on time decay. It requires patience and the stomach for some risk in order to take home more profit when leveraging with options.

“The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements” - Jesse Livermore

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Give Your Option Trades Enough Time To Be Right

The market’s intra-day swings have become virtually unpredictable, as too much global financial factors are driving the market every moment. The market has became more volatile in September and October, with the CBOE Volatility Index spiking above the 80 mark, a level never seen before.

The average losses at hedge funds for each month have exploded upward. Even the pros, with the best information flows and fastest trading technologies, get hammered by trying to keep pace with the daily market swings.

Intermediate trends of a few weeks are predictable and can still be profitable. The only difficult thing that traders need to go through is the crazy day-to-day whip-saw swings that could be force to stop out prematurely with losses.

Once the intermediate market trend is identify, extra step of finding the most lucrative, low-risk options plays should not be skipped. When buying options effective placement of stop-loss is crucial as capital is protected in the event the underlying stock moves in the wrong direction. Placing the stop too tight will get stopped by the daily intra-day crazy swing, placing it too wide can lead to a higher risk exposure.

Extra caution need to be exercise in the current market condition as no to place too much money on a single trade, instead buy small contact size then top up when the trade is moving in the correct flow order. Fear may make you lock in losses too early as the shrink in volatility can cause the options to lose some of its premium.

Do not pay too much attention on getting the big one. In today’s market when your trades go well, they are usually very profitable, which are able to cover several smaller losses.

Looking for companies with top-notch management, strong balance sheets with secular growth potential and wait for reversal signals could be very profitable but the only problem is that it may not be happing in the near future. As for now, the buy-and-hold strategies are not applicable instead take advantage and profit from the negative news and credit crisis issues which are not going to be resolved immediately.

“The market is like watching a drunk walk a tight rope. You never know what’s going to happen next” - Arthur Cashin, CNBC Commentary

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Forget About Buy-And-Hold, Take Advantage Of The Market’s Volatility Instead

Here is another good one, in a recent advertisement in a local paper, another so-called guru claimed to make $2 million in a bear market during the U.S. recession in 1999 to 2001, misleading the public into believing that it’s true.

From this statement alone I can tell it is a bluff.

1.   1999 to 2001 was not a bear market.

Just by looking at the Dow Jones Industrial Average Index chart indicates clearly that it was more of a bullish / sideways market. Definitely not a bear market as claimed. (A downturn of 20% or more in multiple broad market indexes can only classified as a Bear Market)

2.    The U.S. did not go into a recession in during the period 1999 to 2001.

But instead from 2001 to 2003, during the collapse of the Dot Com Bubble, September 11th attacks and accounting scandals contribute to a relatively mild contraction in the American economy. It is not still considered an official recession because the US GDP never actually declined in this period. (Sources: http://www.recessionhistory.com/)

The definition of a recession is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

How can an expert trainer doesn’t know the different between a bull and a bear market, and a recession? They are just using it to lure people into their trainings where they charge exorbitant fees.

That claim has been used countless times and it works because humans are driven by greed. Don’t they have any new winning trades? They are trying to pull a fast one; these foreigners think that Asians are fools.

As a trainer myself, I feel that there is a need to expose these unethical claims as it can ruin other peoples’ live financially.

“There are more fools in the world than there are people” - Heinrich Heine (1797 - 1856)

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Unethical Claims Used To Attract People Into Their Seminars

U.S. stocks climbed on Friday, paring the severity of weekly declines, as bargain hunters stepped in after two days of losses, helping foster hope that global intervention will help an economy that shed nearly a quarter million jobs in October.

For the week, U.S. stocks fell about 4%, after several days of ripping volatility. They are now 40% from their highs of October, 2007. The Dow ended the week at 8,943, down 381 points, the S&P 500 closed at 930, off 38 points and the Nasdaq finished at 1,647.4, off 4.3% from last Friday’s close.

European and U.S. stock-index futures climbed and Asian shares rose today after China unveiled a $586 billion plan to stimulate the world’s biggest contributor to economic growth. Oil and copper rallied, while the yen fell.

