Options naked straddles: A more modest approach

For those who have been active in the markets for a quarter-century or more, it’s difficult to find anything unique. But when it comes to options, the list of strategies is enormous. These include such methods as bull put spreads, butterflies, iron condors, bear call spreads, straddles, strangles, etc. Then, there are variations. Here, we’ll look at one variation of the classic straddle called the scantily clad straddle.

The scantily clad straddle is a premium-capturing program that involves selling the straddle and then placing orders in the underlying commodity to provide a level of coverage should the underlying move significantly in one direction.

The scantily clad straddle can be used in any market that has options, including futures, forex, stocks and bonds.

For those new to options, a straddle is a trade that engages both at-the-money put and call options. If the S&P 500 futures are trading at 1,000, then selling the straddle would involve selling the 1,000 put and the 1,000 call. A long straddle would purchase both options. A straddle is usually a volatility play rather than a directional trade, with a long straddle betting on an increase in volatility and a short straddle, a decrease in volatility. Many trading platforms let you sell the straddle instead of executing each leg of the trade separately. By selling the straddle, you collect the option premium. You are thereby naked the straddle.

It’s nice to collect the premium, but the danger is that the underlying market will move enough that the option buyer can execute against you. When selling options, the exposure is technically unlimited. Taking the above example, if you collected 50 points for the straddle, but the S&P 500 dropped to 800, the put would then be worth at least 200 points and you would be down at least 150 points. At $50 per point, that’s $7,500. The loss could be more, depending on how much time value is remaining on the options.

Dressing up

The scantily clad straddle offers a level of protection for the options positions — thus, the position is no longer naked. Applying this to the previous example, if we got 25 points for the call and 25 points for the put, a pair of good until canceled stop orders in the S&P 500 would be appropriate (see "Protective orders," below). The orders would be:

• Buy one S&P 500 E-mini 
at 1025 stop GTC
• Sell one S&P 500 E-mini 
at 975 stop GTC

Once the straddle has been sold and the orders have been placed, there are three basic scenarios in which the trade makes a profit. In the perfect scenario, the market stays below 1025 and above 975. The trade collects the entire option premium on one side and part of or the entire option premium on the other side, depending on the close at expiration. If, in this case, the market closed at expiration at 1002, then the entire put premium was retained and 23 of the 25 points of the call premium were captured.

However, it is unusual that neither of the stops were hit. What normally happens is a trend develops in at least one direction during the trade’s life. In "Hit the stop" (below), it is assumed that the buy stop was hit and executed at 1025.

On the day of expiration, the market is at 1054. The call expires being worth 54 points. It was sold for 25 points, resulting in a loss on the call option of 29 points. However, you went long the S&P 500 at 1025, and it closed at 1054. The resulting gain on the S&P was 29 points. The long trade covered the call position. The other thing to remember is you collected all of the 25 points on the put. As long as the market remains above the put’s 975 strike price, the position will make money (see "On expiration," below).

Anything above 975 is profitable. Every price above 1000 achieves the maximum profit of 25 points ($1,250). If the market trends strongly in the direction of the initial stop, the trade will be profitable. Unlike other option writing programs that get hammered during a trend, the scantily clad straddle loves trending markets. It locks in the profit and covers the losing side.

Finally, instead of the market hitting your 1025 buy stop, let’s say it went down and engaged your sell stop at 975 and then continued down and closed at 900 on the day of expiration. You’d lose 75 points on the put (100 points value at expiration minus the 25 points collected in premium). But you’d also make 75 points on the short sale and wash out the put loss. Then you’d gain all 25 points on the call option because it expired worthless.

The downside

To my knowledge, there is no perfect system. Every trading method has losing scenarios, and this includes the scantily clad straddle. There are two basic situations where the trade loses money: Gaps and whips.

With a price gap, the market jumps past your stop and executes you at a worse price than you were expecting (see "Leaping to losses," below). In the chart, the market gaps past the 1025 buy stop and gets filled at 1041. This additional 16 points from the original stop costs you $800 more on the trade. In this situation, the trade still made money ($450) because the put expired worthless and you kept the entire $1,250 premium. But if it had opened at, say, 1060, the entire trade would have been at a loss. Because of this risk, it’s advisable not to use this strategy with commodities known to have locked limit days, such as lumber, hogs, corn, etc. It works best with liquid markets like the E-mini S&P 500.

Another scenario that ends in a loss is a whip trade. This occurs when both buy and sell stops are hit. When the second one is hit, then the entire trade is exited. This involves buying back the straddle. The resulting loss is dependent on how much time premium is left in the options. The earlier the whip occurs in the trade’s life, the bigger the loss, as opposed to a whip occurring with only 10 days remaining in the option’s life.

The most catastrophic situation is a whip with double gap fills beyond each stop. This would be an extremely rare occurrence, but it still must be considered a possibility as you evaluate this strategy.

Finally, because stop orders are being used, there will be times that you’ll get slippage (the order is filled at worse than your stop price). If, on expiration day the futures price closes near the strike, it may not be clear whether the option will get exercised. You don’t want to come in on Monday thinking you had a profitable trade only to find out you’re long the S&P 500 and it dropped Sunday night by 50 points. Sometimes, it’s better to buy back at least one leg of the option right before expiration just to avoid this scenario.

Be sure to cancel the related standing stop orders when the trade is completed. Also, if the futures month is not expiring, then the option is not a cash settlement, but the option is exercised and you’ll be long or short the underlying commodity.

There are situations in which the price might close just in the money for the option, but is not exercised. This happens because the option owner has several hours to make up his or her mind on whether to exercise the option. In after-hours trading, the commodity might move against the option owner to where it’s not profitable to exercise. When the price is close to the strike, it is best to exit the position. It will cost you a little, but will provide some peace of mind.

