My Hobby

Warren Buffett once said to Charlie Munger law was fine as hobby, but he could do better. A few years later, Munger left his law firm and started investing. Today he works with Buffett as vice chairman of Berkshire Hathaway. His net worth is about $1.7 billion.

Let me tell you a short story about me. My background and full time career is related to IT and Engineering. But, I know a thing or two about the market:

• I started investing in 2009 in the UK and in my home country Philippines. Those investments have grown significantly that the returns dwarfed my savings account for an entire year (I save at least 50% of my take home pay by the way).
• I started part time trading last year.  Initially I had some heavy losses (I think it was something like over £2000 GBP in three weeks). That hurt my account as it was 20% of my trading account.  But, after months of hard work , I manage to be in control of my risk/reward and most importantly my emotions.  Gradually made back the money I had lost.  It took me nearly 4 months to make it back.  I don’t consider myself a consistentently profitable trader (CPT).  Not yet anyway.  It takes years of experience to become a CPT, you know.  If I am a CPT I might as well just live on a beach somewhere and trade everyday!
• I collaborate with a hedge fund on algorithmic trading.  We are progressing well and making good money.

Question is which one is my hobby, my full time job or my ventures with Mr. Market?  I’m about to find out within the next few years .

Written by Aris David. Aris creates trading recipes and trades for Bigger Capital. Follow him on Twitter and StockTwits.

Trading Innovation

At the Cloud Connect conference held in Santa Clara, California, Amazon Chief Technology Officer (CTO) Werner Vogels spoke about innovation, the cloud, and the cloud ecosystem.

He said this, which made me chuckle:

“It’s still day one in the cloud. There’s still a lot of innovation to come. Amazon will work hard to make sure the ecosystem continues to grow.”

What about trading innovation?

Innovation is innovation. Today is day one for trading innovation. It’s always day 1 for trading innovation. Every single day, you are offered an opportunity to innovate your trading plan and grow your trading ecosystem. Are you?

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

Weekly Spread Re-Cap 3-25-2011

In last week’s re-cap we briefly mentioned the 1*NKE (Nike)-2*GCO (Genesco) spread which we bought on Friday morning for about $0.85. NKE had gapped down after releasing earnings and GCO was slow to follow. Eventually GCO traded lower also and we were able to close out the position by the end of the day for an over $3 gain per spread.

This week we got an opportunity to buy the spread again on March 22nd shortly after the open for about $0.60, with NKE down 2% from Friday’s close and GCO trading 2% higher than Friday’s close. Once again GCO followed NKE lower, and we unwound the spread on the morning of March 23rd for an approximate $3.25 gain per spread.

We didn’t think we’d get another chance to buy this one again so soon, but yesterday afternoon we bought the spread again at about $0.60. As of this writing, GCO is up over 3% and the spread is trading at -$1.60. This one, however, has been quick to come back inline.

Written by Norm Winer. Follow me on Twitter and StockTwits

The StockTwits Trading Brain Synchronization API

A few weeks ago, when the Egypt crisis erupted, I told Aris David, a member of our Creative Space, that I wanted to allocate long capital to the sharpest Middle East stock market sell-off for a Levy Flight arbitrage.

Unfortunately, The Egyptian Stock Market closed down when the Government collapsed. We walked away from the situation without a trade. What was left though in both our brains' databases was this hunch:

Sharp Middle East Stock Market Sell-off ===> Allocate Capital

Yesterday the Egyptian stock market re-opened for business. As expected, this market sold off sharply. It became time to synchronize our brains and hunches.

Aris sent me the following Twitter direct message at 15:33.

Check out $EGPT it’s only falling because the Egypt exchange has re-opened now pricing in what happened a few weeks ago.

I answered:

Kind of stupid no?

At 15:39 I posted on StockTwits

In $EGPT oh maaaan

This morning I unwounded our position for a $.50 gain.

All of this is made possible by this:

Brain1   <------->  Twitter API   <------->  Brain2

None of this would have had happened without Twitter and StockTwits. Everyone knows that the Harvard network is a very powerful network. What is not obvious right now is how powerful that little global brain API is becoming. The best global brains will connect via this API or another frictionless API to create networks much more powerful than current networks surrounded by garden walls.

Written by Michael Bigger, author of How Traders Achieve Creative Flow.

Success Takes Time

Last week Renita Kalhorn, author of Into the Flow Zone, asked me how my book sales are going.

I replied via Twitter: sloooooooowwww. I will never make money writing books. Better keep my trading business, I added, because I am a lousy book promoter.

She replied: LOL, I don’t think Seth G made money right away either…

Who am I kidding to think people would rush to buy my book about how I use a creative ecosystem to make a boat load of money trading? And why am I whining about it?

Success in my life is more of a tortoise than a hare. It usually takes me five to fifteen years to go from idea generation to business success. It just takes time. This project is no different. And most likely, your trading projects will be no different.

I did not write “How Traders Achieve Creative Flow” to make money. I will never recoup its opportunity cost. That is not the point. The project has elevated me in amazing ways. It has helped me initiate conversations with awesome traders. It has pushed me to solidify my thinking about the concepts of the Creative Space, brain synchronization, augmented traders, neurons API, and so forth. Collaborating on the project with Chris, Darren, Renita, and Sean brought more satisfaction to the equation.

