Attitrade-Proactive Trading

April’s SPX Range

Darren Miller — Mon, 02 Apr 2012 00:23:49 +0000

As a premium seller I’ve already been in the month of April for two weeks. One of the data points I track is the range for both the option cycle and the month. On average, over the past 10 years, the range for opex is 78.2 points while the monthly range is 72.74 points. If you look at the chart below you can see that 2010 is an outlier where the option cycle had a massive 164 point range and throws the averages off a bit for opex range. If I take 2010 out the range is 69 which really isn’t that far away from 78, just a few strikes in SPX options.

1404.17 is where we opened on the 1st Monday (3/19) of the April option cycle so over the last decade I can expect, on average, an 80 point range from there. Will it be straight up to 1484? Not likely, but taking a percentage of the range and adding/subtracting it to the open gives me a pretty good idea of what to expect. This helps me manage my risk as well as I can see if these levels match up with any technical levels. I’d expect support/resistance at or near those levels and if that doesn’t occur then I may need to adjust my positions.

For April I can easily see $SPX 1449 (R2 for opex pivots) getting hit before option expiration in three weeks just as easily as I can see 1360 (S1) although 1449 seems more likely. We’re all susceptible to confirmation bias and that’s one of the reasons I check the range each option cycle before I sell a single spread. This is just a small part of my analysis each option cycle but an important one as it keeps me from selling spreads too close.

Are You Biased?

Darren Miller — Mon, 05 Mar 2012 21:59:03 +0000

Want to know if you have a bias in the market? Stare at the + sign in the middle of the image below to find out.

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What’s The 30-Day Volatility Telling Us?

Darren Miller — Tue, 14 Feb 2012 19:10:13 +0000

I promised myself that I wasn’t going to post anything until my book is done…just another failed New Years resolution I guess. If you look at the chart below you can see that I’ve marked up a few points of interest. The short-term top (1343) for the ramp into 2011 came on February’s option expiration Friday. This was rudely followed by a 2% pullback to 1315 the following Monday (A). After finding support at the 50-day SMA a few days later the market failed to make a higher high and proceeded lower until finding support at 1256 (B). The damage was a 6.5% pullback from peak-to-trough which brought about some healthy gains after that into April and May. Would make a viable scenario for 2012, no?

You’ll also notice what historical and implied volatility were telling the market as well. Insurance is cheap. It’s against the law to drive without auto insurance and most intelligent people I know have homeowners as well as life insurance. Why, especially after this ramp into 2012, wouldn’t you have portfolio insurance? I’m not a bear nor a bull but make my living selling both sides of the market. In the way of disclaimers I’m currently short (5% of my normal sized position) some February call spreads that expire at Friday’s SET price.

[Chart from LiveVol]

ShrinkyLinks

Darren Miller — Sat, 24 Dec 2011 13:19:36 +0000

Ah yes, Virginia was not disappointed this week. Now if it could only snow here in Dallas this weekend. Of course the real test will be what the market brings next week and perhaps even more important 2012. This slow upward grind on low volume was a classic Santa Claus rally so it will be interesting to see if it continues into Tuesday. One interesting observation from Friday was the $VXX performing the way it did. Bill Luby suggests it has to do with the futures (I’d consider him an expert).

For those of you visiting for the first time you may be wondering why a collection of links like this. The reason is simple. I went to school for a very long time and plan on teaching at a university again some day. I do my best to keep abreast of what’s going on in the psychology/counseling profession and share some of the links of things I read during the week. Enjoy the links, your families, the holidays and the extended weekend!

Steve Jobs on Why Computers Are Like a Bicycle for the Mind [Brain Pickings]
Hard economic times and increased suicide [Brain Blogger]
Is 27 really a dangerous age for famous musicians? [BMJ]
Brain strain: We’re not really wired to cut back on shopping [Bend Bulletin]
Habit formation is enabled by gateway to brain cells [Georgia Health]
The science of Santa [NCSU]
What defines our perception of time? [Daily Maverick]
The quest to understand consciousness [Integral Options Cafe]
America needs more geeks: How to make science cool [Time]
How do we split our attention? [McGill]
Social networks matter: Friends increase the size of your brain [The Creativity Post]
An objective measure of consciousness? [Neuroskeptic]
What makes someone an angry drunk? [MSNBC]
Usain Bolt and the end of the world [The Guardian]
The psychology of taste [Creative Loafing]
Give yourself the gift of a healthier you [News Times]

On Average True Range (ATR)

Darren Miller — Wed, 21 Dec 2011 17:12:22 +0000

The average true range (ATR) is a measurement of volatility based on price action moving beyond a defined average (the default is 14 periods and what I’m using for now). In a sense, the ATR is telling us that something is afoot about the stock/sector/etf/market. I recently started tracking the intraday movement of the ATR for each component in the S&P 500 out of curiosity. I calculate the ATR two different ways; one based off the opening price and the other from the prior day’s close. Here’s a few uses of this data that I see fitting into my market participation.