Bond trade

In Treasury bonds, the strikes are in full handles (129, 130, 131, etc.). The options trade in 64ths. T-bond futures trade on a quarterly cycle: March, June, September and December, but include serial options that trade every month. The November options are based on the December futures. Options expire the month before, meaning the November options expire in October.

In mid-September, the November T-bond option straddle with a strike price of 130 was sold. The December T-bond futures contract, the underlying for the November options, was trading around 129-28/32. The premium collected was 2-17/64 for the call and 2-23/64 for the put. This resulted in a total collected premium of 4-40/64, or $4,625. Once filled, two stop orders were placed:

• Buy one December T-bond futures
 at 132-09/32 stop GTC
• Sell one December T-bond futures 
at 127-20/32 stop GTC

The placement of the stop was equal to the distance of the strike price and the premium collected: Call premium of 2-17/64 plus 130 strike for a buy stop of 132 9/32; then 130 strike minus put premium of 2-32/64 for a sell stop of 127-20/32.

A few days later, the bonds moved higher and hit the buy stop at 132-09. The bonds continued their climb to 135-12. During this phase, we’re pretty happy with the trade. The call has been covered by the long position. If the bonds stay above the strike price of 130, now five points away, the trade will be profitable. Then the price started dropping and returned to the high 130 area. On November options expiration, December T-bond futures closed at 131-20. The results were as follows:

Call optionSold: 2 17/64
Expired: 1 40/64
P/L: +41/64 (+$640.63)

Put optionSold: 2 23/64
Expired: 0
P/L: +2 23/64 (+$2359.38)

Futures tradeLong: 132 9/32
Exit: 131 20/32
P/L: -21/32 (-$656.25)

ResultCall option: + $640.63
Put option: + $2,359.38
Futures trade: - $656.25
Total P/L: +$2,343.76

Other elements can be calibrated to fine tune the strategy, such as time frame and volatility. However, this basic concept is straightforward and successful.

Don't Get Caught Trading Options Naked

As you all know by now, I am a proponent of trading E-Mini futures.  It is an excellent trading environment for smaller investors because the Chicago Mercantile Exchange (CME) makes it a level playing field for one and all.  No matter how many contracts you trade, getting filled is still FIFO (first in / first out), which is not necessarily so with the New York Stock Exchange or the Nasdaq.  And there is only one exchange for each instrument, so there is only one price.  Again, not necessarily so with stocks or Exchange-Traded Funds.

I know that a lot of you use options in your portfolio but you haven't yet taken the plunge to integrate futures into your overall trading strategy. Today I have a way that you can use both to put your money to work while protecting your capital.

The Way the 'Big Guys' Trade

Trading E-Mini futures is not just for smaller investors.  It is also used by larger investors to protect their trades.  How does this work and, more importantly, how can you use E-Minis to protect your options positions?

If there were one word that could describe trading options, that word might be"insurance."

If you look at many of the option strategies, they are designed so that, in some way, you invest in both calls and puts to protect your investment.   Trading just one side (either up or down) is considered risky.

When you short a call option, for example, but don't own the underlying instrument, the option is described as "naked" -- or "uncovered" by a long position to protect you if the position moves against you.

Why would you short (or "sell to open") a call or a put? Many investors do this because you receive a credit upfront. That is, you receive money at the outset of your trade, with the goal being that the option value decreases over time, allowing you to keep most (if not all) of the money you collected. This strategy depends on the underlying security moving in the "right" direction, or not moving at all.

But what if the position does not go your way? With stock options, you can typically exit your option trade at any time, so you don't have to be stuck in a position that's not working for you. But when the market, and the underlying stock, moves very quickly, it's important to have a safety net to "cover" your position.

Brokerages frown upon investors trading uncovered options.  If the price of the underlying asset moves in the opposite direction than you expected, meeting your financial obligation might result in substantial loss to you.

But if you have to purchase some kind of an "insurance policy" for every option trade (i.e., buying a call in the opposite direction against the put you already own), it provides a layer of much-needed protection. However, buying protection can cut into your profitability.

Another Way to Hedge

Enter the S&P 500 (SPX) E-Mini futures.  Here's an insider's tip on what the big boys do to cover their potential losses.

Since the middle of July, the Chicago Board Options Exchange (CBOE) put/call ratio has been plunging.  It is now down at its lowest levels since March.  March is when the S&P 500 moved up considerably.

The CBOE equity put/call ratio demonstrates the trading volume of put options vs. call options.  When the put/call ratio is low, market sentiment is very bullish.  Because the market has been flying back up, larger investors have been capitalizing on the run by purchasing SPX call options.

However, on the remote chance that the market does pull back, these investors are placing SHORT STOP LIMIT orders on the S&P 500 E-Mini futures.  The stop limit says, don't execute this trade unless the price falls so far that it hits the lowered limit price, at which time, execute my short trades.

Since the market has been steadily climbing, the short limit orders have not been getting executed, so it hasn't cost the big boys anything to buy call options.  By placing short stop limit orders on the S&P 500 E-Mini, if the value of their call options goes down due to bad economic influences, their short positions on the S&P 500 E-Mini will make their trading a wash.

While they won't make any money, at least they break even.

How do we know this is true?

Normally, Monday mornings tend to bring light trading in the S&P 500 E-Mini.  After all, it is Monday.  But on Aug. 17, 2009, by 8 a.m., more than 400,000 contracts had already been traded, and the S&P 500 E-Mini was down 22 points.

Why?

Japan's Nikkei Stock Index plunged 3.1% on poor economic earnings announcements, taking the Shanghai Composite (down 5.8%) and the Hang Seng (down 3.5%) with it.  The CBOE Volatility Index (the VIX, also known as the "fear index," as it is used as a measure of trader sentiment) shot up 14.9% to 27.89.

Because the Asian markets fell so heavily, they triggered the S&P 500 E-Mini to be down 22 points.  Those larger investors saw their short Stop Limit Orders get executed.  It was the first time in a long time that Short Limit Orders were hit.  And a lot of money was lost!

