The room at the Palazzo is amazing.

Greed is a bad thing

2k with 50 roundturns.  Then the market just hammered me.  At least I made out almost even with my cost of execution.  But I definitely learned new ways to control losses – one way paper flow isn’t the way you want to do it! J

Crappy day

Well, today is a tougher day of trading.  Things didn’t work out my way.  It was easy initially, but the market turned against me.  Good thing is I never used my max position.  The most I have in the open is 12 positions.

Not a lot of vol today.

Continuing with my strategy.  This month has been pretty good.  No losses as of yet.  With any trading, key is strategy, risk management, and capital.  Simulation is simulated with 50k credit. 

What a short covering day in the market

Well, the market rebounded from the fear.  The problem is the fundamental problem still exist – credit, not just cooperate credit problems but consumer’s credit issue as well.  The market is buying on rumors: any rumors that is good because great after couple of degrees of separation.  People start to think everything will be fine and traders starts to buy.  You get just enough of a push from the buyers at these prices, you get a huge short covering.  What goes down must come up (in a broad market – some stocks can go to zero, but broad market can’t unless the country stops trading completely).  What goes up must come down.  Right now, we came down too hard.  (I didn’t say too much).  Too steep of a fall will incur a price adjustment.  Too much doesn’t mean it is not justified if it is done overall time.  Here we have the largest price and percentage drop ever.  It is the opportunity to buy in the short term and take profit whenever you can. 

We love to see Yashil, even if it is over the internet. "Cutie pie!"

Like taking candy from babies

Ok. This morning's volatility is pretty crazy. But that is all good.
10 minutes of trading with all limit orders. The market is getting
swept up and down. People are scared of putting huge positions out in
the open. Let's see what the dumb@ss at 1600 Pennsylvania Ave has to
say in a bit. Done trading for the day.

More Trading

I didn’t have time to trade yesterday.  So no P&L for yesterday.

So far, I haven’t done any today either.  I did make the right call to a friend this morning saying “sell , sell, sell” when the DOW was up.  The credit market problem is more severe than people realize.  The $700 billion only addresses the mortgage debt.  We haven’t even begun talking about credit card and commercial real estate debt.  The banks will not loan out money to people who are behind on bills.  These banks took enough of a hit in the mortgage debts that they learned their lessons – people making 40k shouldn’t live in a 1 million dollar home, and this lesson is being learned by the credit units.  They will stop giving credit to people who are already in debt – giving them more credit doesn’t help bank any bit. 

I don’t understand why people would rack up a ton of credit card debt.  People just don’t know who to live within their means.  We make decent money, but we live in a town house, drive a ‘99 Camry with 150k miles and a ’01 Eclipse with 80k miles.  We can totally get a BMW or a Mercedes if we want, but we don’t want to stretch our finances.  A wise CEO (well… was wise at one point until he stopped listening to his own advice) said “risk management is controlling of losses so you can fight another day”.  That is by Fuld who was the CEO of Lehmans, 3 months before Lehmans went under.  We want to control our risk so we have a rainy day fund, and we have enough so we don’t have to live on the streets.  This country is not a country where everyone gets bailed out.  People need to start to wake up and smell the reality.  The reality is that people in this country live like royalties because a lot of people here think money is free and will always be there.  My parents came here with two suit cases.  I remember my dad made around $500 a month in 1988-1989.  He saved enough for two airline tickets for my mom and I to come and enough to have a rainy day fund – which we needed when things got bad during the 89-92 recession.  I remember we didn’t buy new clothes, fancy electronics, etc.  We bought what we needed.  I am not saying we all should be that way, but a little financial conservatism is key to financial stability.

Speaking of stability, I would recommend anyone with a large exposure out in the market to hedge 20-25% of their exposure on the short ETFs.  SH is a good one. 

Crazy trading day

Wow.  Another crazy day on the market.  I didn’t have time to be in the market today.  Had several shorts before going to a meeting.  I had set an OCO order before going to the meeting.  Too bad I didn’t set the OCO deep enough, otherwise, my shorts would have made a killing today.  Oh well.  Anyway, here is my P&L today. 

The Amazing Ravi Shankar

Went to a Ravi Shankar concert today.  He is 88. Supposedly, this is his last concert.  

10/3/2008's P&L in Simulated Environment

As you can see, 10/3's trades were not as efficient as trades done on 10/2.  Reason being, I took a short position in the morning and fared badly - causing me to take a big loss.  But the key thing is understanding of the market psychology and adjusting your trading strategy constantly to fit TODAY's market.  So for 1:30 of working the market (remind you, I am not looking at it all the time since this is just something I do on the side), $1000.00 is not bad at all.  Nice bonus for the day, if it was real money.  :) 

Let's see what the afternoon session brings.  I am not sure if I want or have time to trade more in the afternoon.

