Being Right or Making Money

Submitted by Options Trading Signals

Learn How Out-of-the-Money Butterflies Create Profits Trading SPX

Over the past few weeks the broad stock market has seemingly grown
increasingly more bullish. Market pundits, traders, and even high
profile money managers are stating publicly that the easy trade over the
next few years will simply be being long high quality stocks. While
time may prove these managers wise, it is likely a bit early to be that
bullish.

As a trader, our job is to create profits consistently regardless of
price action. The best traders are masters of blocking out the noise and
emotion, and letting various forms of data guide their decision making.
At this point in time the bulls have the bears pushed against key
resistance at the SPX 1150 area. However, the bears have their eyes set
on the 1130 level and from there the key SPX 1040 support area.

If the S&P 500 breaks out over the 1150 area with strong volume
we could move higher to test recent highs; however, if the 1040 area
were to give way to the bears the bullish parade would end. At this
point in time, it is too early to tell which side is going to win this
battle. The monthly chart of SPX tells the entire story.

Until proven otherwise, my bias is to the downside. What might
surprise most readers is the reasoning behind my thinking. My
expectation of lower prices has nothing to do with macro economic
conditions, it has nothing to do with unprecedented intervention that we
have witnessed by the United States federal government, and it has
nothing to do with housing numbers. The reasoning behind potentially
lower prices is simple, defined risk. The SPX chart above and even the
daily chart listed below are both indicative that the SPX 1150 area is a
critical psychological level for market participants. We are literally
at a precipice right here, right now.

When major resistance or support is very near the current spot price
of any underlying, typically low risk/reward setups can be found. After
spinning through several ideas and option strategies, an out of the
money butterfly spread seemingly made a lot of sense. The out of the
money butterfly spread would benefit from the passage of time and would
not be as exposed to a comeuppance in volatility. This strategy could
produce a great potential return for a defined amount of risk.

After some brief analysis, the best proxy was using the Spider ETF
SPY as opposed to the SPX index. The bid/ask spreads are quite wide on
SPX at times, particularly when volatility is rising. Consequently, it
can be arduous to get decent fills from the SPX market makers in rapidly
moving market conditions which seem to be the norm recently. Besides
the normal option expiration on monthly or quarterly basis, options that
expire every week have grown in popularity recently. A primary reason
why volumes have exploded is due to the weekly expirations routine
offering of unbelievable risk/reward setups, particularly through the
utilization of Theta (time) decay trading setups.

After running through various expiration dates, it made since to
utilize the October weekly options that expire on Friday, October 8.
Since I have a bias to the downside, I used an out of the money put
butterfly. Traditional butterflies are typically written where the
current price is straddled by the wings of the butterfly spread. In an
out of the money butterfly, an option trader places the entire position
out of the money. It helps reduce the cost of the butterfly, and because
the option contracts are out of the money, they are not impacted as
harshly by rising volatility. In addition, these out of the money
butterflies usually have very attractive risk/reward characteristics.

SPY was trading around $114.13/share at the close on Thursday, so the
out of the money butterfly I constructed had the following strikes:
Long 1 OCT WKLY. SPY 108 Put / Short 2 OCT WKLY. SPY 111 Puts / Long 1
OCT WKLY. SPY 114 Put. Here is a snapshot of the SPY October weekly
option chain as of the close Thursday:

The Thursday closing option prices are as follows for the butterfly
mentioned above: SPY 108 Put = $18/contract; SPY 111 Put = $37/contract;
SPY 114 Put = $127/contract. The total cost to place the out of the
money SPY weekly put butterfly would have been $71 per side (not
including commissions). The maximum gain at expiration on this trade
would be a close at $111/share on SPY and it would produce a profit
around $225 (not including commission).

Clearly we would not expect to achieve the maximum gain, but this
trade would produce a profit if SPY closed between $108.70/share and
$113.30/share at expiration (October 8). The profitability chart is
below; keep in mind that the red line is the valuation at expiration and
the white line would be the profit based on that particular day.