The bottom line? Anything can happen in the markets, and you must be prepared for it. Not every trade is going to be a winner, but with the right protection in place, you can walk away from the losers without losing everything.

Barbara Cohen
Contributing Editor

10 Ways to Sell Naked Puts Safely

“Naked” options writing brings substantial profit potential, but also high risk. Here are ten ways to help mitigate that risk and reap greater rewards when executing this type of strategy.

When it comes to options trading, it doesn't get much sexier than playing it naked. No, I'm not referring to what you wear (or don't) when you're sitting in front of your computer trading (that's your business alone). I'm talking about naked options writing.

While covered options writing ("covering" your option writing risk by owning the underlying stock) is a conservative strategy that offers only part of the benefit of options writing, naked options writing (selling options without the stock covering your position) allows you to reap all of the benefits and profit potential option writing has to offer. It doesn't get much sexier than that, people!

While the potential rewards from writing naked options are outstanding, and the odds of winning are strongly in your favor, there are some substantial risks. In fact, there is unlimited risk when writing naked calls, and extensive risk when writing naked puts—the risk that the underlying stock will move through and far above or below the options strike price.

This highly publicized risk scares many investors away from this strategy, and many naked options writers have lost their shirts (pardon the pun). But although the risk is real, it is usually greatly exaggerated, and if you follow the guidelines I'm about to share with you, you will control that risk and reap the rewards that this game offers.

Set a Bailout Point and Use It

A bailout point is the price, or the point in your strategy, at which you wish to buy back your naked positions in order to limit your losses. This is the point at which you will bite the bullet if things don't go your way, and it is the most important component of your naked option writing strategy. You must use this as a safeguard to limit your losses and control the tremendous risks involved with this strategy.

As an options writer, you have the right to go into the market at any time and buy back your naked options, thereby limiting all possible future losses. Setting a bailout point is a way of insuring that you will use this right when the price hits the parameters you have set.

I strongly recommend using a stop-loss order rather than a mental stop. And it is better to set your stop loss based on the underlying stock's price, as opposed to the option's price, because options prices are more erratic, and in many cases, they may become extremely inflated even though the stock price has not moved accordingly.

Write Naked Calls in Bear Markets; Naked Puts in Bull Markets

This secret of naked option writing is self-explanatory. To improve your probability of winning in this game, it is far wiser to write calls when stock prices in general are moving down and write puts when stock prices are moving up.

This strategy will put the odds in your favor. However, writing naked call options in bull markets can be profitable, as can writing naked puts in bear markets, because of the inherent advantage the naked option writer holds. By following these rules, you will improve your probability of winning the game and reduce some of the risk.

Don't Buck the Trend

Your profits will be much greater in the naked option writing game if you write calls when the underlying stock is moving downward and write puts when the underlying stock is in an uptrend.

The best way to project this type of price behavior is to look at the underlying trend of each of the optionable stocks. Never buck a strong uptrending stock, or in Wall Street parlance, "Don't fight the tape."

Select Stocks with Low Price Volatility

While the option buyer always hunts and pecks for options on stocks that are extremely volatile, the option writer loves stocks that don't move anywhere. He wants stocks that move slowly, and ones that move in a narrow range, because the option writer always has time working in his favor.

The slower a stock price moves, the more money he makes. Options with slow-moving underlying stocks will depreciate to zero before the stock ever reaches the bailout point.

Unfortunately, the stocks with the highest volatility maintain the highest and fattest premiums for option writing, and so the option writer must attempt to find options with low volatility, and correspondingly high premiums (time values) when possible.

Diversify

Naked option writing, with its extreme risks, requires diversity. You should maintain at least four different option positions with different underlying stocks.

Remember, one of your overall goals is to stay in the game, and the best way to do that is to avoid betting all your money on one horse. Although the odds are heavily in your favor, losers can put you out of the game if everything you have is bet on that one position.

Finally, maintain very small positions in each stock so that a takeover does not nail you with a devastating loss.

Write Options That Are at Least 15% Out of the Money

The only options you should consider as writing candidates are those with no real (intrinsic) value, that are not in the money. Use only those options that are out of the money, which only have time (extrinsic) value.

Furthermore, you should select options that are significantly out of the money so that it will take a strong move in the stock—a move that normally would not occur in a two- or three-month time period (see secret #7)—to hit your bailout parameters.

These out-of-the-money options have a low probability of ever being exercised, or of ever having real value, and this low probability is a strong advantage to the naked options writer. In other words, choose to sell options that have the highest probability of expiring before the stock price ever gets close to the strike price.

Write Naked Options with No More Than Three Months Left in Their Life

Remember that as an option approaches expiration, its rate of depreciation normally increases, especially in the last month. Consequently, these are the times to write naked options.

You will receive a higher rate of premium in the last three months of the option than at any other time in its life. The shorter the time before expiration, the better.

Write Options That Are at Least 25% Overpriced

One of the most important secrets to successful naked option writing is to only write options that have beenoverpriced by the market, i.e., options for which the buyer is paying too much.

This will add insurance to your profit potential and is an important key to successful option writing. Make sure that the options you plan to write are at least 25% over the fair value.

Write Options Against Treasury Bills

When writing options, you must put up a margin requirement. The margin requirement can be in the form of cash or securities. It can be also be in the form of Treasury bills.

If it is the form of securities, you can only use the loan value of the securities. However, Treasury bills are treated just like cash, and this is one major advantage of using them.

Treasury bills will generate from 2% to 10% annually, depending on the money market, and this will be an added dividend to your option writing portfolio. Not only will you generate the profit from option writing, but you will also generate the return each year from your Treasury bills. Most brokerage houses place your credit balances in the money market, so you will still earn interest if you don't have Treasury bills.

Maintain a Strict Stock/Option Surveillance Program

Watch your stock and option prices like a hawk during the periods of time that you are holding these naked options positions. The professional naked options writer will keep a close eye on the price action of the underlying stock and will cover a position, bail out of a position, or buy back a position if there is a change in the trend of the underlying stock.