So who was I kidding with my answers? myself.

Michael Bigger. Follow me on Twitter and StockTwits.

Capitalizing on Uncertainty: Trading Options on $VIX

On March 16 at about 2:30 we noticed a spike up in the VIX above 30.  The broad market was selling off quickly, and VIX was one of the few green islands in a sea of red.  The last time the VIX traded above 30 was back in July, and levels have been as low as 15 earlier this year, so a spike above 30 presented a good opportunity.  Given that the market tends to over-react, we knew we needed to get short the VIX, and selling front-month calls allowed us to capitalize on an increase in the VIX (delta) and an increase in volatility of the VIX (vega).

We looked at the April 30 calls which offered good exposure to both delta and vega.  We sold some at $2.10, then more at $2.30.  When the VIX came off the next day (March 17), we were able to close half the position at $1.50.  The following Monday (March 21), we closed the balance at $0.75.

Written by Jennifer Galperin. Follow me on Twitter and StockTwits.

Weekly Spread Re-Cap 3-18-11

In our spread book this week we focused on the SPY/IWM spread.  We have been hedging our algorithm portfolio residual by shorting SPY’s, QQQQ’s, and a very small amount of IWM.  This week we decided to periodically increase the amount of our IWM short by trading the sharp movements in SPY/IWM.  The purpose of this exercise was to “learn” how the spread trades, capitalize on its sharp movements during a volatile period, and see how the portfolio performs with an increase in the IWM hedge.  At the peak of the panic relating to Japan, large caps sold off more than small caps.  At these moments we bought the spread, and unwound it later as the market rebounded.  Additionally, shortly after the close, liquidity decreased enough to create some interesting opportunities.  The spread sometimes traded at prices far from where it closed moments earlier.

Another spread we put on this Friday, was 1*NKE (Nike) – 2*GCO (Genesco).  We had traded this one a few months ago.   NKE was down over 9% this morning after reporting earnings last night.  We bought the spread this morning for about $0.85 on the basis of “cockroach theory.”  As of this writing the spread is trading at $2.44.

Written by Norm Winer. Follow me on Twitter and StockTwits

Are You a Tourist Trader?

Seth Godin published a blog post titled Idea Tourism. The following paragraph caught my attention:

It's possible to do a drive-by of some of the big ideas of science or politics or technology and see only what you want to see. I don't think there's a lot of point in that. If you want to truly understand Darwin, then go to a lab and do some experiments. If you want to understand a gun lover, go to a shooting range for an afternoon. If you want to see how social networking will actually change the way ideas spread, go use it. Intensely, and with a purpose in mind.

In my book How Traders Achieve Creative Flow I give you this simple exercise to start experimenting with your algorithmic trading ideas:

Try the following experiment: In a sandbox account, create a notional neutral (long notional-short notional=0) portfolio of stocks using the best methods you have developed to find long and short candidates. Track the return of the portfolio and see how it performs over time.

As you run the experiment, ask the following questions:

• Should you rebalance your portfolio at specific intervals of time to account for changes in your selection criteria or changes in the value of each position?
• Can you think of any ways to improve your results?
• Are you learning anything?
• Have you observed anything unusual in how the portfolio is performing?
• Are you generating alpha? If not, why not?

The real shame here is that most readers of the book won't do the exercise. They miss out on the opportunity to move forward in amazing ways.

Michael Bigger. Follow me on Twitter and StockTwits.

Scale it to Make Good Ideas Great

When working on trade ideas, always ask yourself, “how can I scale this?”

One good idea is great but it is even better if you can scale it.  Think of ways to apply your successful ideas towards other situations, other stocks, other markets.  Think of how you can write algorithms to trade your ideas so you can spend your time thinking of the next BIG IDEA.  Be creative and expand your algorithms whenever possible to make more money.

Next time you make a good trade, try to scale it into 5, 10, 100 good trades.  Isn’t that better?

Written by Jennifer Galperin. Follow me on Twitter and StockTwits.

Curious about Japan

I am curious about Japan because once every three to five years, we buy one stock. And we usually buy this stock during a crisis.

If you look at the following charts, they reveal the best investments we have ever made:

1. We bought Amazon.com in 2001 below $10.

2. We started buying Crocs in July 2008 and purchased aggressively below $1.

3. We bought McDonald’s in 2003 at about $13.00.

4. We bought Netflix in 2005 in the low teens.

5. We bought Priceline at about $2 (pre-reverse split of one for six).

These are all companies we know quite a bit about because we use their products. We don’t need to do extraordinary things to get very good returns. The most difficult thing for us as an investor is to be patient waiting for the simple opportunity. When we force it, we don’t do well. We have the scars to prove it.

It has been almost three years since we started purchasing Crocs. We have not added a new holding since then. With the market starting to show some weaknesses, we are starting to get excited. Our immediate focus is Japan.

"Bear Markets make people a lot of money; they just don't know it at the time."

-Shelby Davis

Written by Michael Bigger. Follow me on Twitter.