Obviously market conditions throughout the trading day Friday and
next week will alter the prices and implied volatility of this trade.
This should not be viewed as a trade that should be taken, but an
example of what kind of returns are possible for option traders that
want to use out of the butterflies with a directional bias.

The most exciting thing about a trade like this is that the trader
can crisply define his/her risk. When the maximum risk is a specified
amount, managing risk becomes almost arbitrary. A trader simply
determines how much he/she is willing to risk/lose, and simply places
the trade. A mere $142 risk could produce a potential profit well over
$450! Keep in mind, that should price move within the confines of the
outer strikes (wings) of the butterfly, it might make sense to take
profits depending on the size of a trader’s position. Typically I like
to take profits once price action has produced a gain of 10-20%
depending on market conditions, time frame, and the strategy that I am
using. After taking profits, I typically utilize contingent stop orders
for the remainder of my position and manage it accordingly.

There are additional manipulations that could be made if price looked
like it were going to break below the 108 strike level that would allow
this trade to either remain essentially flat or potentially profit even
more. Additionally, a similar trade using calls could be placed using
the weekly call strikes 115/118/121 for a trader who was bullish.
Regardless of a trader’s directional bias, the beauty of options is not
only their ability to produce setups where risk is clearly defined, but
the potential to manipulate a position in real time allows for
fluctuations in price action or market conditions.

As for the direction of the market, who knows what the next six
trading sessions will bring. Sometimes not trading is the best trade,
but if you absolutely feel you must have some exposure, keep positions
small, risk exposure tight, and do not hesitate to take profits – easier
trades lie ahead.

If you’ve ever been to Iceland, you probably noticed that there are no old people there.  My personal theory is that they throw old people into tar pits like on The Dinosaurs. But if you ask any Icelanders where there hell everybody over 40 is, they’ll usually shrug or laugh or give some non-committal answer like “they‘re around,” mainly because they don’t actually know. Similarly, nobody knows for sure what happens seven years down the road to all the first years that started. Because even if you tally up all the farewell emails, a few of your co-workers will remain unaccounted for, in the tomb of the unknown lawyer…

id="more-41206">

A lot of your missing brethren will of course have been pushed out or stealthily laid off; but probably an equal amount will have to do other, more rewarding things, like abscond with partners from foreign offices, quit to start baked goods businesses, become legal bloggers, go back to school, hang out a shingle, hang out a shingle because they work as roofers, marry rich, find God, get pregnant, have mental breakdowns, etc. Only the spectacularly lazy can go six or seven years at a firm and not find a single more rewarding, somewhat remunerative job somewhere out there, because they’re everywhere.  For instance, The Container Store is now hiring.

What is truly ridiculous about your question is that you seem to think that lateraling out of your firm is a now-or-never bet. As if you stay one day beyond being a third year, no firm will ever take you. As if  you’re a 30-year-old blogger with a $4,000 credit limit who goes to pet lifestyle events. Luckily, you haven’t sunk that low yet. If you grow tired in a year or two – or ten – of making a crap income for slave labor at your cheap firm, you can always lateral if you’re good at your job and/or a rainmaker. There’s no point in lateraling now when you have three skills; wait until you know how to do something other than send around the dial-in. Or at least until you’ve got a higher credit limit.

Your friend,

Marin

HOMER: Wow, Mr. Burns, you’re the richest man in the world! You own everything!/> MR. BURNS: Ah, yes, but I’d give it all away to have just a little bit more.

Look brother, I understand that it can be tough living in this city unless you have money pouring out of your ears. Trust me, I get it. But come on man, you’re talking about throwing away a good, secure job and a pleasant lifestyle for a couple of extra dollars. During a recession? Why would you do that?

I’m not going to tell you that money can’t buy happiness. That’s clearly false; I don’t care how badly Cliff Lee embarrasses me on national television, I’d still trade places with Derek Jeter or Alex Rodriguez (or their agents) in a second.

