Week of January 25th, 2010

Our first column of this decade begins with a term that did not exist in the popular vernacular ten years ago: Webinar. What is a webinar? According to Wikipedia (which also wasn't around ten years ago) a webinar is: 
" a neologism to describe a specific type of web conference. It is typically one-way, from the speaker to the audience with limited audience interaction, such as in a webcast. A webinar can be collaborative and include polling and question & answer sessions to allow full participation between the audience and the presenter." 
After you are done looking up "neologism", you might think about attending one of our webinars; they are free and informative, and they give you an idea of just what we have to offer at the Chicago School of Trading. We have done several webinars in the past and we are planning to do even more in 2010. We have found that these webinars are a great tool in illustrating to professional and novice traders alike the advantages in trading options. If you are interested in attending one of our webinars, just look to this column for a schedule of upcoming webinars. 

 

News and Options: Straddles and Earnings

With Dan Keegan and William M. Gruzynski of The Chicago School of Trading

Presented By:


This informational webinar is targeted for the trader looking to be more knowledgeable in how news and events affect the option markets. Specifically Dan and Bill will go through an explanation of Straddles as an options strategy and the use of earnings releases to create successful trades.

 

Wednesday, January 13th, 7:00pm CST>> Sign Up Online

OR
Thursday, January 14th, 3:30pm CST  >> Sign Up Online

Location: Online Webinar

Event Type: Education Series: Free and Open to Public

 
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Christmas, 2009

Week of November 23 - 30, 2009

Happy Thanksgiving

 

The first Thanksgiving occured in 1621 in the Plymouth Colony in Massachussets when the Pilgrims invited the local Wampanoag Indians to dinner to celebrate a successful harvest and to thank the Wampanoag for not killing them. This is where our current Thanksgiving tradition comes from. Down the shore in Virginia a few months later, 347 colonists were savagely murdered by the Powhatan Indians in the Great Indian Massacre of 1622. This is where our current tradition of Black Friday sales comes from.  

Scene outside Best Buy, Black Friday 1622

The savage behavior of Black Friday shoppers is completely understandable. People travel for many miles under often adverse conditions to crowd into houses with family members they spend the rest of the year avoiding, only to be forced to watch the Detroit Lions on TV and then have to eat that sweet potato and marshmallow crap that Aunt Betsy makes every damn year. Some historians (me) have speculated that when the Wampanoag told their Powhatan cousins about that sweet potato crap, that's when the Powhatan decided that a masacre was the only way out. Talk about awakening the inner savage.  
   
Early Pilgrims pray for the Lion's game to end

Week of November 16 - 22, 2009

 

It Was Twenty Years Ago Today

Today the world celebrates the 20^th anniversary of the collapse of the Berlin Wall. Actually that sounds like there was an earthquake or something, and the wall came a tumbling down. What actually happened on November 9, 1989 was that the Communist East German government succumbed to the inevitable and announced that East Germans were free to cross the border into West Germany without being shot in the back; “Honest, ve vont shootz you, really!”

The Berlin Wall - November 9, 1989

In August of 1989, the first crack in the Iron Curtain appeared in Hungary, which had opened its border with Austria. East Germans suddenly realized that they could travel freely to Communist Hungary, then to Austria and eventually to family, friends, and freedom in West Germany. This was all made possible when everyone realized that the Soviet Union was not going to roll in with tanks like they had in Hungary in 1956 and Czechoslovakia in 1968. This avenue of escape, though, was soon closed when Hungary, Austria and West Germany soon found themselves overwhelmed with East German refugees packed in their dilapidated, oil-leaking Soviet cars (The Volga). Those who weren’t able to get out through Hungary then found the same open border between Czechoslovakia and Austria and the flood started again until the East Germans closed all their borders. Demonstrations within East Berlin grew daily until the East German government announced on November 9^th that they would begin to ease border restrictions. When a government official mistakenly said that the new rules went into effect immediately, thousands (if not millions) of Germans on both sides went to the wall. When overwhelmed border guards did nothing, the celebration began. Thousands danced on top of the wall that at least 171 people had been killed trying to climb. People brought hammers and chisels and began to disassemble the Berlin Wall itself. Within weeks, the remnants of the wall were taken down, Germany began to re-unify, and one Warsaw Pact nation after the other overthrew their Communist governments. Eventually the Soviet Union itself crumbled and forty-four years of totalitarian regimes and cold war ended.

What I find most ironic is the growth of capitalism in these nations where it used to be a dirty word. When I was a young trader, the CME had an advertising campaign emphasizing their motto “Free Markets for Free Men”. The campaign consisted of three very funny posters asking the questions “How come there's no Moscow Mercantile Exchange?”, “How come there's no Havana Cigar Exchange?”, and my personal favorite, “How come there No Peking Duck Exchange?”

CME Propaganda from thirty years ago (more below)

Today there is a Moscow Securities Exchange that freely trades equities as well as futures. There are also several exchanges in China which is, ostensibly still a Communist nation. There is still no Havana Exchange and I doubt they will do much celebrating this week. More’s the pity, as Havana was once a thriving center of business and gambling – probably a natural breeding ground for traders. Well there’s always hope that twenty years after Fidel Castro’s death, traders at the Havana Cigar Exchange will be celebrating that anniversary.

 
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Week of November 2 - 8, 2009

 

Mixed News

Bang for Our Buck:

-CIT, which took $2.3 billion in TARP money from federal government, filed for bankruptcy in New York. Goodbye $2.3 billion.

