Check out this great article from Open Markets / CME Group. It underscores the important role that speculators and traders play in the overall business of agriculture. Without being able to lay off the risk, farmers would have a tough time calculating profitability. That in turns effects how much they can borrow from the bank.
“He can look at the hedging strategy and see what the farmer’s profit potential is before the trade is executed. “I know if they’re spending $30,000 in margin money, they may be protecting a profit potential of $150,000,” he says. “It’s easier to explain (to the bank’s approving committee) that margin money, which had that label of being money you throw out the window, now its protecting a risk management plan.”
“It’s one more tool that I can use to verify that the money I’m being asked for is being used for a risk management plan, not a speculative plan.”
Right. Who’s taking the other side of the trade?Continue Reading...
Steve Sears led a dynamic discussion on the use of options in a portfolio. I spoke with him briefly after his presentation about some of the points that he made during the conference.
Steve writes the Striking Price column for Barron’s each week and is the author of The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails.
You can listen to the podcast that I recorded with Steve in April 2012 when his book was released.Continue Reading...
Sal Arnuk is an partner at Themis Trading, an institutional brokerage firm. He’s also the co-author of Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio.
We spoke about liquidity in the markets and the business of trading.Continue Reading...
I received a great deal of email about the GOOG vertical spread trade. As you know, there is limited upside on a bull call spread because you’ve sold the upper strike price to underwrite the cost of the lower one. That’s a tradeoff that you’re willing to make.
More than a few readers are looking for a similar trade, but with unlimited upside. So in that case, you need to be thinking about the long-term fundamentals as much as anything and have a vision for what you think is going to happen.
Think in terms of probabilities and have some imagination and patience.
Like Yoda, think you must.Continue Reading...
If the chart pattern does is not conjugated with the average volatility of the instrument you’re about to trade, you could be in for a very frustrating time. A trade set-up might work for you when you compare what you’re willing to risk per trade and the 20-period ATR, for example. But what is your risk with respect to the rest of the chart?
This effects everyone in the market, not just newer traders with smaller account sizes. I just posted a video that help traders disqualify trades based on this key concept. Remember, your first order of business as a trader is to protect your capital. That process starts before you put on a trade.
You can spend days upon days wasting time in front of the computer screen and not make any progress in your trading career if you don’t understand this concept. Progress in this sense means growing your account balance. I don’t want you working for the occasional $200/day gain.
Michael Marcus did not turn the $30k into $80 million staring at screens all day.Continue Reading...