So sure, more money might make you happier. Bur chasing money to the exclusion of all else could make you significantly more sad. I’m saying that you might easily find that you are now using your money induced happiness to replace the happiness you used to derive from: coming home at a reasonable hour, working with nice people, feeling like you are something more than a faceless cog in the machine, and having your colleagues treat you with respect. Could banging Minka Kelly make up for that? Almost certainly! But it’s not like trading up for an extra $30K a pop is going to suddenly make you (ahem) rich enough to pull those kinds of perks.

At the end of the day, you’re just going to be the same lawyer who has a little more money in your pocket.

I don’t think it’s worth it dude, but I’m also the guy who left a lot of cash on the table to start down this path. Maybe you should ask somebody who has fully sold out whether or not the extra cash fills the gaping hole where their soul used to be? I’m not exactly friends with him, but I can give you LeBron James’s phone number if you want to talk about this a little more./> – Jane Jacobs

style="text-decoration: underline;">Ed. note: Have a question for next week? Send it in to advice@abovethelaw.com.

The Fox <b>News</b> “Lawn Jockey” and The Tolerant Left | RedState

Juan Williams' firing did not happen in a vacuum. It happened in the context of him having been the official Fox News lawn jockey stooge for years.

BREAKING <b>NEWS</b>: No Jail For Lindsay Lohan - Judge Orders Her To <b>...</b>

http://link.brightcove.com/services/link/bcpid16157557001/bctid645210306001 Lindsay Lohan caught a major break on Friday when Judge Elden Fox chose not to send her to jail and ordered her to stay in rehab at the Betty Ford Center.

Fox <b>News</b> Gives Juan Williams $2 Million Contract | 89.3 KPCC

NPR has been sharply criticized for terminating the contract of news analyst Juan Williams for remarks he made about Muslims. Williams appeared on Fox's "The O'Reilly Factor" Thursday night to respond to NPR's decision.

eric seiger eric seiger

Submitted by Options Trading Signals

Learn How Out-of-the-Money Butterflies Create Profits Trading SPX

Over the past few weeks the broad stock market has seemingly grown
increasingly more bullish. Market pundits, traders, and even high
profile money managers are stating publicly that the easy trade over the
next few years will simply be being long high quality stocks. While
time may prove these managers wise, it is likely a bit early to be that
bullish.

As a trader, our job is to create profits consistently regardless of
price action. The best traders are masters of blocking out the noise and
emotion, and letting various forms of data guide their decision making.
At this point in time the bulls have the bears pushed against key
resistance at the SPX 1150 area. However, the bears have their eyes set
on the 1130 level and from there the key SPX 1040 support area.

If the S&P 500 breaks out over the 1150 area with strong volume
we could move higher to test recent highs; however, if the 1040 area
were to give way to the bears the bullish parade would end. At this
point in time, it is too early to tell which side is going to win this
battle. The monthly chart of SPX tells the entire story.

Until proven otherwise, my bias is to the downside. What might
surprise most readers is the reasoning behind my thinking. My
expectation of lower prices has nothing to do with macro economic
conditions, it has nothing to do with unprecedented intervention that we
have witnessed by the United States federal government, and it has
nothing to do with housing numbers. The reasoning behind potentially
lower prices is simple, defined risk. The SPX chart above and even the
daily chart listed below are both indicative that the SPX 1150 area is a
critical psychological level for market participants. We are literally
at a precipice right here, right now.

When major resistance or support is very near the current spot price
of any underlying, typically low risk/reward setups can be found. After
spinning through several ideas and option strategies, an out of the
money butterfly spread seemingly made a lot of sense. The out of the
money butterfly spread would benefit from the passage of time and would
not be as exposed to a comeuppance in volatility. This strategy could
produce a great potential return for a defined amount of risk.