-Ford Motor Company, which was the only one of the big three US automakers to not take TARP money and declare bankruptcy, posted a $997 million dollar profit in the third quarter. “Cash for Clunkers” helped Ford, but Ford was also helped by generally positive press and consumer reaction to their auto and truck lines. In other words, they made a good product.


That Lil' Devil Bernie

Bernie’s Back: In a jailhouse interview with SEC officials, Bernard Madoff gave them an intimate and amazing insight into just how incompetent their organization really is. I was going to say “was”, but until they actually ask the right questions and catch somebody I’m going to leave it in the present tense. On several different occasions, SEC investigators inquired about minutiae like email messages and never checked his brokerage’s account with Wall Street’s central clearinghouse or his dealings with firms who supposedly executed trades for his fund that his brokerage firm did not. Those would seem to be the very first steps in investigating a Ponzi scheme. Remember that the now famous whistleblower Harry Markopolous had been accusing Madoff of running a Ponzi scheme for almost ten years, and others had questioned Madoff’s claims without actually using the “P word”. The SEC had investigated Madoff on several occasions and came close to asking the important questions in 2004 and 2006. In fact, in 2006, investigators actually asked for his clearing house account number, but when Madoff delayed they did not follow up. I have said this before, but it bears repeating: The reason the SEC did not catch Madoff was because their investigators are lawyers and not traders or others with market experience. If you told a trader that you suspected a Ponzi scheme, the trader would tell you to ignore the company statement, because that could be a phony, and concentrate on the trades and the money. Where is the verification of the trades that were made on behalf of the fund? Go to the clearing house and see. Where is the money? There are strict accounting rules involving funds, and the money should be there on account with a brokerage, a clearing house, or a bank. Traders often reconstruct their day’s trading in order to ensure that their position and money are correct. Any trader looking at one of the phony statements that Madoff produced for his customers victims would have known what was necessary to reconstruct Madoff’s alleged trading. You claim you made 5 billion last year? Show me how. Just what questions were these people asking? A senior lawyer for the SEC in New York emailed one of these investigators in 2004 and said “we should get out of the business of burning resources to chase Ponzi schemes.” Mind boggling; someone should tell this genius that you need not burn resources - just ask two questions, “where is the verification of the trades you allegedly made?” and “where’s the money?”. It’s that simple. And now we know that Madoff himself was amazed that no one asked those two questions.

PS – I am not a lawyer-hater. My wife is a lawyer, and she’d make a great investigator for the SEC. She’s had years of experience in getting the truth out of a trader.

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                                                                                                                                          October 29, 2009

Black Tuesday  

Thanks to all of you who we talked to and got a chance to know at last week’s FIA Futures and Options Expo in Chicago. We got to meet a lot of interesting people who are doing a lot of interesting things in the business of futures and options: New software, new information systems, and exchanges and traders from around the world. We will soon be revealing some of that new informational software as an added bonus to our students. But I want to tell you about the great breakthrough I discovered at the show that will change the world for traders and non-traders alike.

The part of these shows that seldom garner headlines is the promotional goodies given away by exhibitors; key chains, pens, calculators, calendars, flashlights, etc. But clearly the best giveaway was from the Australian Securities Exchange (ASX). It is possibly the greatest invention since cheese in a can. It is called the “Stubby Glove” and it the invention of an Australian by the name of “Jimbo the Great”.

What is a “Stubby Glove”? It is a glove and a beer cozy all in one! In some parts of the world it’s a “koozie” or even a “cozie”, but down under they call it a "Stubby" - hence the term "Stubby Glove". Whatever you call it, this combination is a breathtaking advancement for all people all over the planet who drink beer outside (or even inside). Think about it: The cozy keeps your beer cold while the glove keeps your hand warm! What does this have to do with trading or markets? Nothing really, I mean I could stretch the analogy the way I usually do and compare the cold/warm function of the Stubby Glove to a straddle options position where you are potentially long and short in a market at the same time, but that would cheapen the import of this breakthrough.

 
So, just when the world seems so troubled something like this happens to reaffirm my faith in mankind and his ability to create magic out of a few ounces of styrofoam or neoprene or whatever the hell it’s made out of. So God Bless You Jimbo, God Bless Australia, and God Bless the Stubby Glove.

PS - They come in righty or lefty versions and you can go to www.stubbyglove.com for more information.

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 Week of October 19-26, 2009

 OctoberFest

    

       This is the 25^th FIA Show. In 1985, when the first FIA show was held in Chicago, options on futures was brand new, there were no ETFs,  there was no online trading, hell there was no online. The business has changed drastically in those 25 years and that is why we exist. As the world of futures and options trading changed the need for an education system that reflects the new world of trading and a new world of traders became apparent. 
        There are those who are sad at the demise of pit trading. I miss the trading floor myself, it was a great way (and at the time, the only way) to learn the business. But what is bad news for a small group of guys in Chicago is a tremendous opportunity for the rest of the world.
        This is the thing I find most interesting. When I started on the floor of the Chicago Mercantile Exchange in 1979 to my last day on the floor at the Chicago Board of Trade in 2005, traders were primarily white males who were born in the Chicago area. This was due more to nepotism than to prejudice. After all, it was easier to get a job on a trading floor if you new someone who worked there. 
        Today's traders have crossed all racial, sexual, and geographic barriers. Several of our students would not fit the old mold of a trader. Some don’t live in Chicago; in fact, some don’t live in the US. For some, English is not their mother tongue. Most have no relationship to trading or traders, just an interest in the freedom and financial opportunity that a successful trader can enjoy.
        Another change in this business is the conquering of physical barriers. Floor Traders and the people who worked there also had to be healthy enough to stand up all day. On our “Partners and Friends” page you can find a link to “Wall Street Warfighters Foundation”. This is an inspiring group dedicated to training wounded war veterans how to succeed in the finance industry.  In 1985, a seriously wounded war veteran could not be a pit trader. In 2009, that same hero can be on the front line of trading simply by sitting at a computer. A good trader needs courage and discipline to be successful and those people have that in spades.
      Today’s traders can be anyone, anywhere. You don’t have to live in Chicago, you don’t have to be one of the guys, you don’t even have to speak English, and you don’t have to be able to stand in a pit all day and shout. But you do have to know what you are doing.
      So this October as the FIA celebrates 25 years, the door has never been more open to more people to enter this new world of trading. And we are here to help you succeed in that new world with the same kind of patient mentoring and shared knowledge that we received in the old world that we grew up in.
     See you at the show. 
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Week of October 12, 2009