China, the world’s fourth-largest economy, has joined governments and central banks from Washington and Tokyo to Frankfurt and London by lowering borrowing costs and injecting cash to avert recession and unlock credit markets.

The G20 said yesterday that it is prepared to act urgently to bolster growth and called on governments to cut interest rates and raise spending as the world’s leading industrialized economies battle the economic slump.

Investors will focus on the meeting in Washington this weekend. But as far the new Administration, investors do not expect much action ahead of January. President-elect Barack Obama spoke on Friday, saying he would not get in the way of the current Administration.

The same trend is likely to be the same for this week, and the stock market should stay volatile as it reacts to economic news. The economic calendar though is fairly light, but there are earnings reports from major retailers. Those numbers should only confirm that the holiday shopping season is shaping up to be one of the weakest in years.

Many economists have been expecting the current quarter to show this recession’s biggest decline in GDP.

“All human situations have their inconveniences. We feel those of the present but neither see nor feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse” - Benjamin Franklin

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The Week After The US Presidential Election

On Thursday, U.S. stocks dived lower again after tumbling on Wednesday, suffering their worst-ever percentage losses in the day after a presidential election. The Dow Jones Industrial Average close below 9,000 for the first time since Oct. 29, as investors await the October jobs report and anticipate a likely jump in the unemployment rate.

The Dow Jones Industrial Average drop nearly 500 points in afternoon trade to ended at 8,695.75 down 443.48 points, or 4.9%. The S&P 500 shed 47.89 points or 5%, to 904.88, the Nasdaq Composite Index declined 72.94 points or 4.3% to 1,608.7.

Earlier, the Bank of England cut interest rates by 1.5 percentage points. The European Central Bank also cut rates, but by a more modest half point. European stocks traded sharply lower. Asian markets also slumped as investors turned their attention back to the weakening global economy.

It’s the fear of a deep recession that the economy is getting weaker, rising unemployment will only make it worse that send stocks lower.

The Labor Department reported the number collecting jobless benefits hit a 25-year high, while first-time unemployment claims fell last week. The data came ahead of Friday’s jobs report for October, with the unemployment rate expected to rise to 6.3%.

The big question is, what will newly elected President Barack Obama do about the economy and who will join his team. There are also concerns about the timing of when his economics team engages with the Treasury’s program to bailout the financial system and other projects.

Some answers may arrive today afternoon when Obama holds a press conference after meeting with a group of economic leaders who make up his transition economic advisory board. The group includes the well known Warren Buffett, former Treasury secretaries Robert Rubin and Larry Summers, Google Chairman Eric Schmidt, former Fed Chairman Paul Volcker and former SEC chairman William Donaldson.

Other economic news reporting today includes pending home sales at 11:30 a.m. and wholesale inventories at 10 a.m.

“Here is the answer which I will give to President Roosevelt… We shall not fail or falter; we shall not weaken or tire. Neither the sudden shock of battle nor the long-drawn trials of vigilance and exertion will wear us down. Give us the tools and we will finish the job” - Sir Winston Churchill, British politician (1874 - 1965) Radio speech, 1941

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Stocks Tumbled While Awaiting Jobs Report

On Tuesday, U.S. stocks rallied as millions of Americans cast ballots to determine whether Republican John McCain or Democrat Barack Obama wins the presidency, with polls favoring the latter to replace George W. Bush in the White House.

As the economic uncertainty becomes clearer and the negative rhetoric is removed, investors became calmer sending the CBOE Volatility Index, the fear gauge tumbling down. The VIX fell 9.8% to 48.74, its lowest since early October.

The Dow Jones Industrial Average surged as much as 330 points, ending at 9,625.28, up 305.45 points, or 3.3%. The S&P 500 rose 39.44 points, or 4.1% to 1,005.74, for its first close above 1,000 since Oct. 13. The Nasdaq Composite added 53.79 points, or 3.1% to 1,780.12.

The simple notion that this Election Day marked a potential turning point for the economy and a departure from the current state of affairs was enough to boost investors’ spirits and send the stock market higher.