After some brief analysis, the best proxy was using the Spider ETF
SPY as opposed to the SPX index. The bid/ask spreads are quite wide on
SPX at times, particularly when volatility is rising. Consequently, it
can be arduous to get decent fills from the SPX market makers in rapidly
moving market conditions which seem to be the norm recently. Besides
the normal option expiration on monthly or quarterly basis, options that
expire every week have grown in popularity recently. A primary reason
why volumes have exploded is due to the weekly expirations routine
offering of unbelievable risk/reward setups, particularly through the
utilization of Theta (time) decay trading setups.

After running through various expiration dates, it made since to
utilize the October weekly options that expire on Friday, October 8.
Since I have a bias to the downside, I used an out of the money put
butterfly. Traditional butterflies are typically written where the
current price is straddled by the wings of the butterfly spread. In an
out of the money butterfly, an option trader places the entire position
out of the money. It helps reduce the cost of the butterfly, and because
the option contracts are out of the money, they are not impacted as
harshly by rising volatility. In addition, these out of the money
butterflies usually have very attractive risk/reward characteristics.

SPY was trading around $114.13/share at the close on Thursday, so the
out of the money butterfly I constructed had the following strikes:
Long 1 OCT WKLY. SPY 108 Put / Short 2 OCT WKLY. SPY 111 Puts / Long 1
OCT WKLY. SPY 114 Put. Here is a snapshot of the SPY October weekly
option chain as of the close Thursday:

The Thursday closing option prices are as follows for the butterfly
mentioned above: SPY 108 Put = $18/contract; SPY 111 Put = $37/contract;
SPY 114 Put = $127/contract. The total cost to place the out of the
money SPY weekly put butterfly would have been $71 per side (not
including commissions). The maximum gain at expiration on this trade
would be a close at $111/share on SPY and it would produce a profit
around $225 (not including commission).

Clearly we would not expect to achieve the maximum gain, but this
trade would produce a profit if SPY closed between $108.70/share and
$113.30/share at expiration (October 8). The profitability chart is
below; keep in mind that the red line is the valuation at expiration and
the white line would be the profit based on that particular day.

Obviously market conditions throughout the trading day Friday and
next week will alter the prices and implied volatility of this trade.
This should not be viewed as a trade that should be taken, but an
example of what kind of returns are possible for option traders that
want to use out of the butterflies with a directional bias.

The most exciting thing about a trade like this is that the trader
can crisply define his/her risk. When the maximum risk is a specified
amount, managing risk becomes almost arbitrary. A trader simply
determines how much he/she is willing to risk/lose, and simply places
the trade. A mere $142 risk could produce a potential profit well over
$450! Keep in mind, that should price move within the confines of the
outer strikes (wings) of the butterfly, it might make sense to take
profits depending on the size of a trader’s position. Typically I like
to take profits once price action has produced a gain of 10-20%
depending on market conditions, time frame, and the strategy that I am
using. After taking profits, I typically utilize contingent stop orders
for the remainder of my position and manage it accordingly.

There are additional manipulations that could be made if price looked
like it were going to break below the 108 strike level that would allow
this trade to either remain essentially flat or potentially profit even
more. Additionally, a similar trade using calls could be placed using
the weekly call strikes 115/118/121 for a trader who was bullish.
Regardless of a trader’s directional bias, the beauty of options is not
only their ability to produce setups where risk is clearly defined, but
the potential to manipulate a position in real time allows for
fluctuations in price action or market conditions.

As for the direction of the market, who knows what the next six
trading sessions will bring. Sometimes not trading is the best trade,
but if you absolutely feel you must have some exposure, keep positions
small, risk exposure tight, and do not hesitate to take profits – easier
trades lie ahead.