In 1492 Columbus Sailed the Ocean Blue...

        Like many members of my generation, I got most of my knowledge of history from Mr. Peabody and his pet boy Sherman. If you are too young to understand that just look them up – after all, if you’re reading this you’re on the internet already. But to those who also received their background in history through occasional trips in the Wayback Machine, Christopher Columbus was the guy who discovered America by bravely ignoring the conventional wisdom of the time that the Earth, of course, was flat.

Explorers Peabody, and pet boy Sherman (above) set their Wayback Machine for 1492, and Columbus

     The truth is that few people in Columbus's time believed the world was flat, particularly a sailor. That notion comes from an 1828 biography of Columbus by Washington Irving. The flat Earth nonsense therefore came from the same fertile imagination that gave us Rip Van Winkle and the Headless Horseman. In fact, mankind had embraced the notion of a round planet since ancient times. Eratosthenes in the 2^nd Century BC and Ptolemy in the 2^nd Century AD both calculated fairly accurate estimations of the Earth’s diameter.

        Columbus was actually more wrong than right. He believed those early estimations were incorrect and that the Earth actually had a smaller diameter. Therefore, by traveling west across the Atlantic he would reach Asia in a relatively short time and come back to Spain loaded with spices and gold for his patrons Ferdinand and Isabella. It turned out that he was lucky there happened to be a Continent between him and Asia. Otherwise, Columbus and his three little ships would have been sailing for a long time.


Silly Round-Earthers get too close to the edge

     So the moral of our story on this Columbus Day is that knowledge sometimes sits around for centuries before someone actually uses it, albeit incorrectly. The Flat Earth Society of today’s financial world would be all those masses of people who simply buy and sell stocks, and other mainstream financial instruments. The real adventurers and explorers of the financial world know how to use all the instruments and knowledge at their disposal – options, futures, ETFs, spreading, arbitrage, volatility, and all that cool stuff that we teach here. They are the Spice Islands of the modern financial world. Come explore them with us and bring back the treasures of this new world to your King or Queen.
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Week of October 5, 2009


Boo!

 

October is always a scary time on Wall Street and La Salle Street. It started on October 24, 1929, Black Thursday and climaxed on October 29, Black Tuesday, when the stock market lost 13% in one day. By the time it was all over the market had lost 40% of its value between September and November and the Great Depression was underway. At it's peak in 1933, US unemployment was near 25% and the lives of millions of people who had never owned a single share of stock were in tatters. The market itself did not get back to its September 1929 high of 381 until 1954.
In October of 1987, the Dow Jones Industrial Average lost 31% in just 5 days starting on October 14. On October 19 alone, the Dow lost  a record 22% of its value. The "Crash of 1987", however, was confined to Wall Street. Unemployment actually went down from 1987 to 1988 and there was little economic or political upheaval outside of the investment world. Many economists pointed to all the regulations and safeguards that came into effect after 1929, as the main reason that the damage was contained to Wall Street.
One year ago this week, the Dow had its worst week ever as measured in total points and percentage loss. The Dow lost over 1800 points for an 18% loss between October 6 and October 10, 2008. This followed a brutal September where the Dow had 3 of the top 10 losing days in its history. Measured from October 9, 2007 when the Dow made its all-time high of 14,164 to March 9, 2009 when the market closed at 6,547 the most recent crash saw the Dow lose an astonishing 53% of its value. We have seen a 3,000 point rally from the bottom, but this time it was impossible to shield the rest of the economy from Wall Street's problems. Unemployment now stands at 9.8% and continues to grow.
There are two ways in which you can deal with these scary Octobers in the market:
1.- Liquidate all your assets, put all that cash in a box, then take your box and a shotgun and hide under the bed until you hear the last trick-or-treater leave your porch.

or
2.- Take our options course and learn how to protect your portfolio and even profit in a down market. You decide.
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Week of September 28, 2009

 

