Current Blog Entries by Larry Fry, CCP, MBA

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Posts Tagged ‘Commodities

Options Trading Advisory Services

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Looking for an options trading advisory service that provides consistently profitable option trades?  Schaeffer’s Investment Research is a very educational advisory service that also offers a gamut of different subscription services designed to enable the subscriber to mix and match different options trading styles.  I am currently a subscriber to Schaeffer’s “Super Trader” aggressive alert services package and its more moderate “Weekend Trader” bulletin service. Another good option advisory service to consider here is Option Monster, which also offers several subscription services tailored for one’s particular level of trading experience and desired level of risk.  Option Monster also has a very good education section within its website as well.  I am currently a subscriber to Option Monster’s aggressive “InsideOptions” alert service, which provides up to five Options trade ideas each week.  Schaeffer’s and Option Monster are two of the more popular options advisory subscription services out there, and they have both recommended some real winners for me in the past.  But my overall returns from both of these services have been tempered by the issuance of many additional recommendations that didn’t pan out too well (i.e., especially Schaeffer’s in the past); as a result, one needs to be aware of the overall picture here when striving to achieve a model of consistent profitability with these services.  In other words, additional technical analysis and fundamentals based research on the subscriber’s part is usually required in order to proactively eliminate most of the the additional recommendations that will not work out in order to increase one’s overall level of profitability.

In terms of specific options recommendation services that identify short-term opportunities that are about to “pop”, several alert services offered by Schaeffer’s and Option Monster immediately come to mind.  For instance, Schaeffer’s “Expiration Week Countdown”, “Overnight Trader”, and “Weekly Options Trader” alert services offer these aggressive short-term “pop” types of opportunities, as do Schaeffer’s “Event” and “Players” series.  Option Monster’s “InsideOptions” service also offers similar trade recommendations as those offered by Schaeffer’s, although Option Monster tends to curb the urge to flood the subscriber with recommendations that have not have been fully researched or scrutinized by its senior options analysts.  Furthermore, Option Monster recommendations issued by co-founder and “InsideOptions” lead analyst Pete Najarian have had the highest winning percentage (for me) of all of the advisory services mentioned here.  Pete Najarian does not issue direct recommendations too often for the “InsideOptions” service, but when he does they usually work out very well; as a result, I rate Pete Najarian as being the best of the options advisory analysts that I have been following for the past several years.  One additional options subscription service that one should consider here is the one being offered by TheStreet.com, with which the folks over at Options Monster share a common history with.  In thinking in terms of comparing these different types of option recommendation services, I actually believe that quite a few of these advisory services “borrow” from each other to a certain degree and then repackage the information gleaned for their particular ongoing marketing models.  For example, Schaeffer’s and Zack’s seem to partner-up on some of the service recommendations offered by Schaeffer’s, as do Schaeffer’s and options research group What’sTrading.  In addition, Option Monster and TheStreet.com seem to partner-up on some of their recommendations as well, which makes sense based on the above mentioned common history that they share.

In conclusion, I should reiterate that most of the popular options advisory services out there will recommend some big winners to you as a subscriber, but you’ll need to do some additional “homework” to weed out the non-winning ideas in order to make the service profitable on a consistent basis.  Again, my overall returns from the above mentioned subscription services are usually tempered with many additional ideas that do not work out, so I try to stay aware of the overall picture here in order to achieve a model of consistent profitability.  Additional technical analysis and fundamental based research on the subscriber’s part is necessary in order to proactively eliminate the additional ideas that won’t work out in order to increase one’s level of profitability.  Granted, these services will recommend a few nice winners for you per their advertisements, but you’ll definitely need to scrutinize their all of their recommendations with your own research (and closely monitor them) in order to make subscribing to the service worthwhile.  As an example of this, I have now gotten to the point with Schaeffer’s “Expiration Week Countdown” service recommendations where I weed out all but one or two of the ideas issued during options expiration week of each month.  For example, during options expiration week in August, 2010 I eliminated from consideration all of the recommendations made but one, which was one of the Netflix (NFLX) call options that was set to expire at the end of that week (Call -> NFLX -> AUG 21, 2010 -> Strike Price $110).  I selected this particular idea out of the overall group that Schaeffer’s recommended due to the recent high levels of volatility associated with NFLX’s stock price and volume at the time.  And this particular option call did very well for me that week (i.e., more than enough to cover the cost of my annual subscription).  So I have found that I am able to select one or two real winners to play with from the list of recommendations made by this particular service during options expiration week each month, and my experience has shown that the rest of the ideas are usually worth ignoring after doing the requisite research. Hope this all helps!

http://www.schaeffersresearch.com/cart/ViewAllProducts.aspx#aggressive
http://www.optionmonster.com/about/products.jsp

See link below for an enhancement of finance professor Peter Carr’s instructive paper on the implementation of the Black-Scholes call/put options pricing model on the HP-12C programmable finance calculator by Tony Hutchins. http://www.hpcc.org/datafile/V23N3/V23N3P25.pdf

Wall Street Bankers’ Bonus Abuse Issue!