He will also take profits early when the option shrinks in value quickly because of an advantageous stock price move. Or he may take action when the options become extremely undervalued, according to the stock price. The closer you carry out a surveillance program, the better your profits will be, and the smaller your losses.

This surveillance program should also contain a continuous writing feature, which is best described as a method of reinvesting funds into new naked options writing positions as profits are taken. This process is similar to compounding interest in your bank account, except the return is much better!

By continually reinvesting in new positions and actively taking profits when they develop, your portfolio will grow at a much faster rate than is possible if you maintain a static program of waiting until the options expire.

写给亲爱的自己

亲爱的自己，从今天起为了自己骄傲的活着吧，好好爱自己，没有人会心疼你。

亲爱的自己，不要太在意一些人太在乎一些事，顺其自然以最佳心态面对，因为这世界就是这么不公平，往往在最在乎的事物面前我们最没有价值。

亲爱的自己，永远不要为难自己，比如不吃饭、哭泣、自闭、抑郁，这些都是傻瓜才做的事。

亲爱的自己，学会聪明一点，不要老是问周围的人一些很白痴的问题，那真的很无聊。

亲爱的自己，如果不开心了就找个角落或者在被子里哭一下，你不需要别人同情可怜，哭过之后一样可以开心生活。

亲爱的自己，学会控制自己的情绪，谁都不欠你，所以你没有道理跟别人随便发脾气，耍性子。

亲爱的自己，你可以失望但不能绝望，你要始终相信，

亲爱的自己，你不要老是想依赖别人，更不能奢望别人在你需要的时候第一时间站出来，毕竟你们谁都不是谁的谁。

亲爱的自己，永远不要轻易对别人许下承诺，许下的承诺就是欠下的债！

亲爱的自己，这个世界只有回不去的而没有什么是过不去的。

亲爱的自己，别人对你好，你要加倍对别人好，别人对你不好，你还是应该对别人好，因为那说明你还不够好。

亲爱的自己，不管现实有多惨不忍睹你都要固执的相信这只是黎明前短暂的黑暗而已。

亲爱的自己，不要抓住回忆不放，断了线的风筝，只能让它飞，放过它，更是放过自己。

亲爱的自己，全世界只有一个你，就算没有人懂得欣赏，你也要好好爱自己，做最真实的自己。

亲爱的自己，好好对待陪在你身边的那些人，因为爱情可能只是暂时的但友情是一辈子的。

亲爱的自己，你必须找到除了爱情之外，能够使你用双脚坚强站在大地上的东西。

亲爱的自己，记得要常常仰望天空，记住仰望天空的时候也要看看脚下。

亲爱的自己，相信你的直觉，不要招惹别人，也不要让别人来招惹你。

亲爱的自己，永远不要跟别人搞暧昧，你玩不起！

亲爱的自己，不要太低调了，有时要强悍一点，被欺负的时候，一定要讨回来！但是一定不要记恨，小人之见随他们去好了，怜悯会使你高贵。

亲爱的自己，要快乐、要开朗、要坚韧、要温暖，这和性格无关。

亲爱的自己，要自信甚至是自恋一点，时刻提醒自己我值得拥有最好的一切！

A Glimpse of option strategies of Karen, the super trader who made over 100M profits

I watched the Tasty-trade interview video for Karen, the super-trader today. It was so inspirational and I have to note down the highlights for future study. Here's the list of the key points that I have captured at the moment.

Trading Vehicle: options for SPX, RUT, NDX

Strategy:

• short puts and calls, combination short strangles. 
• Better profits than Iron Condors but has unlimited risk in theory.

Option strike selection

• Calls: 90% probability of success (10% ITM prob.) and above major resistance level
• Puts:  95% probability of success (5% ITM prob.), corresponds to about up to 12% SPX drop
• Usually sell more put contracts than call contracts
• Around 2 standard deviation Bollinger bands

Option cycle selection

• Start with 56 days (8 weeks) before expiration to get wider profit zone and open with 50%+ positions 
• Also may adjust with options of same cycle as the starting position for average market conditions

Entry (Legged in)

• Sell calls when market rises
• Sell puts when market falls

Exit (It was not really clear to me at this point)

• Usually exit in a month
• Profit target is around 15% of positions
• Will let further OTM (1% ITM probability) options expire worthless

Adjustments: Use additional capital to keep profits and TOS analyzer tool

• Start adjustments when ITM probability reaches a certain number, like 30%.
• Normally, keep identical profits by rolling up/down/out and selling new contracts.
• Under extreme market sell-off conditions (1000 point drop in DOW JONES average), give up profits of a few month to roll out a couple of months and wait for market to settle down.
• No stop losses, No delta neutralization via call/put purchases.

Money Management

• Suggested usage of 50% of capital
• With adjustments on, use up to 70/80%
• Large use of capital justified by wide break-even points
• Watch net liquidation values (I'm not clear about it)

Psychology and Mindset

• Trading is a number's game
• Focus on the probability, not P&L.
• Manage trading process
• Losses are acceptable (No fear)
• Lower returns caused by lower market volatility are OK
• Keep rules simple and anything else are noises

Trading Time: Monitor markets during all trading days and hours

Trading Team: 5 traders of similar mind and 1 accountant

Live life. Live the present moment.

Dialog between God and a Dying Man:

Man: What do I have ?

Man: it is My belongings? You mean my things... Clothes... money...

God: Those things were never yours, they belong to the Earth

Man: Is it my memories?

God: No. They belong to Time

Man: Is it my talent?

God: No. They belong to Circumstance

Man: Is it my friends and family?

God: No. They belong to the Path you travelled

Man: Is it my wife and children?

God: No. they belong to your Heart

Man: Then it must be my body

God: No No... 
It belongs to Dust

Man: Then surely it must be my Soul!