One way or another, the logo you see above will be history as of Friday. It will be either replaced by a real Olympics Logo or simply be dispatched to the dustbin of history along with my 1984 and 2008 Cub's World Series tickets. The news this morning is that President Obama will join his wife Michelle, Mayor Richard Daley, Oprah Winfrey, and many other prominent Chicago athletes, politicians, business and civic leaders in Copenhagen to twist the arms of IOC members who will decide Friday morning (Chicago time) who will host the 2016 Summer Olympics. The other contenders are Madrid, Tokyo, and Rio, with Rio and Chicago considered the leading contenders. All things being equal, Rio should be the choice. No South American city has ever hosted the Olympics and Rio is a beautiful city with Sugarloaf Mountain, gorgeous beaches and all the beautiful things to be seen on those beaches. Rio's distinction for being the birthplace of the thong is enough reason alone to win them the Olympics.
But all things are not equal. With all of its beauty, Rio is one of the most violent cities in the world. The city has several overcrowded, desperately poor shantytowns that breed gangs whose violence spreads even into Rio's more affluent areas. You know, like Chicago in the twenties. But Brazil has a charasmatic leader, Luiz "Lula" da Silva, who will also be in Copenhagen making Rio's case. The leaders of Japan and Spain will also be there, so the Chicago 2016 Commitee considered it essential for the President to be there. The vote is expected to be so close that every vote will count. Since Chicago is involved, don't be surprised if some dead IOC members cast votes on Friday. 

 

Brazilian President Lula da Silva gives President Obama a Brazilian soccer jersey, who being a good American is understandably unimpressed

If Chicago loses, I think the city will be just fine. If we win, get ready for seven years of hype, contruction, and the inevitable fraud and finagling that only Chicago and its politicians can generate. It would be interesting to watch. As a native Southsider I'm particularly excited about the fact that most of the Olympics, including the Olympic Stadium, would be in Washington Park on the south side of Chicago. Washington Park is, interestingly enough, within a short walk of the President's Chicago home. So by noon on Friday there will either be a lot of sad faces in the Windy City or a real estate boom on the Southside. Whatever happens on Friday, we will be here just like always, however you might look for our  "Special Olympic Discount" for Gold Medal winners; or maybe "Free Olympic T-Shirt" when you graduate from our course. But look, if Chicago wins the games we are traders and Chicagoans with seven years to figure out how to cash in. If Rio wins, we might just sulk a little and then fly down there for the games. Did I mention its where the thong was invented?
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Week of September 21, 2009

Trading CDS

    
vs.

We not talking about trading music CD's, but something very different. Last year at this time we were hearing a lot about credit default swaps or CDS. A CDS is a contract where the buyer makes payments to the seller and in return receives a payout if the underlying credit instrument goes into default. The riskier the underlying loan or bond, the more expensive the premium the buyer must pay to the seller. Both the buyer and the seller of the CDS are free to sell their side of the transaction to a third party, who also is free to trade the CDS. Investors thought of CDS contracts as insurance, but they were not. Insurance only allows someone with an insurable interest to purchase insurance, and the insurer must have reserves on hand to cover any potential loss. A CDS contract is merely a freely traded contract based on an underlying instrument. Kind of like a futures contract or an ETF (Exchange Traded Fund). The difference is that exchange-traded contracts are guaranteed by the exchange and the clearing members represented in the transaction. In the free-wheeling world of CDS trading, swaps were neither insurance, where reserves are on hand, nor were they exchange-traded with all of the inherent protection an exchange provides. CDS contracts were pioneered by JP MorganChase in the 1990s and were squeezed through the same loophole that ENRON used to escape regulation with Commodity Futures Modernization Act of 2000. By 2008, AIG had become the biggest player in the market, but we all know what happened when the excrement struck the oscillating device. The collapse of the sub-prime mortgage market meant that AIG and other CDS sellers were being called on to payout on their swaps. Well they had no reserves, and since they weren't marked-to-market like an exchange-traded instrument, they were simply unable to pay and the buyer of the CDS were unable to collect on their "insurance". That meant that another set of dominos was about to fall. Enter you and me and all the other taxpayers. We paid off for AIG.
Now in 2009, CDS contacts have been standardized by international agreement and two clearing houses, one in the US and one in Europe, have been established. The US clearing operation is operated by InterContinental Exchange (ICE). At the end of last week, the CME Group Inc. entered the picture when they announced they had won the backing of five major asset management firms. Those firms, as well as an undisclosed number of large banks and Chicago based investment giant Citadel Investment Group are founding members of CME's entry into the $27 trillion dollar CDS market. Yes that's a 27 trillion dollar market ! A secure exchanged-traded CDS market will do a lot to restore confidence and liquidity into the world's credit markets. And whichever exchange gets the majority of the business It will probably be what we call a "great trade". Meaning an active and liquid market with great potential for profit for experienced professional traders. You know, like you - if you take our course.
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Week of September 14, 2009

 

One Year Later


Emanuel and Mayer Lehman in the 1880's, Lehman's New York Office 1 Year Ago

One Year ago investment banking giant Lehman Brothers collapsed and started a chain reaction which almost destroyed the world's financial system. Emanuel and Mayer Lehman began their firm as cotton traders in 1858 and were founding members of the New York Cotton Exchange. The company grew as a major commodities firm and the Lehman family moved into equities and joined the  NYSE in 1887. 121 years later the company was destroyed by non-exchange traded, non-regulated, sub-prime mortgage instruments. To mark the occasion, President Obama will deliver a speech this morning outlining financial regulatory reform. I think Emanuel and Mayer could tell the President where to begin. Exchange-traded instuments have security, transparency, and are marked-to-market. Meaning traders and Clearing Firms have to meet margin requirements on daily basis. If these instruments and Credit Default Swaps and other culprits of the meltdown were exchange-traded, this thing would have been nipped in the bud.
 

