We all know about Bernie Madoff, and this is a tragedy. But it is something we can all learn from it.

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.

The good thing about Wall Street is that you get a Christmas break. Wheather you want one or not. The market dies around Christmas and not that much fun trading.

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 ?