Volatility Traders: a Great Tool for You

My main trading strategy is long/short equity pairs based on statistical methods so our web based Spread Analyzer is an essential tool for me.  But even if your strategy is not based on statistical relationships our Spread Analyzer can also add value.

In addition to my long/short strategy I also trade options, and I’ve recently gotten in the habit of using our Spread Analyzer for that strategy too.  The strategy involves buying cheap volatility so there is no direct connection to statistical arbitrage.  Yet I find it’s useful to see how over or under valued a stock may be relative to the market or its peers, and how strong that statistical relationship is.  For example, if I think volatility is beginning to look cheap in a particular stock but I can’t decide whether to buy or wait, I’ll run the stock through the Analyzer against the market or its peers.  If the stock looks expensive (with a strong statistical relationship) I will probably buy volatility.  If it looks cheap I might decide to wait.

Whatever your strategy, there are probably dozens of ways the Spread Analyzer can be a useful tool.  It only takes a few seconds.  Try it and let me know what you think.

Written by Norm Winer.  Follow me on Twitter and StockTwits.

Spread Trading and Takeovers

This morning I came in short TLEO (Taleo) at about $39.50 as part of a spread I initiated yesterday.  Oracle announced this morning that it was buying TLEO for $46 per share.  Bad news!  So how do you prevent something like this from happening?  The short answer is you can’t.  But there are a couple of things you should be doing to lessen the pain and decrease the frequency of such events.  First you should create a diversified portfolio that can withstand such a move.  TLEO represented less than 2% of the portfolio.  Second, you should be certain that your process is not getting you into situations like this on a regular basis.  If it is, you might want to re-think your strategy.  In our case it hasn’t.  Sometimes we’ve been on the winning side of these events.  If your process is sound and your portfolio is diverse, events like this will occasionally occur, but they shouldn’t prevent you from being profitable over the long run.

Written by Norm Winer.  Follow me on Twitter and StockTwits. 

Elevating my Trading Business

Here is what I intend to do this year to improve my trading business.

 

1. Improve my spread trading strategy in incremental ways.  Small improvements compound over time.  It's a marathon.  I must be alert to the small steps I need to take to increase my gain-loss ratio.  How can I find more spreads to trade?  How can I better utilize technology in finding and executing spreads? I want to experiment with all these levers.

 

2. Be more active in social media, both on the giving and receiving ends.  There are lots of smart people out there with good ideas.  Bigger Capital’s trading business is heavily influenced by connections we make on social networks.  I intend to grow another brain or two.

 

3. Find a new trade set-up.  My current strategy is going well but you can never get complacent in this business.  Always look for opportunities.  I am currently working on an option strategy that I think holds great promise.  Even better, I will establish processes to find new trade set-ups.

 

4. Learn something new in finance, or brush up on what I learned in school about fixed income, currencies or some other product.  Then mash up what I learned with what I am doing now.

 

5. Write everything down as blogs that elevate both writer and reader.

 

6. Help our trading partnership build amazing trading tools for our SpreadTraderPro Community.

 

I will monitor my progress by how well my trading platform grows throughout the year.

 

Written by Norm Winer.  Follow me on Twitter and StockTwits.