More Thoughts on Regulation


Harry Markopolos

One more point on regulation. Sometimes it's not the regulations it's the regulators. Last week, Congressional hearings began in the SEC's role in the Madoff debacle. In an audio tape from 2005, Madoff is heard telling a worker at Fairfield Greenwich, a feeder fund being investigated for their role in Madoff's ponzi scheme, "These guys, they work for five years at the commission, and then they become a compliance manager at a hedge fund ... Nobody wants to stay there forever," If you listen to the tapes, you can hear the contempt that Madoff had for the SEC. Even more contemptuous of the SEC is Harry Markopolos, the man tried for years to alert the agency to Madoff's scheme.  Markopolos is a Chartered Financial Analyst (CFA) and a Chartered Fraud Examiner (CFE) who specializes in options trading. In 2000 he was asked by his firm, Rampart Investment Management, to reconstruct Madoff's formula for succes using the bits and pieces of strategy that Madoff would tell his clients - most of whom knew nothing of trading and markets. Markopolos soon realized that Madoff's claims were ridiculous and he must either be front-running his own customers in his brokerage division, or, more likely, running a ponzi scheme. Some of the strategies that Madoff claimed he used in options (such as split-strike conversions) don't even exist or are patently ridiculous. The SEC's problem was that their investigators understood options trading about as well as Madoff's victims. Most SEC investigators are young lawyers who wouldn't know a put from a call or a strike price from their own backside. If the SEC (or the CFTC for that matter) really wants to catch the next Madoff, they should hire traders who know phony trading strategy when they hear it, and not more lawyers. Or better yet, hire graduates of our options class who learn real trading from real traders.
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 Week of September 7, 2009 

Apple Bobbing

Apple is throwing an "iPod Event" on 9/9/09, where it is expected to unveil the latest generation of iPods. This most certainly will mean iPods with cameras, but what else? The invitation (above) uses a line from a Rolling Stone classic which fuels speculation that the aging rockers might be there. Steve Jobs is expected to make his first public appearance since he took his medical leave after announcing his battle with liver cancer. Apple shares closed at 172.60 on the eve of the event and volume in the stock and its options was high. If you believe 200 is a realistic goal, or if you believe that Apple cannot maintain this level, our options class could show you how to position yourself for either (or both, for that matter) for the maximum possible profit at the lowest, definable cost. Personally I am waiting for the Death-Ray App for the iPhone,but that will probably be next year
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   All The News That's Fit To Print 

 
 Krugman

2008 Nobel Prize winning economist Paul Krugman wrote an extensive piece last week entitled "How Did Economists Get It So Wrong?". The gist of the piece  is that many economists had come to believe that the once divided science of economics had evolved into a field where there was unanimity of vision and theory. Particularly in macroeconomics, where free market disciples of Friedrich Hayek and Milton Friedman and the so-called Chicago school of economics had ruled the roost and dominated the Nobel Prize in economics. The belief in market economics had led some to believe that the economy had become not only depression-proof but recession-proof. So what happened? Krugman, who is most defintely not of the Chicago school makes his case for what happened. Even if you don't agree with Krugman, it makes for interesting reading and a good starting point for an economics debate. The one thing we can all agree on now is that despite all the advances in economic theory and practice, the economy is still subject to downturns and potential disasters. So it behooves any in the investor class to plan accordingly. The best way to do that is to learn how to trade and utilize options an other derivatives to protect your portfolio, house, nest-egg, etc.. Oh and by the way, this Chicago School can teach you how to do just that. 

 


Dead Giveaway

Madoff and Weinstein

Here come the Bernie Madoff books: One of Madoff's victims, Sheryl Weinstein who invested millions of dollars for the charity she ran as well all of her and her husband's life savings with Madoff, now claims she also had an affair with Madoff in her book "Madoff's Other Secret:Love, Money, Bernie and Me". Weinstein writes that "about 10% of the volume of the NYSE was going through Bernie's firm." Well maybe that would have been true if he was really investing all that money that people like Weinstein were giving him, but it was an absurd claim that anyone with any market sophistication would have laughed at. Speaking of laughing at Bernie, Mrs. Weinstein said that she was stunned the first time they had sex.
"...This man was not well-endowed"  claims Weinstein. Well that should have been another dead giveaway that this man was not what he said he was. Anyone who really knows trading knows that statement can never apply to a real trader. We are just kidding of course, there are many successful female traders.
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Week of September 1, 2009

Business News Ticker

- EBay to sell a majority interest in Skype to private investors. EBay was criticized for overpaying for the internet calling service in 2005 when they outbid Google and paid nearly 3 billion if you include incentives. They didn't even acquire the technology behind Skype's uncanny clarity of signal which resulted in EBay going to court in Great Britain with the company who did buy those rights.
The deal helps EBay save facebuy placing the value of Skype closer to its purchase price than most analysts would have. Skype made $600,000,000 last year. Which is somewhat amazing when you consider that most of their basic calling services are free. Moral of this story: Never outbid Google.

-Pending home sales rose to a two-year high in July. This news combined with other recent good news in the housing market suggest we may have finally established a bottom in the housing market. There are a still an awful lot of homes in forclosure and homes on the market, but maybe there is some light at the end of the tunnel. Two indices of the housing market, the ETF UltraShort Real Estate (SRS) and the Philadelphia Housing Index (HGX) have made very significant technical moves off the bottom (in SRS's case though, it would be off the top since it is a "short" index). CST's Dan Keegan will soon give a webinar on how to use these instruments to protect the value of your home or lock in your home buying power. Check in here for details on the where and when for that webinar.