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The notion that Wall Street keeps its gravy train rolling by lining the pockets of our top-tier politicians with money and other influence-peddling gifts in order to condone the financiers’ actions is quite disturbing. In fact, the financiers’ claims per the paramount importance of their work as an excuse to enable them to get away with whatever they deem appropriate for themselves (e.g., awarding of excessive tax-payer financed bonuses, etc.) is very disturbing as it smacks of greed and self-centered conceit.  But the biggest rub is that these absurd bonuses were largely financed via the billions of dollars in taxpayer-financed funds from the Troubled Asset Relief Program (TARP) and trillions in loans from both the Federal Reserve and the FDIC.  These sources of aid money were designed to help the Wall Street financial institutions deemed too big to fail to survive their own terrible misdeeds, not to excessively reward their executives for jobs NOT well-done.  This has got to be perhaps the biggest misappropriation of our hard-earned tax money that has ever transpired in the history of this country. 

Finally, as long as big money talks and remains the primary influence driver in the current socio-political (or cultural) climates across the globe, then people in power will apparently continue to walk in the direction deemed appropriate  by the big money purveyors (e.g., Goldman Sachs, George Soros, et al.).  The condoning by governments of  their large scale market manulation shenanigans for their personal gain at the expense of the taxpayers of the world speaks for itself.  And their latest ploy of shorting the Euro while playing credit default swaps (CDOs) shows that there’s no shame on their part.  Finally, even President Obama is softening up his tone towards the big banking entities and their actions. And speaking of being “too big to fail’, perhaps the US socio-economic system and federal government is falling under this same exact definition.  This splitting up (i.e., per the splitting up of  giant oil corporation Standard Oil over 100 years ago) is becoming a more realistic option over time in terms of gaining more value and growth opportunities from the resulting smaller entities that would result.

Written by Larry Fry, CCP, MBA

March 2, 2010 at 11:55 pm

Massive Government Control of Free Markets Debate!

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Quote of the Day  –
“The case for free markets never was that markets are perfect … [but] that government control of markets, especially asset markets, has always been much worse.”

University of Chicago professor John Cochrane, per criticism from Paul Krugman, New York Times columnist and proponent of massive government intervention policies (click on URL below for his full rebuttal).

http://faculty.chicagobooth.edu/john.cochrane/research/Papers/krugman_response.htm

Written by Larry Fry, CCP, MBA

January 31, 2010 at 2:50 pm

The Proposed Financial-Transaction Tax Bill Issue!

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There is a financial-transaction tax bill being proposed by the U.S. Congress that intends to levy a 0.25% tax on all equity trading transactions.  The passing of this bill would severely marginalize the financial trading industry, making our financial markets even less efficient than they have already become.  The end result would be the loss of untold numbers of jobs, and financial markets would become even more susceptible to crashes due to the resulting lack of  liquidity. Obviously the passing of this absurd bill would negatively impact the financial trading (and related) industries; but it would also severely curtail a critical market capitalization vehicle used by small to medium sized companies, thus rendering them less able to compete and grow.  And with banks and other financial service entities either unable or unwilling to capitalize small to medium sized businesses these days (but able and willing to pay out absurd bonuses to undeserving executives), taxing financial trade transactions would only serve to make the current economic downturn more pronounced, possibly leading to even more disastrous consequences down the road. The resulting dissipation of market liquidity, trading volumes, and market price discovery, along with widened bid/ask price spreads, would destroy the positive aspects afforded by arbitrage and speculative trading.  Along with the addition of other possible government regulatory actions, this problem would then be further exacerbated by the resulting mass migration of American based trading volumes over to foreign (i.e., non-taxable) exchanges.