Intraday:

Fading a stock that is approaching intraday support/resistance with an extended ATR. Support/resistance could be in the form of pivots, price, fibonacci and RSI to name a few.

Swing:

Could sell put spreads against a stock that has extended its ATR and is approaching significant support (the inverse is true on the call side/resistance). I prefer to use the weekly pivots (either traditional or Woodie) as significant levels. I see this working well with weekly options and using RSI(2) as a confirmation of a pending pause or pullback.

Sentiment:

Tracking the percentage of SPX components exceeding their ATR to gauge accumulation/distribution days.
A gauge for underlying strength, like breadth, of overall market moves.
Can quickly see leaders/laggards in sectors by sorting via ATR

Overall:

Compare the Beta of the stock to it’s ATR to assess potential for continuation in direction thus expanding the range (volatility).
Could be helpful in gauging implied volatility in option chains to see if it’s increasing as ATR is expanded.

I believe one of the first things to do is determine what the catalyst was for the expansion in the ATR. Find out whether it was specific to the stock (upgrade, downgrade, earnings, etc.) or a market wide move. Then, according to the way you participate in the market, craft a strategy around it all the while managing risk. I’ve just started watching this data and I’m excited about the potential opportunities. There are no doubt tons of other ideas/uses for this data so I’d love to hear any that you have in the comments section below.

ShrinkyLinks

Darren Miller — Sun, 18 Dec 2011 14:53:51 +0000

2011 is nothing but a memory for me as far as trading is concerned. With Friday’s expiration I’ve decided to take the rest of the year off to recuperate and replenish my psychological capital. I do have January orders working and, as most of you know, we truly never completely leave the markets so I’ll be writing/tweeting interesting things I come across just not on a daily basis.

It’s important to take breaks every now and then and unplug from the day-to-day grind. Enjoy the links and your weekend!

Nine Stubborn Brain Myths That Just Won’t Die, Debunked by Science [Lifehacker]
The 20 unhappiest people you meet in the comment sections of year-end lists [NPR]
Brain Waves 4: Neuroscience and the law [Royal Society]
In gift giving, more is not always better [Psych Central]
Chemical and social mechanisms of self healing [Deric Bownds]
Young, Canadian and on antipsychotics [Neuroskeptic]
Inverse zombies studied using anesthesia [Research Digest]
Alter ego: portraits of gamers next to their avatars [Brain Pickings]
Can we be born with psychopathology? [Neurocritic]
Neuroscience, free will and determinism: ‘I’m just a machine’ [Telegraph]
Most of what you know about divergent thinking is wrong [The Creativity Post]
Post-booze blackout, how people fill in the blanks [MSNBC]
‘Brainlink’ lets you remotely control toy robots and other gadgets [Kurzweil]
Smart Drugs “As Common As Coffee”: Media Hype about Neuroenhancement [PlosOne]
A brain’s failure to appreciate others may permit human atrocities [Duke]
Is sexting cheating you out of real intimacy? [PsychAlive]
Was Darwin wrong about emotions? [APS]
Age of criminal responsibility is too low, say brain scientists [The Guardian]

Don’t Be A Jack

Darren Miller — Tue, 13 Dec 2011 21:43:03 +0000

I have a guy that lives down the street from me that I’ve used to tack down loose floorboards, repair cracks in my driveway, clean the gunk out of my gutters and much more. He makes a decent living doing such odd jobs and has a vast knowledge of many things. However, depth of knowledge in any one area is lacking. When I recently had a water heater die on me I thought about calling him then realized I’d need a professional–someone who specialized in water heaters who new exactly what needed to be done to meet city codes. I knew I’d pay more for such a person but I also knew the job would be done correctly.

This is a great analogy of market participation. It’s no secret that I believe we function best in the markets when our trading style matches our personality. I further believe that if you really want to have longevity in the markets you need to specialize in an area. I’m not saying you can’t have multiple strategies that you employ, depending on market conditions, but rather a specialization that is your main source of income.

For me it’s selling premium on the SPX. I know the vehicle inside and out, have a good understanding of how it trades and don’t have to stare at screens all day. I have gigabytes of data that I run analysis on, both in price and the option chains, that help me make informed decisions. That is how I make my living in the markets. It matches very well with my personality. However, that doesn’t mean I don’t trade the occasional $AAPL or $IBM for a swing or trade a few $ES_F on a scalp. My point is that those other trades are but a small fraction of my overall market participation.