 

Week of August 17, 2009

Donald Trump's Landlord is a Real Jerk/Donald Trump's Tenant is a Lowlife

                        

When a tenant failed to paty $87,000 in rent on two townhouses and retail property in Trump Plaza in New York City, the landlord, Trump Plaza Owners Co-op, did what the Donald himself would have recommended and began eviction proceedings. The tenant? Why that would be Trump Corp. owned by one Donald Trump. (Source: The American Lawyer via News of the Weird)
 

Week of August 3, 2009

Is It Over?

Newsweek recently proclaimed that the recession is over, and with the Dow over 9,000, the S&P over 1,000 and the Nasdaq around 2,000 maybe it's true. But Wall Street often gets ahead of Main Street. The street is going to keep a very close eye on Friday's unemployment numbers to see if the recent market rally is an accurate harbinger of things to come or groundless optimism.  As Harry Truman once said, "It's a recession when your neighbor loses his job, and it's a depression when you lose yours." Maybe when you get a job or your 401K stops making you cry, you will feel that the recession is over. Here's hoping that you feel that your recession or depression is over.

Update:

Friday's unemployment number came and, lo and behold we saw the first drop since early last year (albeit a tenth of a percent from 9.5 to 9.4). The White House cautions that 10% unemployment is still a distinct possibility, but enjoy the moment - the market has. All major indicies are up and the 10,000 level in the Dow is in sight. Don't you wish that bought some of those cheap, out-of-the-money calls back in March when the Dow dipped below 6,500. What, you didn't know how to buy those out-of-the-money calls? You don't know what an out-of-the-money calls are? Take our options course and find out.

Week of July 27, 2009

9000 !

It's always nice to get out of a rut. At the end of last week, the Dow Jones Industrial Average closed above the 9000 level for the first time since last January. It has been a wild ride since the Dow made its all time closing high of 14,164.53 on October 11, 2007, to its recent nadir of 6,469.95 intra day on March 6 of this year. That roller coaster ride created record high levels in the VIX (volatility index) which scared the bejeesus out of many investors while making several professional traders happy as clams.
The 9000 level seems to us to be of particular historic importance. When the Dow first went through 9000 in April of 1998 it seemed to signal that the mini-crash of 1997 was behind us. Conversely, when the market reopened on September 17, 2001 after the attacks of September 11, the Dow fell below 9,000. Even though a mini rally allowed the market to close the year above the 10,000 level, the Dow quickly fell below 9,000 again and slipped to 7,286 in October, 2002. Again it was when the Dow was able to get back up over 9,000 in late 2003 that the slow climb to 14,000 (twice) began in earnest. The editor of this report traded the Dow Futures contract at the CBOT and lived through much of that history and believes that 9,000 seems to be an even more important psychological level than 10,000. We shall see.

Self-Directed Investors

CST's Options Director, Dan Keegan was interviewed recently by Scott Nystrom on the website selfdirectedinvestor.com. You can go to the website to hear the interview, which will also appear soon on our media page. We like the term, self-directed investor, we think it's another term for trader. If you consider youurself a sel-directed investor, or would like to be one, check out their website and then take our course so you can be a successful self-directed investor.

July 20, 2009

Forty Years Ago Today

As you all probably know by now, today is the 40th anniversary of the first men walking on the moon. The amazing thing is that it only took 12  years from the Russian launch of Sputnik, which marked the beginning of the "space race" to Neil Armstrong's first step which marked its end. In fact it was only 8 years after John Kennedy told Congress that "this nation should commit itself to the goal, before this decade is out, of landing a man on the  moon and retuning him safely to Earth." 
Compare that with the progress the stock market made in the 60's and 70's. Early in JFK's Presidency, the Dow Jones closed over 700 for the first time. In 1969 the Dow flirted with 1,000 but retreated and did not close over 1,000 until 1972. It did not stay above that level for long and did not return there until late 1982. So in about twice the time it took us to win the space race, we were only able to push the Dow up 30%. This little history lesson is for those of you who are wondering just when we will break out of this 8200 to 9000 trading range the Dow has been in for several months now. You just never know how long these things last.

How to Deal With a Bad Broker
 

Most people just complain to the SEC, but here's a real news story about how some disgruntled retired German investors dealt with their broker:
Two formerly well-off retired couples in Speyer, Germany, whose nest egg was largely wiped out by investments in sub-prime Florida mortgages, vented their anger by kidnapping their investment adviser, James Amburn, in June. They took him to the vacation home of one of the couples near the Austrian border, bound him like a mummy and beat and tortured him over several days, fracturing two ribs, in repeated attempts to punish him and extort his own property as partial compensation for their losses. Police rescued him after he managed to send a coded message by fax. [The Times (London), 6-24-09]

Kidnappers making their getaway 

More Nails

The Lenny Dykstra story caught the eye of the writers at The Daily Show. We had our say (see below) and now here is Jon Stewart's take on this story.

Broken Nails

Ballplayer turned businessman Lenny "Nails" Dykstra

About a year ago, the HBO show Real Sports, profiled former major leaguer Lenny 'Nails' Dykstra. The less-than-eloquent, foul-mouthed, tobacco-chewing Dykstra was portrayed as a business genius in a piece that featured CNBC's Jim Cramer extolling Dykstra's market acumen and showed Dykstra trying to explain his options trading strategy to a confused Bernard Goldberg who reported the piece. Last month, the same show told how Dykstra's fortunes have changed dramatically for the worst; living alone in an $18 million dollar unfurnished mansion, being sued by former business partners, former employees, and several creditors. On Thursday, Dykstra filed for Chapter 11 bankruptcy protection, claiming assets of $50,000 and liabilities of $10 to $50 million. In rambling defenses of his position on both HBO and CNBC, Dykstra blamed his woes on the failure of a new magazine he was developing for high-rollers called The Players Club (isn't that Telly Savalas's gig), and "bank fraud". We think something else was involved.