God: You are sadly mistaken son. Your Soul belongs to energy.

Man: I never owned anything?

God: That’s Right. You never owned anything.

Man: Then? What was mine?

God: Your MOMENTS. 
Every moment you lived was yours.

Life is just a moment. 

Live life. Live the present moment.

绝大多数最伟大的投资家为什么都健康长寿？

已经去世的10位投资家,有6位超过了90岁,共8位超过了82岁。目前尚健在的8位投资家,5位已经超过了75岁。

为什么绝大多数最伟大的投资家都健康长寿呢?我觉得最重要的原因是心态。心态包括很多方面,如做股票投资的心态,对待生活的心态。

做股票投资,相对复杂的社会工作,从某种意义上来说,由于是与股票打交道,不是与人打交道,心理上没有那么累。做股票可以做到心态放松,不需要与人勾心斗角?“心”不累,也许是长命的最大秘诀?

为什么绝大多数最伟大的投资家都健康长寿呢?我觉得第二个原因是:成功的投资家需要很长时间来证明,我们现在所看到的只是成功者。如果成功者不长寿,也就进入不了我们的视野?

为什么绝大多数最伟大的投资家都健康长寿呢?我觉得第三个原因是:这些最伟大的投资家实现财务自由之后,生活水平提高,有益于健康长寿。


●赢家是坚持自己原则的人

股市上只有两种赚钱的人,一种是坚持自己原则的人,另一种真正有内幕消息的人。

这些最伟大的投资家,都是拥有自己投资原则,并且能够坚持自己原则的人。

阅读这些最伟大投资家的相关著作,可以容易发现,他们都有自己的投资原则,如巴鲁克的投资十守则、是川银藏的股市投资五原则、罗伊路纽伯格的成功投资十原则等等。

人们常说,巴菲特之所以成功,最大的原因是几十年前就拥有一套能够持续赢利的投资哲学并以一生的时间来坚持自己的投资哲学。

●条条道路通罗马,各种方法都有可能赚钱

阅读这些最伟大投资家的相关著作,可以容易发现,他们成功的方法是不尽相同的。价值投资者能够赚钱,趋势投机者也能够赢利,只参与指数基金也能赚钱。

投资者需要一个方法来保证长期持续稳定复利增长。我个人体会,各种投资方法都能赚。技术分析、基本分析、有效市场假说论和行为金融学,是解释股价波动的几种理论。根据这些理论的各种股票投资方法,都能够赚钱的。

别人成功的方法,不见得适合自己。最关键是要找到适合自己的方法。

●心理学是理解股价波动的最重要因素

方法在股票投资中,其实还不是最重要的。交易有三个组成元素:心理状态(情绪控制)、资金管理和系统开发(交易方法)。范 K.撒普博士认为心理状态是最重要的(大概占60%),其次是资金管理/头寸确定(大概占30%),而系统开发是最不重要的(只占约10%)。

在我看来,这些最伟大的投资家,基本上都充分利用了心理因素对股价造成的波动而带来的投资机会。

价值投资的实质所在,就是用远低于内在价值的价格购买股票。巴菲特常说,在别人恐惧的时候,我们不妨贪婪一点。而贪婪和恐惧出现的最大的原因就是大众心理因素造成的。或者说,没有大众心理形成的恐惧,股票价格就不会出现远低于内大价值的机会,价值投资者的安全边际就不复存在。

趋势投机的精髓在于顺势而为、截断亏损、让利润奔跑。中期趋势形成的最重要因素是心理因素。基本面是左右股市长期表现的关键,而股市中、短期的涨跌有90%是受心理因素影响。

●附:我选的18位最伟大的投资家名单

在我的阅读视野内(约300本、近万元投资书籍),我个人选择的18位最伟大的投资家如下(按出生时间排序):

1、伯纳德路巴鲁克(Bernard Baruch),享年94岁(1870年8月19日-1965年6月20日)

2、杰西路利弗莫尔(Jesse Livermore),享年63岁(1877年7月26日-1940年11月28日)

3、本杰明路格雷厄姆(Benjamin Graham),享年82岁(1894年5月9日-1976年9月21日)

4、是川银藏,享年95岁(1897年-1992年9月)

5、杰拉尔德路勒伯(Gerald M. Loeb),享年76岁?(1899年-1975年?)

6、罗伊路纽伯格(Roy R. Neuberger),享年96岁(1903年7月21日-1999年)

7、安德烈路科斯托拉尼,享年93岁(1906年-1999年9月14日)

8、菲利普路费舍(Philip A. Fisher),享年96岁(1907年9月8日-2004年3月11日)

9、斯尔必路库洛姆路戴维斯(Shelby Collum Davis),享年85岁(1909年-1994年5月24日)

10、约翰路邓普顿(John Templeton),享年95岁(1912年11月29日-2008年7月8日)

11、约翰路伯格(John Bogle),(1929年5月8日-)

12、乔治路索罗斯(George Soros),(1930年8月12日-)

13、沃伦路巴菲特(Warren E. Buffett),(1930年8月30日-)

14、约翰路聂夫(John Neff),(1931年-)

15、威廉路欧奈尔(William J.O’Neil),(1933年3月25日-)

16、吉姆路罗杰斯(Jim Rogers),(1942年10月19日-)

17、彼得路林奇(Peter Lynch),(1944年1月19日-)

18、安东尼路波顿(Anthony Bolton),(1950年3月7日-)
(本文完成于2008年12月27日星期六)

健康长寿知识集锦

一、追求健康、享受生活
健康是人生的永恒主题,健康体现了生活的智慧,我们要掌握科学的生活方式,培养良好的卫生习惯和心理状态,养生保健,合理膳食,达到健康长寿的目的。

健康的标准是什么?

