By David Popper
Last week, I had the opportunity to go to the option seminar in Orlando. Chris, Steve and Scott ran the show. This seminar had a little bit for everyone, from the experienced investor to the novice. Steve and Scott spoke about stock trading, while Chris dealt with options. Specifically, Steve calls himself a Gamma Trader.
As far as the stock trading portion of the seminar is concerned, Steve concentrated on a number of strategies, some of which are proprietary. These strategies center around recognizing and trading divergences between the price action on the one hand, and indicators such as RSI, MACD, ROC, etc. on the other. Steve's premise is that when there are divergences, such as the price moving up while the indicators are down or vice versa, an extreme condition exists, which makes the stock ripe for reversal 70% of the time.
Steve began by describing and giving examples of extreme conditions generally. He then spent the bulk of two days migrating from simple strategies to strategies that became more and more refined. The simple strategies could be used by almost anyone immediately. The more refined strategies were more profitable, but take time to master. In short, the simpler strategies require less monitoring, but are less profitable. The more refined strategies are more profitable but require much more maintenance. As Chris stated, "you can make a living on the simple strategies, but you can make a fortune on the refined strategies." In my opinion, the simplest divergence system provides easy to understand entry and exit points that should substantially enhance any strategy that is currently being used.
For example, I may use a simple divergence strategy to enhance covered call or naked put writing. I believe that even a basic understanding of Steve's strategies would have saved me more money in March than the cost of the seminar. Thrown into the mix was a proprietary strategy, which is easy to use, and when is used properly makes it difficult to lose money. I wish that I could talk about it, but as an attorney, especially one that lives in Orlando, I am acutely aware of the dangers of revealing proprietary information. Incidentally, I think Disney recently learned a similar lesson.
Chris spent the last day talking about options. Chris discussed the option basics, such as fundamentals about puts and calls, pricing, etc. Particularly interesting was the discussion about how market makers go about their business. Understanding options from the market maker's perspective, and believe it or not, understanding the role that a dividend plays in an option price is helpful. Further understanding "the Greeks" should enhance everyone's option performance.
Finally, Chris introduced a LEAP option play, where the upside potential is enormous, but the downside risk is minimal. Again, it is good enough to be proprietary.
Before I attended the seminar, my preconceived notion was that I would receive a lot of high risk strategies that could kill me if incorrectly executed. I felt that if I learn a trick or two it may be worth it. I was surprised when the speakers emphasized safety above all else. In their minds, safety does not mean to refrain from trading, it means trading with understanding. So the seminar was helpful, now how will I use it? Will I throw out every other strategy that I use? No. I have strategies that I have used for a long time and I am comfortable. Will I use the information to enhance the strategies that I already use? Absolutely! Should I be more profitable? Yes. Will I go again? Yes. Should you go? If at all possible. We trade for our families. If trading can be more than a hit or miss adventure, our financial futures are more secure. Learning systems for profitable trading was what this weekend was all about.