OPTIONS SCREEN

So I was looking at my options screen, and nothing was coming up for short volatilities. Especially the first trading day after expiration. The IV are slightly lower than normal.

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[1] PLAN YOUR TRADES

[4] MANAGE YOUR RISK

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DON’T PUT ALL YOUR EGGS IN ONE BASKET.

Haven’t said that since I was a kid. But it is true, no matter how good a trade or deal looks, do not put your whole net worth in to it.

When I first started trading options, I took and AAPL earnings play. I was soooo sure the numbers were going to come in high, I loaded up on ‘cheap’ options with only a couple of weeks of expiration left. Right before earnings, I bought a bunch of calls and started dreaming of a classic 1986 Porsche 911. I really did not know that much about implied volatility, which is an understatement.

AAPL reported and beat the street. They guided lower for the next quarter and the stock went no place. I thought, sure, I won’t be buying that Porsche now, but I will just sell out and lose the commissions. Since the stock had not moved and it was only a one day, I thought I should get close to the same price.

I didn’t get close to the same price. I took it in the shorts.

The implied volatility dropped and I lost a big chunk of my account. It was a valuable lesson and I did make all the money back, but it hurt.

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Want to trade asian futures ? No problem. Want to trade European option contracts ? No Problem. Want to Canadian stocks ? No problem with IB from one account, and pretty good commissions.

That is the good part.

THEY ARE GREAT AT NOTHING.

They let you trade everything, but they are great at nothing. Say for example, you day trade futures. Would IB be right for you ? Probably not. Take a look at firms such as AMP trading. Better margin rates and brokers that actually pick up the phone.

Want options? Try firms like AOS. Once again, comprable rates, and they have knowedagable people who answer the phone.

WHEN THE GOING GETS TOUGH, YOU GET SCREWED
IB is a big impersonal firm. They have soo many people and they are always trying to cut costs, it ends up hurting.

If you have a margin violation, or something goes wrong. They have the most brain dead liquidation software I have ever heard about.

Untold number of horror stories on IB about their auto liquidation. Do a seach on Elitetrader.com and prepare to be horrified.

WE DON’T SEE NO STINKIN CUSTOMER SERVICE

IB has the same ‘customer service’ used in a Gulag. If you have a question, you are better writing a letter to them, set it on fire, and pray to the gods. It would be more effective.

BOTTOM LINE
If you are just moving up from a ‘pure retail’ broker like Scott Trade , and you want to try a lot of things, IB will be OK.

If you know what you want to trade, and how you want to trade it. Run away from IB like the plague. The cheap commissions will be eaten up by the loss in one trade when something goes wrong.

You get the idea.

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WHO IS TRADING

I was watching the S&P E-Mini trading Christmas eve, and it was scarily slow. The last few minutes had a lot of closing trades, but I think trading was by two groups.

[1] Computers. They don’t care about Christmas anyway. A data feed is a data feed.

[2] People who can’t make it home for the holidays. This also includes those foreigners who have not figured out that Christmas is a big deal to the Americans.

Come to think of it, they are pretty much the same group anyway.

WHAT NOT TO DO OVER XMAS

Well. Don’t trade. Markets are much ‘thinner’, than usual an makes a lot of funky moves. By ‘thinner’, I mean the volume is less than usual.

Apple Computer , which usually does somewhere in the 30M ~ 40M range only did about a fourth of that on Christmas eve.

When the markets are thin like this, it is best just to take a break. Spend time with the in-laws and watch the kids fight over toys.

Hello, Santa ? Where is my rally ?

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From http://wulffmorgenthaler.com

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AMD at sub $2 is bankruptcy priced. If AMD does not go bankrupt, this stock could easily go up 10 times. Bankrupt, it goes to zero.

One thing I have learned is stick to the type of trading that you know, and that is not gambling, which is what this trade is. Gambling.

AMD seems to have found support, as long as they do not go bankrupt, it should be ok. That is a big if.

So I will stick to my rules and pass on AMD.

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From the WSJ

DECEMBER 24, 2008

End of Line For Futures Exchange

By DOUG CAMERON

The head of the U.S. Futures Exchange said Tuesday that it would be closed down after no buyers emerged for the Chicago-based trading platform.

The future of the USFE was called into question last week when MF Global Ltd. said it was seeking buyers for its 48% stake, setting a Dec. 31 deadline.

John Spiegel, chief executive of the USFE, said lack of time and adverse market conditions had seen no buyers emerge for the MF Global stake, prompting the decision to wind down.

Mr. Spiegel said it “would be very doubtful at this point” if buyers could be found for any of USFE’s assets, including its exchange license from the Commodity Futures Trading Commission.

“When the exchange goes dormant, the license is useless,” he said.

The closure marks the third time that USFE, under different guises and owners, has failed to break the industry mold with both mainstream and specialist products since its launch in 2004.

MF took effective control two years ago in an effort to spur the product innovation that former Chief Executive Kevin Davis believed was lacking at established exchanges.

“I think we’ve achieved a lot over the year,” said Mr. Spiegel, who oversaw 16 staff from USFE’s head office in the Chicago Board of Trade building.

He said USFE’s “credibility had been called into question” early on, with brokers uneasy about using an exchange whose ownership included one of the sector’s heavyweights.

The rogue-trading scandal and financial communication issues that dogged MF Global and cost Mr. Davis his job also weighed on the exchange, said Mr. Spiegel.

Smaller stakes in USFE are held by Man Group PLC and U.S. Exchange Holdings Inc., a unit of the Eurex derivatives arm of Deutsche Börse AG.

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I remember have a lively discussion about this with some newly minted MBA’s years ago. We always need those guys to be on the other side of our trades.

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