世界卫生组织认为,躯体的健康应五快:

吃得快、睡得快、便得快、说得快、走得快;

心理健康应做到三个良好:良好的个性、良好的人际关系、良好的处世能力。

心理健康的“五有”标准:有理想、能适应、关系佳、个性好、识自己。

健康的四大基石:合理膳食、适量运动、戒烟限酒、心理平衡。

健康,你的权力、尊严与财富。让我们追求健康、享受生活。


二、长寿经集锦
健康长寿的诀窍

一个中心:以健康为中心,不利于健康的事不做,不利于健康的饮食不吃,不利于健康的念头不想。

两个要点:糊涂一点、潇洒一点

三个原则:生命在于运动的原则,凡事适度的原则(运动、饮食、睡眠、情绪),知足常乐的原则。

四个规律:膳食有谱,生活有规律,七情(喜、怒、忧、思、悲、恐、惊)有控,锻炼有恒。

五个淡化:金钱、地位、过去、年龄(有颗童心)、疾病。

六个需要:开朗、随和、宽容、宁静、苗条、家庭和睦。

健康保健九要决

几千年来,我们的祖先积累了丰富的养生保健经验,这些方法简易易行,效果十分显著。现将古人防病治病、延年益寿的良方介绍如下:

1. 勤梳头,百病处。早、午、晚三回,每回两分钟
梳六十至一百次为宜。可疏通十二经络,促进血液循环,延缓脑细胞的衰老,使头清目明,精力充沛,睡眠良好,白发发黑,食欲增加。

2. 常搓涌泉保健康。脚是第二个心脏,有六十多穴位与五脏的经脉联系。热水泡后搓涌泉穴可温补肾经、益经添骨髓、疏通心肾、清肺理气、助消化,通便、止泻。

3. 日咽唾液三百口。鼓荡口腔,让唾液充满后吞咽下去,促进神经细胞和皮肤细胞的生长,还可消除从氧气和食物中产生的对人体十分有害的自由基。

4. 朝暮叩齿三百六.促进口腔、牙床、牙龈和牙齿的血液循环,抗病抗菌。

5. 拉搓双耳健全身。利于胆、肾二脏。右手从头上搓左耳十四次,左手同法拉右耳十四次。

6. 相互捶背解疲劳。捶背刺激神经系统、调解全身脏腑功能、增强人体免疫力、防癌抗癌。

7. 每天揉腹一百遍。可调理脾胃,通调气血、充实五脏强壮人体元气。有助于去除外感之邪,康复慢性疾病。

8. 勤伸懒腰益身心。有益于心脏和脊柱。

9. 日按三穴健全身。和谷、内关、足三里穴为历代医家强身治疗之三大要穴。内关穴主治心悸、高血压、哮喘、胃病、恶心、呕吐等;合谷主治头痛、面瘫、五官疾病及高热、抽搐等;足三里能提高肌体抗病能力,对胃病、呕吐、便秘、腹泻、肝炎、胆囊炎、高血压、下腹疼痛、瘫痪有良好的防治效果。

长寿忌四久

1. 久视伤血,耗气,产生头目昏眩等症。

2. 久卧伤气,导致身体软弱。

3. 久坐伤肉,使肌肉衰退与萎缩。

4. 久立伤骨,减弱骨骼的弹性和韧性。

笑口常开乐逍遥

笑是健康长寿的一项必不可少的基本功。笑的十大好处是:增加肺的呼吸功能;清洁呼吸道;抒发健康的感情;消除神经紧张;使肌肉放松;有助于散发多余的精力;驱散愁闷;减轻社会束缚感;有助于克服羞怯情绪;能乐观地对待现实。

健康老人快乐生活九法则

1、乐观。与人相处和为贵,不生气,因为生气就是用别人的错误来惩罚自己。

2、安心。活动时应放慢速度,安心享受晚年生活。

3、多沟通。常与人交流、交往,遇烦恼要向家人及亲朋好友倾诉。

4、常活动。培养一些有益身心健康的兴趣爱好。

5、树立新目标。不服老,树立长寿的信心,学习、生活有计划、有目标,使退休生活充实有趣。

6、寻求新工作。参加兼职或义务工作,既可证实自己存在的价值,又可获得珍贵的友谊。

7、对子女期望不要过高,否则可能变为失望。要因势利导、顺其自然,牢记知足者常乐,能忍者自安的名言。

8、经常聚一聚。根据自己兴趣,找三五个知己聚一聚,互相交流。

9、积极面对问题,及时就医,有烦心事看心理医生。

遗忘使人长寿
忘掉年龄,忘掉仇恨,忘掉悲痛,忘掉忧愁,忘掉疾病,忘掉名利。

老年人生活八悟

1、活着。活一天,少一天,过一天,乐一天,乐一天,赚一天。

2、追求。追求是青春的象征,追求健康有为,有健康才活得有质量,有为才有乐,活得有意义。

3、学习。学健康保健知识,发挥余热,人不学习就会衰老。

4、享受。做自己想做的事,人生只有高兴是“现金”,其它至多不过是“支票”。

5、怀旧适度。对往事常想一二忘八九,才能健康长寿样样有。

6、什么是“自己的”。地位是暂时的,金钱是身外的,荣誉是过去的,孙子是子女的,只有健康是自己的。

7、健康四大支柱。生活规律、饮食适当、良好心情、适量运动。

8、“不一样”。父母对子女的爱是无限的,子女对父母的爱是有限的,明白人把对子女的付出视为义务和乐趣,一心图回报,往往惹麻烦。

JOHN W. HENRY – AN AUTOPSY OF ONE OF THE GREATS

We’re starting to get a little morbid around here – first with the “Is Trend Following Dead?” piece a couple weeks back, and now an “autopsy” of sorts on what went wrong at John W. Henry’s self-named firm. Some of the sales teams in the industry may prefer to avoid discussing such subjects, probably thinking something along the lines that doing so will “scare away the customers,” but to hear that John W. Henry was shutting down his eponymous managed futures shop was the kind of news that draws us like a moth to a flame.