While there are no guarantees in elections or the economy, there was a sense that the election-time rally may have some legs as investors have tired of viewing bad news and were looking for any stimulus to start buying stocks again.

Tuesday’s hotly contested presidential race between Democrat Barack Obama and Republican John McCain seems to be providing the perfect catalyst for a stock market rally.

Markets have rallied 15% in the week prior to this election, a move that has surprised some observers. Front-runner Barack Obama’s higher tax policies combined with the near-certainty of Democratic control of Congress defies the conventional wisdom that markets like lower taxes and at least some gridlock on Capitol Hill.

Despite expectations of a second economic stimulus measure and government bailout money circulating through the financial industry, the economy still is likely to struggle under the weight of unemployment pressures and a weakened consumer.

“We must uphold the promise of Roosevelt, Truman, Kennedy, Johnson, Carter, and Clinton and never allow the President and his Republican friends to threaten Social Security by putting it on the Wall Street trading block” - John Kerry, US Democratic politician, Speech at Democratic Convention, May 31, 2002

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US Stocks Can’t Wait To Rally After Voting

One factor that contributed to the relatively bullish sentiment of the last week trading sessions is that bargain hunters have started to come back into the market, as values of even large, stable household names plunged.

Apple Inc, which has plunged from about $200 at the start of the year to just above $100 and just broke $110; can AAPL go up another 10% or 20%?

Yes there are very high possibilities that AAPL remain strong through the end of the year moving forward to 2009. Just by looking at the chart alone I can see that:

1. The stock price has moved above the 3 DMA lines forming a “W” bottom.

2. The MACD Histogram is positive indicating strong bullish momentum.

3. Last week’s gain was the most bullish week in the entire year for Apple.

When the retail investors and institutional funds are coming off the sidelines to get back into action, it will stage a rally in the weeks ahead.

October was the worst month for stocks since 1987. The same volatile month also saw the past week’s 10 percent gain, the biggest weekly advance since October 1974.

The recent market’s huge selloff is mostly the result of an unprecedented financial crisis, which is pushing the economy toward a long and painful recession. The election will be a positive because it ends a period of uncertainty.

Stocks are likely to get a bounce after Tuesday’s presidential election, but worries about the economy and credit crisis may keep the rally short. It is better to be a little more caution as the focus may quickly shift back to the economy when jobs data is released Friday.

“The individual investor should act consistently as an investor and not as a speculator. This means.. that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase” - Benjamin Graham

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Was October The Bottom For Apple?

On Wednesday U.S. stocks staged another ditch turnaround to end mostly lower sending the Dow Jones  back below the 9,000 level during the end trading session after surging 889 points, the second biggest-point jump a day earlier.

The Federal Reserve cut its federal funds target rate as expected lowering its key overnight lending rate to 1% from 1.5%, bringing the fed funds rate to its lowest level since 2004. The Fed said growth has slowed markedly and the extraordinary financial market stress could put the economy at greater risk.

Wednesday’s market was particularly volatile, although for a good part of the day it was unusually calm as investors waited for the Fed’s rate decision. In the final half hour, stocks staged another round of drama.

The Dow Jones Industrial Average rising 250 points only to erase the gains in the final minutes of trading. The Dow industrials shed 74.16 points to end at 8,990.96. The S&P 500 lost 10.42 points to 930.09, while the Nasdaq Composite gained 7.74 points to 1,657.21.

Stocks will likely remain volatile on Thursday as investors will be focusing on third quarter GDP and weekly jobless claims. Economists expect a decline of 0.5%. Is the U.S. going into a recession yet? GDP is also now likely to support the recession argument.

The definition of a recession is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

Third quarter real GDP will be near flat. Due to the gas prices, home prices, and higher unemployment, everyone feels its like a recession. This is in part because the stock market is down, and it is often taken as an indicator of the economy which didn’t lead to a recession in the first three quarters of 2008.

The outlook into 2009 is for a sluggish economy at best, but the specifics depend highly on how well the liquidity crisis on Wall Street is addressed. That remains highly uncertain.

