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Option Trading Recommendations
The Smart Profits Report: Issue #220
Tuesday, June 28, 2005
Option Trading Recommendations: What Investment “Gurus” Do When No One’s Looking
By Karim Rahemtulla
Chairman, Mt. Vernon Research
While having lunch recently at Montien, an excellent Thai restaurant on Stuart Street in downtown Boston, I was engaged in a conversation with Kevin Kerr of the Resource Trader Alert and Lee Lowell of The Mt. Vernon Options Club. The subject was exploding soybeans. No, this was not a conversation about some gastro-intestinal issues suffered from the previous night’s dinner. It was about the action in the soybean market.
Kevin was involved in a bull-spread trade involving soybeans. He could not contain his excitement about the move in this commodity. It was up 18 cents, which may not sound like much, but in commodity-land, this is a huge move as the underlying multiplier is in the thousands. What struck me more than the trade was the palpable enthusiasm in Kevin’s voice. His passion was evident. And what’s more, I understood it well.
When we make option trading recommendations to you, the reader, you should know that we care deeply about what happens with the trade. If it goes up, we get excited right along with you; if it goes down, it can ruin an otherwise beautiful weekend.
Inside the Mind of a Professional Investor
Some might think that this is “just a job” for me and for my colleagues. But if this were just a job, we’d most likely stop doing it on weekends, holidays and, in some cases, in our sleep.
Fact is, we live, eat and breathe this stuff. It is on our minds all the time, and each time we make a recommendation, we are confident that it will be a winner. Sometimes it doesn’t work out and stop losses are triggered.
Sometimes we regret using stop losses, as we see a turn in the market or an option that actually would have made us and our track records look much better in hindsight.
I recall a LEAPS trade we made a few months ago. It was AngloGold. The option began its journey at $5, moved up to $6.80, and was a hair from allowing me to “leg” into a bull spread, one of my favorite trades. It would have taken 95% of the risk off the table.
But then gold turned suddenly and the options went down, triggering our sell stop.
Two weeks later, Anglo rebounded and, had we held on, we would have been off to the races again.
It stung - hard. But long term, I know that stop losses pay off. But I also know that a lot of folks who made the trade must have shook their heads at what could have been.
I was right there with you myself.
Our Obsession With the Markets Is Good for You - And Us
Anyways, back to the conversation at Montien… We all commiserated about the upcoming July 4 holiday. Not that we don’t like holidays, they are important.
But we are all on a 5-on-2-off schedule. Weekends are days off - a long weekend throws us out of sync. To us, July 4 means that we have no choice but to find something to do.
The markets are closed, the kids are at home and it’ll be time to relax - kind of. (I swear that if we were growing up today we would all be diagnosed with ADHD.)
So, the next time you wonder what we do in our spare time, here is a hint: We wait for the workweek to get started. Whether we are at home, at the office or on the road, we want to be at work, looking for the next opportunity for you… and for us.
Great trading,
Karim
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Today’s Smart Profits Cribsheet
- Check out the Smart Profits Glossary for definitions of terms like “LEAPS” or “bull spread” found in today’s article.
- For more information about Lee Lowell you can read his online biography.
Related Articles:
- Option Pitfalls: Avoid These Five Options “Red Flags”
- Position Sizing: The Most Powerful Investment Concept
- Hedging & Speculating: How to Enjoy Guaranteed Monthly Income With Options