Here was an industry stalwart in every sense of the word. A man who helped put managed futures on the map, and helped his pocket book to the tune of becoming a billionaire. He is a literal Hall of Famer, having received the Futures Hall of Fame award (whatever that is) from the Futures Industry Association. This isn’t quite Paul Simon hanging up his guitar, or Steven Spielberg deciding to get out of the movie business – but it’s close in terms of shock factor in the managed futures space.

This raises one huge question - well, actually, it raises hundreds of questions - but the big one is this: what in the world happened? We don’t just mean this week in the announcement that he was done, either. What happened in the past 8 years to transform a behemoth into a blip on the radar? Where did John Henry go wrong? Eight years ago he was managing $3 Billion and on top of the managed futures world, with a hot young upstart called Winton measuring in at only about 1/3 the size of Henry’s managed futures empire.

Why was 2004 the top for Henry, yet just a launching point for Winton and other billion-dollar managers?  But most importantly for investors - how can we learn to identify when a top-tier managers’ best days are behind them?

Did he take his eye off the ball?

Excuse the all too easy baseball pun here – but the easy answer for many is to say things started to go downhill when Henry started to stray from his managed futures roots and dabble in sports, buying the Florida Marlins, then Boston Red Sox, a Nascar team and an English soccer squad. If he had only spent less time analyzing pitchers and trying to hire the next Billy Beane – and instead spent more time researching new models and risk parameters for his CTA – then things might have been different… or so the logic goes. 

This would be exactly the kind of shift that an ongoing due diligence program is designed to catch, and something we wrote about not long ago in a newsletter. The general idea is that by staying in close contact with a manager, you can get a feel for when things might be going awry in a way that might impact performance. There is never a guarantee that you'll see the curve ball coming, but you've always got a better chance of it if your eyes are open. 

The problem is that this logic starts to fall apart when we look at just when Henry started these other business ventures, which, according to the Disclosure Document for the JWH programs, began as early as 1987:

“Since the beginning of 1987, [Henry] has devoted, and will continue to devote, a substantial amount of time to business other than JWH and its affiliates.” 

Even if we use the later date of 1998, according to a great 2007 blog post (they had blogs back then?) from the now-deceased Greg Newton (as if this story wasn’t morbid enough already), the shift of focus to include a sports empire doesn’t appear to have affected the performance (which held up until the end of 2004).

His heavy-duty distractions did not begin until he became involved in major league baseball… Henry bought the Florida Marlins in 1998. 

Maybe it’s the Boston Red Sox curse, which Henry supposedly lifted by bringing a World Series title to Beantown? He became involved there in 2002, and things have been bad on the managed futures side for most of the time since.

So while the brains of the operation shifting his focus to baseball seems like an easy due diligence red flag, the numbers don’t really support it as the cause of the decline. Regardless, any investor after the year 2000 would have known of this concern.

A more nuanced “taking his eye off of the ball” argument – and something to consider when conducting due diligence on a manager – is the number of programs in the stable. For JWH, the answer is: quite a few. There are 17 different “capsule performance” tables in the JWH D-Doc. This can be another worry in the due diligence process – can a manager run 17 world-class programs at once? And if not, which would you rather see: 17 mediocre programs, or 1 excellent one?

It’s a plausible story, but in this case, perhaps a more likely culprit in terms of “who’s minding the store” is the high manager turnover.

Manager turnover

So if the boss isn’t always running things, you had better have a very high level of confidence in whoever is picking up the slack. Leadership transitions are often due diligence red flags, but as it turns out – this one isn’t all that straightforward, either.

We’ll borrow heavily from Greg Newton in parsing the Disclosure Document and news clippings on Henry company hires here:

Like those stomach-churning drawdowns, management turnover is nothing new at JWH. Before Rzepczynski’s record tenure ended in January [Others shown the door at much the same time as Rzepczynski included long-time marketing executive Ted Parkhill; Bill Dinon, head of sales; and Andrew Willard, director of technology], past holders of the president title included Verne Sedlacek, now president and chief executive officer of Commonfund; Bruce Nemirow, now a principal of Capital Growth Partners, a third-party marketing company; and Ken Tropin, who, after a distinctly less than amicable split with Henry, went on to found Graham Capital Mgt Inc in 1994. That firm’s assets passed JWH’s several years ago.

Between Nemirow and Sedlacek, Peter Karpen, a former chairman of the Futures Industry Association; and David Bailin, now head of alternative investments at US Trust, held similar responsibilities, without the title of president.

It’s easy to look back on it in hindsight and say that a bunch of people jumping ship in 2007 was a bad sign, but consider how it looked in the moment: the person leaving had been there 9 years, while the person replacing him had been there 12 years. That certainly doesn’t look so bad, especially when compared with a program (Winton) which is just getting started or a management team with 5 years or less of experience.

Adapt or Die (but careful with those adaptations)

Did hubris play a part? Again, from Greg Newton:

JWH generally has not changed the fundamental elements of the portfolios due to short-term performance, although adjustments may be, and have been, made over time. In addition, JWH has not changed the basic methodologies that identify signals in the markets for each program. JWH believes that its long-term track record has benefited substantially from its adherence to its models during and after periods of negative returns; however, adherence to its strategy may lead to prolonged periods of market losses and high risk, according to its current disclosure document.

Did a stubbornness to adhere to the models which had worked in the 80s, 90s, and start of this century cause those models to become outdated? That seems doubtful. As we say around here, “Systems don’t break, they just become more risky.” It would appear that this is exactly what happened to JWH. Of course, some on the risk management side of a successful CTA might say that a model becoming more risky is the same thing as that model breaking. After all, the risk is the most important part. And we wouldn’t argue too much there.

In the end, it looks like it may have been the worst of both worlds for Hentry: sticking with the base models but tweaking the position sizing. Per page 34 of the JWH D-doc, we learn that the position sizing has been changed 16 times across 9 programs since 2003.  And these weren’t all position size reductions – many were increases. On one hand, if you are taking losses at a high trading level, then trying to gain those losses back at a reduced level, it’s going to take much longer to return to profitability. But if those losses we due to unresolved flaws in your trading method, raising your position sizes is just doubling down on a losing strategy.