Well, one of my standing limit order was filled.  I set it at a retracement level.  The market moved through it.  Here is my latest after about 5 minutes in the market starting at around 11:31am and ended with my fills at 11:36.

OK!!  Wow.  Somebody ate something not right at lunch.  Market took a nose dive at 12:30.  I was right at the beginning trending with the market.  Then the market swung against me.  Took a bad trade and make a bigger bad trade.  Had to get out when ES hit +9 (from + 30).  Then came back up through good disciplined trading in high volatile markets.  Still not sure why the ES was moving this much.  Maybe the news of the vote or an estimated vote count on the bail out.

Done for the day.  Lunch time was exciting and crazy!  Speculation of ES is not for everyone.  You gotta have patience and be able to pull the trigger on both profit and loss sides.  Some day, you have to take a loss.  I have only posted about 2 days of P&L, but tracking the entire month of June and July put me at +2k.  Hopefully the last few months have let me refined my strategy under different market conditions a bit better.

Final count for the day.

10/2/2008's P&L in Simulated Environment

ES Margin Requirements

CME just increased the margin requirements for the E-mini.  It has gone up to 2532.00 per side and x2 if holding overnight.  E-mini is still my favorite vehicle  for trading.  I am continuously refining my strategy.  I use a SIM trading environment that is pretty good in giving me the order statuses.  I am also only using 1 lot orders to limit my exposure in the ES market.  Like I said in my previous posts, the market can swing 20+ ticks against you.  I read that one person lost 1 million while holding 700 ES in about 3 seconds.  So key to my trading is limiting loss.  As any trader, you are looking for lots of gains in pennies while trying to avoid nickel size losses.  So far, pretty good.  Up 2000.00 today.  I will keep a journal of my performance starting today of my trades.  I am not going to post any fills or time and sales information.  But definitely, for my own interest, keep a log of my strategy's P/L on the simulated environment.

Options

A lot of people I know has started to trade options.  It is a good way to make A LOT of money in this volatile market.  Problem is that people tend to open one sided positions.  That is a recipe to lose a lot of money.  As any trades, hedging is key – especially when you are dealing with derivatives.  So how should I make money when the market is swing 3-500 points a day (probably more if you did the math from day low to day high instead of the open to close delta)? 

You can hold (long) puts or calls, or you can write (short) puts or calls.  The combination of these can limit the losses; however, it will also limit your gains.  As volatility increases in the market, the premium for puts and calls also increase.  As a writer of calls or puts, you can make good money from the premiums.  However, the market can totally break on you.  But I think it is still an advantage to write naked puts on some good companies.  Here are the reason why:

1)      In this down market, put premiums are high, even with front month expiries. 

2)      Solid companies that are knocked down can, in the long term, rebound.  Think companies like GE, COKE, WMT, IBM, etc.  Remember to do this research before picking what stock to write naked puts. 

3)      If you are assigned by the exchange, the premium you got from writing the naked put let’s you buy that stock cheaper than the strike.  I recommend writing a longer expiry put since the time decay with high volatility will give you the most premium. 

4)      When you are assigned the shares, you can then turn to covered call write and hold the shares for long term investment.  Remember, we are not traders.  We are investors.  There is a clear line that separates a trader and an investor.

Strangle or straddle are good strategies to use in this market as well, but the premium on the two sided trades can get pretty high and you pay 4 commissions total for these type of trades.

Crazy E-MINI Price Movement on 9/29/2008

I have NEVER seen the market move like this (I didn’t trade on 9/11).  At one time, the market moved down 40+ handles on a single trade.  Almost all the depth orders are pulled. 

 

So how do you trade in an environment where the market is moving through 10, 20, 40+ handles?  You have to trade with very small orders.  For the E-mini, you should only put 1 lot order.  If the market slams against you, you have to take the loss and move-on to the next trade.  Do not attempt to fight back the market in this volatility as you will build up bigger positions that may smash you.  Remember, volatility is always your friend when you are a trader.  Extreme volatility is your opportunity.  With that much volatility, you need to ride the wave - not fight against it.  Take the loser and move on.  The next trade can sweep back all your losses and more.  Obviously, you have to know when to enter a trade, when to fight back a bad trade, and finally when to dump that loser.  With the volatility today P&L swung quite a bit.  It was easy to be up 5k and then down 5k.  But the key thing to any trade is loss aversion.  It’s like playing poker.  You may have a great trade or you may even have the right trade, but the market can be completely irrational and bust you.  It’s like going all in with aces at the turn and get busted.  You never know what the market can do.  You can only base your trades on experience, quick reactions to the market, and a little bit of luck.  Derivatives trading is zero sum.  So remember, when you win, someone else loses.  No one wants to be the loser at the end of the session.