Dykstra's option trading strategy, which he elaborated on in his columns in TheStreet.com, involved buying deep in-the-money calls. On the surface it was a seemingly brilliant way to purchase a lot of shares in strong stocks for less money than actually purchasing the stocks. The problem with this strategy, or any "Magic Bullet" strategy, that teaches one way to approach the market is that markets change. We did some research and found that Dykstra and his strategy had his share of critics even before his fall from grace.The CXO Advisory Group in their "Guru Grades" found in April of 2008, that Dykstra performed no better than the market as a whole "suggesting no stock picking ability". Furthermore in an options trading blog from January of 2007 we found these prescient comments from someone called "SmilingSynic":
"He buys LEAPS(1.) on stocks, and buys more if they go down, and sells as soon he gets a dollar of profit. In this bull market, he looks great, but in a bear market, he and his readers will get killed.....Lenny simply uses ditm (deep-in-the-money) LEAPS calls in lieu of the underlying. Not bad in itself....But he really does not know options, and his Martingale Strategy (2). is a disaster waiting to happen"
We believe that disaster did happen. Between the two Real Sports pieces, the Dow Jones lost over 50% of its value and is still only about 58% of its previous high, and "Nails" is in Chapter 11. We don't believe that is a coincidence. Dykstra says his trading had nothing to do with his current problems, and that he is "111-0" in picking market winners. Come on Lenny, even Bernie Madoff said he had two losing months. The truth is that Lenny Dykstra was a multi-dimensional ballplayer with a one-dimensional approach to trading.
Why do we tell you our spin on Lenny's tale of woe? Because at The Chicago School of Trading we believe there is no one strategy that works all the time for every trader - no "Magic Bullets"! We teach all of our students that a professional options trader needs to know many strategies and when to use them. What seems fine in a bull market is death in a bear market. What works with low volatility will be a disaster with high volatility. What is easy in a liquid stock is difficult with a small cap stock, etc. If you want to trade options, become a well-rounded, professional trader that knows how to trade and prosper in all market conditions. We can teach you how to be that kind of trader and we won't be spitting tobacco juice as we do it. 
1.- Long-term Equity AnticiPation Securities ®
2.- an 18th Century betting system that was believed to eventually deliver a sure winner - it did not

Evil Speculators


Nelson and Herbert Hunt;


Randolph and Mortimer Duke

Oil prices are on the rise, so once again the fingers are pointing on those evil speculators. Websters defines speculation as "assuming a business risk in hopes of gain", in other words: Trading. When the oil market goes up, speculators who have purchased oil futures are blamed. When the stock market goes down, speculators who have sold short are blamed. In other words, "how dare you be right, when I was wrong". Now if you can prove that a small cabal of moneymen have cornered a market and artificially forced up prices, well go ahead and bust them. But in most cases, those who have tried to corner a market have met with disaster. Just ask the Hunt brothers who tried to corner the silver market in 1979 and ended up losing $2.5 billion, or the Duke brothers who tried to corner the frozen orange juice market and ended up living on the street (okay, so that was a movie). The truth is that when oil prices were skyrocketing last year to over $145 a barrel and people were blaming speculators then, it was those very speculators having to sell out their long positions that helped drive down future prices to below $34 a barrel. It's simple, the more buyers any market has, the more future sellers there are. Conversely when the stock market was collapsing last fall, the only upward movements were short-covering rallys. If you take the shorts out of a market then eventually you might have a market where no one needs to buy.Here is link to an article in the Wall Street Journal about regulatory worries.

July 14, 2009

Joyeux Quatorze Juillet!


The storming of the Bastille,
July 14, 1889

That's French for "Happy July 14th" or Bastille Day - The French national holiday that commemorates the storming of the Bastille Prison by a mob of French peasants 220 years ago today. It's like the 4th of July only there's an ugly mob of smelly, bloodthirsty, French peasants with torches rather than a room full of patriots signing a document. Have a glass of wine, eat some cheese and be rude to someone to mark the day.

July 16, 2009

This Day in History
Three things that helped shape our modern world happened on July 16th:

1945 - The first atomic bomb was exploded in Alamogordo, New Mexico,


1969 - Apollo 11, the first manned mission to land on the moon is launched at Cape Canaveral in Florida, 


1971 - Corey Feldman was born in California. 


Only time and history will tell which of these things did more to advance, or destroy humanity.

 July 4th Weekend, 2009

"Bonfires and Illuminations"

Fireworks in New York(top) and San Francisco

As we celebrate the 233rd birthday of the United States this weekend, we pause to remember the words of John Adams, one of the authors of the Declaration of Independence. After the Declaration was passed by the Continental Congress,  Adams wrote to his wife Abagail that succeeding generations of Americans  should celebrate the anniversary of the Declaration with "..Games, Sports, Guns, bells, Bonfires and Illuminations from one end of this continent to the other from this time forward forever more". Adams died at his home in Quincy, Massachusetts`on July 4, 1826, as his fellow Americans were celebrating the fiftieth anniversary of their independence only a few hours after the other primary author of the Declaration, Thomas Jefferson, had died at his Monticello, Virginia estate.

Adams and Jefferson

So take a moment to think of these two great men and what they gave us as we enjoy the "Bonfires and Illuminations" this weekend.