Live and Die by the Volatility

Most of those in the industry will tell you John W. Henry was simply too volatile for modern tastes, and you can see when taking a look at his programs’ track records some big numbers on both sides. Take the financials & metals 36% annualized volatility for example, or the multiple years with above 40% gains or more than -17% losses, and you can see that Henry’s model was one of high risk for high return.

But it’s more than just the fact that the JWH programs were volatile – what stands out is how much more volatile they were than “normal” and the fact that they were getting more volatile compared to the competition.

The above look at the ratio between the JWH composite’s rolling 12mo annualized volatility and that of the BarclayHedge CTA Index shows that the JWH programs were about 2.25 times more volatile, on average, than the index during their boom times (the first 20 years), and had jumped to 3.49 times more volatile, on average, in the past 8 years.

Again, this is something more easily seen with hindsight, but this is easy enough to analyze in real time. It’s especially concerning how volatile a program is not just in absolute terms, but in relation to its benchmark as well. And if it’s 5 times more volatile – as JWH was a few times in 2008 – you had better be sure you are getting 5 times more the return as well.

Which brings us to…

You have to make money

At the end of the day in this business (or any other), no amount of name recognition nor bulletproof due diligence can make up for the failure to make money for your clients over a five year period, and that, more than anything else, led to John W. Henry closing up shop.

Consider the Financials & Metals program again. Heading into 2005 the program had never experienced back-to-back losing years. In fact, only once had the program suffered more than 1 losing year in any 7 year period (losing two out of three between 92 and 94). The program then saw losses in three consecutive years between 2005 and 2007, and when including this year’s down performance, the program has now lost money in 5 of the past 7 years.

 The three years of losses ending in 2007 are likely what led to Merrill pulling the plug in that year (right before the program experienced a big bounce back, but that’s a topic for later), but the table above shows that something is materially different in the past eight years when compared to the first 20 for the Financials & Metals program.

A CTA’s job is twofold. First, to generate absolute return performance, so that a customer who gives the program at least three years to do its job will be rewarded with positive performance. And second, to stay ahead of the competition.

It’s no easy task, to be sure, and John Henry’s gold-lined trash cans are probably filled with the brochures of contenders who tried and failed. But since 2004, it has been Henry’s programs which have failed on both counts. They haven’t remained positive across the bulk of the rolling three year periods, with some of the rolling three year returns falling below -20%. And while those years haven’t been kind to many other CTAs, JWH failed to stay ahead of the competition. They spent most of the past eight years with rolling 36 month returns below that of the BarclayHedge CTA Index.

Henry was lagging the index and seeing large negative 36 month returns as early as 2005, meaning there were chinks in the armor that appeared well before Merrill pulled the plug in 2007.  But pulling the plug on an underperforming advisor has to be one of the hardest things to do for the individual investor. Especially when you are considering pulling the plug on a Hall of Famer.

It’s all Relative

It’s a zero sum game, as managed futures detractors like to say. But the reality is that it is not that black and white. There isn’t always one clear winner and one clear loser. It’s more like a few thousand winners, a few thousand losers, and many more in between.

The job of the investor, then, isn’t necessarily to find the winner and avoid the loser, but to find the one doing a better job of winning than the others. What does that mean? Providing return with less volatility, more consistency, experiencing smaller drawdowns, shorter drawdowns – the list goes on.

Which brings us back to Henry. You see, while he is up (big time) in the zero sum game overall, the biggest takeaway for us following this pseudo-autopsy on the John W. Henry programs was in how the program started to become one of the worst winners according to our ranking algorithm.

The biggest warning flag to us was seeing how his ranking fell despite the program going on to make new equity highs.

You see, we don’t just rank on performance – we rank on comparative performance, across many time frames, and incorporate risk metrics to normalize the performance across programs. So you not only have to do well – you have to play the game better than the next guy in terms of controlling risk, delivering consistency, and more.

The fact that the John Henry programs started to fall in our rankings after their 1999 drawdowns is a sign of poor relative performance. In other words, they weren’t just doing poorly because of a bad managed futures environment – they were doing poorly AND performing worse than their peers were in that same environment. You can get away with rough years, but you can’t do worse than your peers for an extended period of time and hope to stay in the game.

Lessons Learned:

Don’t cry for Henry – he’s doing just fine: still worth $1.5 billion, and the 389^th richest person in the US according to Forbes.

But do pay attention to the potential lessons within this story:

1.       Past performance is not necessarily indicative of future results. It’s not just a disclaimer, and the performance of the Henry Financials & Metals program shows the reality of that – with winning years in 17 out of its first 20 years followed by losing ones in 5 out of 7.

2.       Know what sort of program you are getting involved with. John Henry’s programs were notoriously high volatility, and willing to take larger losses in exchange for home-run type years - meaning  losses of -20% and more shouldn’t have surprised anyone.

3.       Beware the big brokerage house (Merrill Lynch types) selling a big brand name managed futures program. While Henry was a poster child for managed futures as late as 2004, there were warning signs for his programs well before that.  The big brokerages believe they are being conservative when selecting the well-known program with a long history of success, but they could be better served identifying lesser-known programs with the risk and reward profile their clients want. They are often late to the party and late to get out.

4.       Henry is still a Hall of Famer. Yeah, we know… we said there were warnings, his main program has our lowest ranking, and we wouldn’t recommend a JWH program for our clients. But having said all that, he also made a lot of money for a lot of people in his early days (and knowing how these things cycle he’ll likely go on to make himself another small fortune just by trading his own money). We’ve never met him, and don’t know what sort of person he is – but we’re willing to bet that many of the clients involved with him during the ‘80s and ‘90s still think he’s worthy of that hall of fame distinction.