 

Happy trading.  I am sure the next couple of days will be great for smart traders and terrible for investors.

At Karina's 1st birthday

We went to Karina's birthday party.  She turned 1. 

Adding and removing liquidity

What is adding liquidity and removing liquidity?  Why do I need to know about it when I trade?

When you place a trade, your order is either a buy or sell (doesn’t matter time or order type restrictions).  If your order increase the order quantity (at any price) of an exchange (immediately), you are adding liquidity.  If you order decreases the order quantity (immediately), you are removing liquidity.  Here is how it works:

                The market is trading at 18.01x18.04 for INTC.  Let’s pause the market for a moment. J

                If you join the best bid at 18.01, you are providing liquidity.  Why? Because you just increased the order quantity at that price.

                If you placed bid anywhere in between 18.01 and 18.04(not including 18.04), you are providing liquidity.  Because you have added orders that closed the bid/ask spread and this order is not matched (no one is offering at 18.02 or 18.03 yet).  So you are adding order quantity into the exchange’s order book.

                Same thing for the offer, just reverse the logic.

The idea here is that exchange want more people to come and trade.  Exchanges are typically referred to as markets – think of it (most of us Asians are familiar with this) as an open market bazaar.  The bazaar wants more buyers _and_ sellers, so they can build up their reputation as the place to get your goods.  Exchanges wants more buyers and sellers to come and places their goods (stocks/options/warrants/bonds, etc, etc) and money.  They are willing to charge you less if you come in and make the exchange look busier.  If everyone goes to NYSE and just bought or sold at the market price, there will be nobody left at the exchange (well, you will never get into this case due to MM, LMM, Specialists, DMM, etc, but you get the idea). 

Basic idea is you pay less to trade if you increase order quantity on the exchange’s order book.  You pay more to trade if you decrease the order quantity on the exchange’s order book.  How much?  Very little, but if you are a big time trader, it adds up to 6, 7, 8 figures!

Google's G1 mobile phone is out. Here are some advantages and disadvantages

G1 is Google’s first commercial attempt at mobile phone.  In the US you can only get the G1 from T-Mobile: Google follows iPhone’s rollout path with a single carrier and a negotiated pricing.  The G1 sells for $179.00 + monthly voice plan + monthly data plan.  The initial cost is a bit cheaper than iPhone.  The following is what I identified as advantages and disadvantages of G1.

 

Advantages

Open source platform – G1 is based on Android.  This allows potentially many different applications being developed in the future for your G1.

QWERTY keyboard for easy texting and messaging – Touch screen keyboard lacks the touch we are used to when typing.  Many people are not used to touch screen keyboards.

 

Disadvantages

No MS Exchange connectivity – Any cooperate users will not be able to access business email.

No multi-touch screen support – The touch screen only recognizes one touch on the screen even if you have multiple fingers touching the screen.  For example, on iPhone you can expand and contract a photo by expanding and contracting with two fingers while touching the screen.

Less memory than iPhone – G1 contains only 1GB of memory compare to iPhone’s 8GB. 

 

The lack of Exchange support prevents G1 from penetrating into the lucrative cooperate users market.  I won’t expect Google to support Exchange anytime soon since that will be in conflict with server side application strategy (Google apps).  But I do expect a 3^rd party to provide an application with Exchange support.

 

Overall, I think Google has the right direction – people moving away from stationary devices (from desktop to laptop to mobile devices), but they missed the mark(by Google standards) on their 1^st release of a mobile device.  Multi-touch screen allows more intuitive human machine interaction.  The lack of Exchange support is critical error.  I was looking for some big game changing device from Google; a device with open source, Exchange connectivity, multi-touch screen, GPS, WiFi, and a kill app.  They gave us no killer app on a water downed iPhone with keyboard and open source.  Apple doesn’t have strategic initiatives (server side applications) that conflict with iPhone product features; they can easier release a iPhone with a keyboard and provide a toolkit to programmers.

 

Give-up trade

This is confusing to me.  But I think I got it.  Think give-up as the executing broker giving up the identity of the broker that holds the account.

With that, let's run through an example.

You have an account with UBS.  You called your broker and told him/her "I want to buy 100 shares of Intel - INTC at $18.00".  For whatever reasons - maybe he doesn't trade stock much so his trade will be charged more by the exchange, or he is way too busy at the time, or he needs to go to the bathroom, etc, etc - the broker at UBS calls another trader (whether internal or external, but someone he trades with and has a relationship with) and tells this trader "hey, can you trade 100 shares of INTC at 18.00 as a giveup?".  This trader, who does NOT have your account, must enter the UBS brokerage id and the account number and send this order out to the exchange.