July!

Happy July! July is named after Julius Caesar, a politician who was seduced by a foreign woman and then stabbed by a bunch of Senators. Things really haven't changed a whole lot in 2053 years, but have a Caesar salad and enjoy the summer.

Et Tu Bernie

Bernie Madoff was sentenced to 150 years on Monday, which means with good behavior he might get out in 75 to 80 years. Several of Madoff's victims testified in his sentencing hearing. They told tales of bankrup and ruin. To avoid having to testify in a similar hearing someday, here are three helpful hints:
         
1.- Don't believe in geniuses who tell you they're right all the time - they do not exist.
2. - Diversify! Never put all of your assets into one stock, one sector, one broker, one fund, or one anything.
3. Learn how to trade and how to protect your own portfolio - be the master of your own fate and pay yourself to manage your assets.

If you want to know how to do that, just call us and we'll explain.

Summertime and the Trading is Easy
 

Well it is officially summer and historically the markets tend to slow down. Or is that just an old wive's tale? And what do old wives know about the markets anyway? And how can I stop asking rhetorical questions? Here is an article I found with some genuine historical research on the subject that I found interesting. Or did I? (sorry I'll stop with the questions already)

Cornerstone Investors Network
Webinar

Bill Gruzynski and Dan Keegan conducted a webinar for the cornerstone network last Thursday night. Dan also conducted a similar webinar for the Cornerstone Investors Network on June 4th and there is a recording on our CST in the Media page. If you were an atendee and you are looking for the seminar sign-up page, or if you weren't there but are interested, click here.

To subscribe to Cornerstone just click here

Apple Picking

 

There was a lot of excitement a couple of weeks ago concerning Apple's World Wide Developers Conference. Steve Jobs didn't return, but there was a new iPhone. With all that activity and volatility, Apple stock made a high of 144.56 on June 9th, and that was good news for anyone who had seen the Chicago School of Trading's Options Director, Dan Keegan on ONN-tv's Street Smarts last month talking about strategies that traders could use to take advantage of a possible upward move. His strategy for Apple was spot on and garnered some press coverage: Read it here, and watch his appearance on our CST in the Media page.

 
June 23, 2009

 

 

25th Anniversary of the "Sandberg Game"

This has nothing to do with trading, but everthing to do with Chicago in the summerttime. 25 years ago today, on June 23, 1984, Ryne Sandberg homered in the 9th and 10th innings off of fellow future hall-of-famer Bruce Sutter to twice tie a game that the Cubs eventually won in 11 innings against the hated Cardinals. That nationally televised game propelled Sandberg and the Cubs into national prominence. Here is a link to site that contains the video of those two homers.

June, 2009

Radio Waves

CST's Dan Keegan and Bill Gruzynski appeared last month on "The Rude Awakening Show" on WOCM with Bill's old friend and Chicago native Dave "Bulldog" Rothner. For those of you who heard about us from WOCM - welcome to the Chicago School of Trading. If You missed the show, there's a recording of it on the CST in the Media page.

Week of June 17, 2009

Triple, triple, toil and trouble;
Fire burn, and chaudron bubble.
(apologies to Shakespeare)

 

 

This should be a volatile an exciting week in trading. It is expiration week for all June equity options, all stock indices - options and futures, ETFs, and financial futures and their options. This expiration always cause a lot of activity in not only futures and options, but in their underlying instruments. Before rule changes in stock indices, they all expired at the close on Friday of expiration week: The so-called Triple Witching Hour. Nowadays the action is spread out over the week, rather than in the last few hours on Friday, but it is still fun to watch - and trade. If you are an equity trader who would like a better understanding of weeks like this, or you are interested in becoming an options or futures trader yourself - Contact us and join the fun.

Week of May 12, 2009

 

Speaking of options, March was a record month in volume at the CBOE, and their Chairman, Bill Brodsky appeared on CNBC's Fast Money to discuss the growth in the options business. Watch this clip and see how Mr. Brodsky emphasised education in the continued growth of the options business.

Dan also hosted a webinar for PFG Best  on April 28. Just click here for the recording. The subject is using vertical spreads in options on futures; specifically Ten-Year Note Futures. Dan is also scheduled for an appearance on ONN-TV's Street Smarts. In that appearance Dan will again discuss options spreads; this time the benefits of trading vertical butterfly spreads in equity options.

 

Week of May 5, 2009

Happy Cinco de Mayo! It is a popular misconception that May 5th is Mexico's Independence Day (September 16th is the real day). It is in fact a celebration of the 1862 defeat of French forces at the Battle of Puebla. The French had invaded Mexico ostensibly to collect a debt. They ended up conquering Mexico and naming the Austrian Maximilian I Emperor of Mexico. When our Civil War ended in 1865, we turned up the heat on the French to get out, which they did. Unfortunately for Maximilian, he did not go with them and was executed
in 1867 by the government of Benito Juarez. It seems to us that if everybody celebrated victories over the French, there would be an awful lot of holidays. Anyways have a Margarita and enjoy the day. 


 

Monday February 9, 2009

 

 



 

This Thursday, February 12, 2009 marks the 200th birthday of both Abraham Lincoln and Charles Darwin. Our quotes this week will all be from them. If you are wondering what Lincoln and Darwin have to do with trading, you obviously don't understand how important the concepts of Freedom and Natural Selection are to trading. Free markets depend on free men in a free society to function properly and there is no better living example of survival of the fittest than the competitive world of trading. So join the fittest - learn how to trade intelligently.