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Monday, December 19, 2005
Market Recap
It was an absolutely dreadful day in the market to start what is supposed to be a time of year when the markets rally. You would think they would want to take the market up to justify those hefty Wall Street performance bonuses before the end of the year, but so far that has not been the case. The Nasdaq took a serious hit today losing 30 points. The Dow lost 39 points, and it would have been much worse if it had not been for PFE. The S&P was down 7 points. There are not many charts that look good right now so we will skip that portion of the commentary tonight and try to answer a question that was posted to the message board over the weekend. I wish I could say we are going to have a nice rally but the chances of that happening look bleaker each day.
It's Magic
A question asked on our message board was, "How stock prices can close exactly at the option strike with the most open interest on expiration day?" My answer to post #87534 was "It's Magic". Of course, this so called "magic" is nothing more than pure price manipulation. The manipulation of stock price by the professional traders, they are the big money traders who are responsible for the volume going in and out of stocks each day. The volume they trade will influence stock price, the small investor cannot influence the price of a stock.
As far as options go, the professionals are the option sellers (wolves). The amateurs are the option buyers (sheep). The professionals sell the options and collect the premiums. It is in their best interest to have those options expire worthless. They can keep the premium the amateur paid for the option, and at the same time, ensure the option cannot be exercised. This is how wealth is transferred from the amateur to the professional. There are many options strategies used for this.
It is likely that whatever strike price has the most open calls and puts combined is where the stock price will close on options expiration day. Keep in mind this does not apply to stocks that trade little options volume. It is not worth the effort to manipulate a stock price if there is not much open interest. You will find that this will apply to only those stocks that trade heavy option volume.
SIRI December Strike $7.00
SIRI is a great example of what happened on Friday. The stock spiked up to near $8.00 last Monday. Thinking it was a guaranteed winner, this suckered many people into buying the $7.00 strike. No way it can drop a buck in just 4 days, right? Wrong, that was a great opportunity for the smart money to short the stock. Knowing options were expiring in 4 days and the $7.00 strike had the most open interest, they needed to drop that stock all week to get it down to near $7.00 to make those options worthless and they did just that. It closed Friday at $6.95. Those that bought the $7.00 strike options lost 100% of their investment.
The professionals do this by loading up on the short side and forcing the price down. As it is drifting lower, they had one of their analysts slam a downgrade on the stock to take it down further (after they are already short). That downgrade came on Tuesday, after the gap up. They took it down just enough to make the options worthless. They win in 2 ways: they win on the short side with their short position, and they win by ensuring the options will not be exercised and expire worthless.
The Option Writer Wins Again
They want you to believe that selling (writing) options is very risky. But the truth is that they want you to believe that because they do not want you to do it. The fact is that the seller wins the trade more than 80% of the time. They want to keep that gold mine for themselves, and why shouldn't they? Remember, the only reason Wall Street even exists is to drain the small investors' accounts and transfer that wealth to the already wealthy, to make them wealthier. The good old boys network has been around for over 100 years and it will continue to fleece the public for another 100 years or for as long as the stock market exists.
Where do you think all that bonus money comes from? These firms will pay their best traders outrageous bonuses again this year. Why? Because their traders made a great deal of money for the firm. How? By trading and winning against the public trader. If you have lost money this year, there is a good chance it is now in the hands of the firm and they will give it away in bonuses to the very traders that took your cash. If you think you are playing on a level playing field, think again. You are at a tremendous disadvantage and you must protect your capital from these blood sucking thieves.
Long Term Portfolio Closed
We have made the decision to do away with our long term portfolio as of Dec 31st 2005. This portfolio came about by request from members who wanted some longer term trades because they were not short term traders. These members are no longer with us and we see no need to keep this portfolio open when our primary trading style is short term. Overall, the portfolio was a success. There were a total of 9 positions traded with 10% of portfolio value in each trade. 5 positions were closed 4 winners and 1 loser. There are 4 positions still open, 1 winner, 2 losers and 1 flat. Even if all the positions were closed today, the portfolio would be up 11% since its inception. We feel the portfolio serves no practical purpose and therefore we have made the decision to remove the long term portofolio.
Stockcharts Listing
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STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts we have annotated for each stock listed in the past.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings you can either use this link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
For New Members:
Please take a moment to read the "How To Use The Bulletin" link at the bottom of the Bulletin page on the website. It is critical you understand how to use this trading tool before trying to trade the stocks mentioned. The effectiveness of your trades will diminish if you do not completely understand how the information is presented. |
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