If you’ve ever been to Iceland, you probably noticed that there are no old people there.  My personal theory is that they throw old people into tar pits like on The Dinosaurs. But if you ask any Icelanders where there hell everybody over 40 is, they’ll usually shrug or laugh or give some non-committal answer like “they‘re around,” mainly because they don’t actually know. Similarly, nobody knows for sure what happens seven years down the road to all the first years that started. Because even if you tally up all the farewell emails, a few of your co-workers will remain unaccounted for, in the tomb of the unknown lawyer…

id="more-41206">

A lot of your missing brethren will of course have been pushed out or stealthily laid off; but probably an equal amount will have to do other, more rewarding things, like abscond with partners from foreign offices, quit to start baked goods businesses, become legal bloggers, go back to school, hang out a shingle, hang out a shingle because they work as roofers, marry rich, find God, get pregnant, have mental breakdowns, etc. Only the spectacularly lazy can go six or seven years at a firm and not find a single more rewarding, somewhat remunerative job somewhere out there, because they’re everywhere.  For instance, The Container Store is now hiring.

What is truly ridiculous about your question is that you seem to think that lateraling out of your firm is a now-or-never bet. As if you stay one day beyond being a third year, no firm will ever take you. As if  you’re a 30-year-old blogger with a $4,000 credit limit who goes to pet lifestyle events. Luckily, you haven’t sunk that low yet. If you grow tired in a year or two – or ten – of making a crap income for slave labor at your cheap firm, you can always lateral if you’re good at your job and/or a rainmaker. There’s no point in lateraling now when you have three skills; wait until you know how to do something other than send around the dial-in. Or at least until you’ve got a higher credit limit.

Your friend,

Marin

HOMER: Wow, Mr. Burns, you’re the richest man in the world! You own everything!/> MR. BURNS: Ah, yes, but I’d give it all away to have just a little bit more.

Look brother, I understand that it can be tough living in this city unless you have money pouring out of your ears. Trust me, I get it. But come on man, you’re talking about throwing away a good, secure job and a pleasant lifestyle for a couple of extra dollars. During a recession? Why would you do that?

I’m not going to tell you that money can’t buy happiness. That’s clearly false; I don’t care how badly Cliff Lee embarrasses me on national television, I’d still trade places with Derek Jeter or Alex Rodriguez (or their agents) in a second.

So sure, more money might make you happier. Bur chasing money to the exclusion of all else could make you significantly more sad. I’m saying that you might easily find that you are now using your money induced happiness to replace the happiness you used to derive from: coming home at a reasonable hour, working with nice people, feeling like you are something more than a faceless cog in the machine, and having your colleagues treat you with respect. Could banging Minka Kelly make up for that? Almost certainly! But it’s not like trading up for an extra $30K a pop is going to suddenly make you (ahem) rich enough to pull those kinds of perks.

At the end of the day, you’re just going to be the same lawyer who has a little more money in your pocket.

I don’t think it’s worth it dude, but I’m also the guy who left a lot of cash on the table to start down this path. Maybe you should ask somebody who has fully sold out whether or not the extra cash fills the gaping hole where their soul used to be? I’m not exactly friends with him, but I can give you LeBron James’s phone number if you want to talk about this a little more./> – Jane Jacobs

style="text-decoration: underline;">Ed. note: Have a question for next week? Send it in to advice@abovethelaw.com.

The Fox <b>News</b> “Lawn Jockey” and The Tolerant Left | RedState

Juan Williams' firing did not happen in a vacuum. It happened in the context of him having been the official Fox News lawn jockey stooge for years.

BREAKING <b>NEWS</b>: No Jail For Lindsay Lohan - Judge Orders Her To <b>...</b>

http://link.brightcove.com/services/link/bcpid16157557001/bctid645210306001 Lindsay Lohan caught a major break on Friday when Judge Elden Fox chose not to send her to jail and ordered her to stay in rehab at the Betty Ford Center.

Fox <b>News</b> Gives Juan Williams $2 Million Contract | 89.3 KPCC

NPR has been sharply criticized for terminating the contract of news analyst Juan Williams for remarks he made about Muslims. Williams appeared on Fox's "The O'Reilly Factor" Thursday night to respond to NPR's decision.

eric seiger eric seiger