Now, the seller.  The seller who sells 100 shares of INTC at 18.00 typically doesn't see a counterparty information.  But here, the seller sees a fill of 100 shares at 18.00 with a counter party information.  Hence give up here gives up the brokerage house.

Also, the executing broker has to give up the executing fee to the UBS trader EVEN though the UBS trader didn't execute the trade.  Maybe next time, when the executing broker needs something from the UBS trader, he gets his back scratched in return.

Our Madrid/Egypt Trip

We have decided (two months ago) to go to Egypt.  Our flight takes us to Madrid for an 8 hr layover.  We decided to make a trip in Madrid instead of just hang out at the airport.  We are staying in Madrid from 12/20^th to 12/23^rd.  Our Egypt trip will take us to Cairo, Siwa, Baharia, Luxor, Aswa, Abu Simbel, and finally to Sharm el-Sheikh.  We will try to do all that from 12/24^th to Jan 4^th.  It will be quit intense and exhausting.  We are going with a large group of friends.

 

Today’s news about tourists kidnapped in Egypt is certainly worrisome.  Abu Simbel is close by the Sudan boarder.  Siwa/Baharia is in the middle of Egypt’s western desert.

Refinance of our mortgage

We have decided to refinance our mortgage.  After a long search, we have decided to go with Wachovia.  We faxed some initial paper work to them to get the process started. 

At the Cubs game

Go Cubs Go

We got to the game late since I really wanted to eat at Piece - pizza place in Wicker Park area.  They have the best pizza.  Cubs alreay won their division, but it is still fun to go to the game.

What's in my ice cream?

100% all pure man made flavor.  Yum!  Stores should stop carrying items like these.  Artificial flavoring is really bad for your body.  Oh yeah, the ice cream is also sweetened with core syrup instead of sugar.  

Watching the "Indian Spiderman" on you tube.

Apparently, its really funny if you understand Gujurati.  I haven't seen it, nor do I understand Gujurati.  But I will check it out.

The annoying sisters - the kitas - are here, again...

They are fun to hang out with. Although I hate being outnumbered by females in the house. I need more guy friends, to talk about beer, football, hot babes, haha..j/k, and just stupid stuff where the conversation doesn't have to be so involved. And if I want to space out, its ok. No guy will get their feelings hurt if I didn't pay attention to their stories: "uh....yeah man.. That's rough. Wanna beer?"

Binish and Nina over at our house for Mexican food!

Binish loves fake beef. Here he is stiring up some of his favorite juicy beefy tacos. Heena doesn't support the meat industry, even if it is fake. Nina just enjoys her wine! I love beef... real or fake, and wine!

Our nephew, Yashil.

Yashil is really cute. He can walk now and say a few words. I am trying to get him to say "Masi", but he still won't do it.

Jeff's Bachelor Party in Tahoe

Testing the mobile blogging feature from my work email

Just setup the account and trying it out.

Spots to visit at the Taste of Chicago 2008

I think the taste raised the prices. Not sure though. This year it is 12 tickets/$8.00. Most of the taste portions are 4 tickets each.

Arya Bhavan - I had the taste portion samosa. It is OK. Filling lacked texture, but the crust was good (any dough that is deep fried has to be good).
Mazzone's Italian Ice - get the taste portion. Really good to cool down and refresh up for more food!
A Natural Harvest - I haven't had the chance to try it this year. I walked by today. I remember the tamale I had 2 years ago from here was terrible.
Wow Bao - Walked past it. Don't remember if they had vegetarian food there. I am not a huge fan of this place. Bao is OK... not really wow!

Nutrisoda was giving out free taste of their soda. Pretty good. Kinda like an energy drink but no caffeine. Of course, I visited the beer truck. Bud light. Always worthy of 8 tickets/12 oz.

Places I want to try next week:
I don't remember the name of the booth, but this place has cheese nachos. Yum!
More to come.

Being a Chinese vegetarian

Chinese have the reputation to eat anything that moves. So being a Chinese vegetarian is really hard because the Chinese culture revolves around eating, and a lot of times, eating meat. My journey as a vegetarian started with meeting my wife, who is a Jain. For those of you don't know or haven't even heard of the religion Jain, it is a religion that is based on non-violence. My wife is Indian, and compared to me, pretty religious.

more later about how I feel about being a veg. and most of all, what have we found that have satisfied a former meat eaters craving with fake meat products! :-)