The one thing that really irks me about the proposed financial-transaction tax bill is that it is being framed as a so-called “sin” tax by its partisan proponents in order to appeal to the current populist mindset that the financial industry as a whole is guilty for the current state of the economy (i.e., high unemployment levels, etc.). Basically, the transgressions of a few that were enabled by the lack of understanding by government officials and regulators per the complex financial-engineering instruments being utilized are the primary culprits here. The imposing of a financial-transaction “sin” tax by the government is not a good substitute for developing an understanding of the new financial order and obtaining the level of competency necessary to effectively regulate the industry, thus establishing a stable (level) playing field for the economy as a whole.  So in my mind, this proposed financial-transaction “sin” tax is nothing more than an attempt to sweep a certain portion of the blame (or responsibility) for the current state of the economy under someone else’s rug.  In addition, the potentially negative impact of this “sin” tax would be exacerbated by the resulting changes in premium requirements by investors across the board due to the tax costs being passed on to them.  The potential drain on market liquidity and the resulting decrease in the capital available for struggling small-to-medium sized businesses would be hard to justify, especially for reasons of partisan politics.  So this proposed tax is not a viable solution or option in my mind, as it conceivably could lead to even more problems down the road as the state of our economy continues to evolve (or unwind). 

Finally, perhaps the biggest question in my mind is why do some of our elected government officials seem “hell bent” at times to make things worse for us rather than better (i.e., at both the micro and macro levels) in order to pursue partison based agendas?  This potentially dangerous bill needs to be dismissed (or vetoed) ASAP before it has a chance to cause serious long-term damage to our still frail (and unwinding) economy.  Click on the URL below to sign the revised “Financial-Transaction Tax is Detrimental to Many Industries” petition and have it forwarded to your representatives:

http://www.rallycongress.com/greentradertax-traders-association1/2720/a-financial-transaction-tax-is-detrimental-to-many-industries’

Deregulated Market Marginalizes Gazprom’s Gas Supplier Monopoly Attempt in Europe

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Per Washington Post columnist George Will’s recent editorial on the punishment of highly excessive corporate behavior by deregulated markets (i.e., his expounding upon economist David Harrington’s argument per the same), Gazprom’s natural gas supply/transportation strategy (business model) for Europe serves as an excellent example of this fairly non-intuitive concept.  Harrington argues that sellers of goods who initially price their products on the extreme high end are often forced to relinquish these same goods at deep discounts later on due to the efficiencies of deregulated markets.  As a result, global regulation (or re-regulation) on the part of governments becomes unnecessary over the long run.  This is because the efficiencies of the deregulated markets that set in over time cause these markets to become more transparent in nature, thus resulting in better informed buyers, as well as more options being made available to these buyers.  In addition, there is the time decay of the value of the goods that occurs as time passes on as well, which is somewhat similar to what happens to the value of call options as they approach their expiration dates (i.e., the “theta” concept).  As a result, price gougers such as Gazprom become the victims of their own marketing (or  pricing) ploys in the end as they are unable to overcome the inevitable deregulated market adjustments that occur over time. 

Gazprom’s recent attempt to secure a monopoly over the supplying of natural gas to European countries has been marginalized by deregulated market forces, which have adjusted to Gazprom’s excessively high prices by reducing the demand for the product, thus resulting in lower natural gas prices (on a global level).  This coupled with the current economic downturn across the world has contributed to the demise in the global demand for natural gas since less of it is being consumed now.  And while attempting to establish a European based gas supplier monopoly, Gazprom became committed to long-term contracts for gas from Central Asian suppliers at a cost which is now far in excess of the current (or resulting) global natural gas prices.  As a result, Gazprom is now sitting on huge contractual amounts of over-valued natural gas supplies that it must continue to purchase from Central Asian suppliers and then sell at large losses.  This could conceivably result in years of major losses for Gazprom if the world’s natural gas prices continue to moderate, thus resulting in the decimation of both its current business model and its influence (i.e., Russia’s influence) as a major player in the global economy.  And based on Vice President Biden’s recent “blistering criticisms” of Russia per its failing economy, loss of face, and a lack of effective leadership, the Kremlin’s declining influence within the global economy (and power) structure is becoming apparent among the world’s leaders.  But all of this is still not stopping the Kremlin from attempting to forge a gas supplier monopoly in Europe in order to use it as a foreign policy “tool” with its neighbors during times of political conflicts, etc.

Note:  The invoking of some type of  eleventh-hour “force majeure” clause could be a last resort action taken by Gazprom in an effort to extract itself from having to contractually purchase high priced gas from Central Asian suppliers and then sell at large losses to European buyers.