If you’ve found a way to trade multiple markets in a variety of ways all while managing risk and being profitable for several years, congratulations. You, however, are not the norm. For the vast majority out there that try to trade someone else’s system or strategy may find short-term success but longevity will be unattainable. They’ll soon abandon that strategy and move on to the next only to repeat with similar brevity. They become a jack of all and master of none either losing their trading capital or, like my handyman, grinding out a decent living.

Don’t misunderstand me, there is nothing wrong with making a decent living. But if the handyman isn’t busting his hump at someone’s house he’s not making money. Being successful in the markets is about so much more than the money itself. It’s about freedom and self-reliance as well. Strive to find a system that fits well with your personality and risk tolerance. Become a master at executing your plan. Like a machine!

Once your trade metrics suggest stability over an extended period of time you can move on to other strategies. Build a foundation in order to have longevity in the markets. There’s no better place to make a living than in the markets.

ShrinkyLinks

Darren Miller — Sat, 10 Dec 2011 12:50:00 +0000

I’ve always wanted to visit Europe but right now I’m so sick of it that you probably couldn’t get me on a plane over their if the trip was free. Don’t get me wrong, as an option trader I love the volatility but too much of anything isn’t good. I’d venture to say we break the 200-day early next week heading into the FOMC. After that it’s anyone’s guess because of opex. Once we clear that I think we make higher highs for the year.

To go along with option expiration this coming week we have quite a few economic reports that could act as catalysts to get us over that 200-day. Tuesday we get retail sales along with the FOMC statement, which could definitely move this market. Thursday brings with it the Producer Price Index (PPI), weekly jobless claims and the Philly Fed manufacturing index. The week closes out with the Consumer Price Index (CPI) and triple witching. The economic data has been improving here in the US of late and maybe once we get through opex we get that Santa Claus rally. Then again, maybe not.

Enjoy the links and your weekend!

The brain basis of “unrealistic optimism” [Research Digest]
Feeling of power influences how we think [PsychCentral]
Oxytocin makes you feel more extroverted [MNT]
The power of smart listening [Time]
Europe and investor behavior [Forbes]
‘Tis the Season for Nostalgia: Holiday Reminiscing Can Have Psychological Benefits [APA]
How preferences affects quick choices [Scientific American]
Vision scientists demonstrate innovative learning method [NSF]
Bee swarms mimic human brain neurons to make decisions [Cornell]
Psychology researcher finds that power does go to our heads [Queens University]
Why people secretly fear creative ideas [PsyBlog]
Sound and vision work hand in hand [UCLA]
Watch a live feed of Saturday’s lunar eclipse [Wired]
Empathic rats spring each other from jail [Discover Magazine]
Research on thinking explains why we make bad decisions [Boston Globe]

Las Vegas Money Show

Darren Miller — Thu, 08 Dec 2011 01:11:42 +0000

I recently had the opportunity to present at the Money Show in Las Vegas. Below is a brief clip of me rambling about whether or not good traders are born. If you found this clip helpful there are others on the site, just search for my name. My presentation at the conference was webcast and recorded. The recording can be seen here.

ShrinkyLinks

Darren Miller — Sat, 03 Dec 2011 13:22:17 +0000

For those that have just started trading you should know that V shaped moves like we’ve seen the past two weeks are perfectly normal. In fact, this high level of volatility is exactly why those of us who’ve been in the business so long love the markets. Not really. In fact it’s becoming tiresome to many, myself included.

If you’re like me you are holding your breath until December 9th when the EU either magically fixes itself or explodes into a billion shards. There are many events this coming week across the pond that will no doubt continue the overnight swings we’ve all grown accustomed to. Enjoy the links and your weekend!

Men really don’t think about sex all day long [Ohio State]
When errors improve performance [LMU]
How rationality can make your life more awesome [Rationally Speaking]
Creative excuses: Original thinkers more likely to cheat [APA]
Are doing harm and allowing harm the same thing? [Brown]
Swearing reduces pain – but not if you do it every day [Keele University]
Guiding lights: Harvard researcher creates neurons that illuminate as they fire [Harvard]
How box scores are like gene sequences: The geek path from baseball to bio [Wired]
Neural (MRI) correlates of effective learning [Deric Bownd]
Do nice guys & girls really finish last? [Notre Dame]
Color is not a black and white issue [Hull]
The neurocognitive connection between physical activity & eating behavior [BMR]
New research distinguishes roles of consciousness and subconscious awareness [Neuroartes]
The concern with self-confidence [Brain Blogger]

Attitrade-Proactive Trading

April’s SPX Range

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Are You Biased?

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What’s The 30-Day Volatility Telling Us?

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ShrinkyLinks

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On Average True Range (ATR)

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Don’t Be A Jack

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ShrinkyLinks

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Las Vegas Money Show

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