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.