“People are only mean when they’re threatened, and that’s what our culture does. That’s what our economy does” - Mitch Albom

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Stocks Likely To Rock On GDP & Job’s Report

On Monday, U.S. Stocks were slammed again at the close to end sharply lower after multiple fits and starts, with a September rebound in new-home sales failing to stem ongoing fears of a worldwide recession.

Equities pulled back as crude-oil futures ended Monday’s volatile session down for a second day after earlier rising to $65.77 a barrel.

After trading in a 450-point range, the Dow Jones Industrial Average piled on the losses in the last 10 minutes of trade, falling 203.18 points, or 2.4%, to 8,175.77. The S&P 500 Index declined 27.85 points, or 3.2%, to 848.92. The Nasdaq Composite Index also dipped back into negative territory, down 46.13 points, or 3%, at 1,505.9.

Volatility has surged across financial markets as investors are forced to sell assets which they bought with borrowed money to repay creditors or cover margin calls as asset prices fall and credit limits are breached.

The credit crisis, which began with failing U.S. mortgages, has mushroomed into a worldwide rout as investors sell stocks and commodities, shun risky emerging markets and seek out only the safest of government bonds and currencies.

Stocks in Hong Kong tumbled as investors who had bought shares on credit were forced to sell in a falling market. European investors followed suit, with more trouble in the financial sector after a German retail banking group reported a quarterly loss.

The still-tight credit markets are anticipating a half-point interest rate cut from the Federal Reserve this week, but investors are worried it won’t be enough to quickly revive the economy.

The Fed has been slashing rates and taking unprecedented action to get market participants back in the lending mood, including launching a facility Monday to buy the short-term corporate debt known as commercial paper.

After the two days Fed’s meeting which ends on Wednesday, the market predicts it will be down to 1%, the same low level by former Fed Chairman Alan Greenspan in 2001.

“Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little” - Fred Schwed Jr.

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Stocks Fall Sharply At the Close Of the Opening Week

As approaching the final week of the scary “Black October”, traders can expect the markets to be as volatile and maybe even scarier hoping that October will be the month where stocks will finally hit bottom, even if it means bleeding more blood before it’s over.

The health of credit markets and the global economy will influence stocks this week. There will be a heavy week of economic news. The focus is on the Fed’s two day meeting ending on Wednesday expected with a half point rate cut to 1% is what many assume will be the end of its aggressive easing campaign.

New home sales are reporting today. Consumer confidence and the S&P Case Shiller Home Price Index for August is on Tuesday. Durable goods data is scheduled to release on Wednesday. Watch out for the GDP on Thursday and weekly jobless claims are also reported. On Friday, personal income and spending, and the employment cost index are released, as is the Chicago PMI and consumer sentiment.

A more accommodating second stimulus package has been discussed in Washington and on the campaign trail as a necessary measure to preserve jobs and prevent the consumer from being completely derailed.

On earnings, about a quarter of the S&P 500 companies reporting this week with major oil companies on the list including British Petroleum, Chevron, ExxonMobil, Hess, Marathon Oil, Murphy Oil, Occidental, Royal Dutch Shell, Tesoro, and Valero.

Other companies reporting include Aetna, Arch Coal, Clorox, Colgate-Palmolive, Corning, Estee Lauder, Kraft, Kellogg, Motorola, NYSE Euronext, Procter and Gamble, U.S. Steel, Verizon and Whirlpool.

“Listen, there is no courage or any extra courage that I know of to find out the right thing to do. Now, it is not only necessary to do the right thing, but to do it in the right way and the only problem you have is what is the right thing to do and what is the right way to do it. That is the problem. But this economy of ours is not so simple that it obeys to the opinion of bias or the pronouncements of any particular individual, even to the President. This is an economy that is made up of 173 million people and it reflects their desires, they’re ready to buy, they’re to spend, it is a thing that is too complex and too big to be affected adversely or advantageously just by a few words or any particular - say a little this and that, or even a panacea so alleged” - Dwight David Eisenhower, 34th President of the United States (1953 to 1961)

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The Final Week Of The Scary Black October