Tuesday, April 1, 2014

Is The Stock Market Rigged?

60 Minutes had a show about the stock market being rigged.  It Interviewed Michael Lewis and he discovered that High-frequency trading (HFTwere front running the market by using direct feeds to capture buy and sell orders from Exchanges and would buy or sell ahead of a large order, forcing anyone to have to pay higher for a stock, because the HFT purchased the supply a head of them.  CNBC had Lewis on there show a couple days later and here was the snippet.


The debate centers around direct feeds and the SIP, Securities Information Processor .  Apparently HFT have direct feeds to the major exchanges and they can see market order before anyone else.  Where everyone else only sees orders on the SIP, which is 'slightly' slower.  So using computers, a HFT algorithm can see your order come in via the direct feeds, then buy up all the ask and sell it back to you for a grantee profit.

So are the markets rigged?  I say no.  The slight speed advantage that the direct feeds have over the SIP system is measured in milliseconds.  For a retail investor, they don't care about your tiny lot orders to buy 100-500 shares.  The HFT is really trying to get ahead of the large lot orders that Mutual funds and pension funds have to transact.  The 5000-100,000 share orders, where a one cent profit means $50-$1000.  Do this a few hundred times a day and you made some real money!

So don't worry about the current news story of the week.  The market has never been better.  Spreads are smaller and commissions are lower. So its easy to make a profit then ever before.   It is still tough to trade and make a profit, but that is the trading business.  Don't blame it on the system, blame it on your self.  Once you figure out the system, then you can make money.  I'm living proof.  Problem is that once everyone else figures out the system, the system changes, so you better learn to change with it.

If you are still concern about someone front running your order, then just route your order on the IEX Exchange.  They add 350 microseconds of latency to HFT, by adding a huge spool of fiber in-front of there computers, so the HFT orders arrive at the same time.  The CEO claims that after he setup his own exchange, he found that he could hit any bid price and it would execute, where before the orders would just disappear.

Wednesday, March 26, 2014

On TMZ again! about Riff Raff and Katy Perry

Got on TMZ again on 3-26-2014.  Riff Raff gets a date with Katy Perry and talks about it in front of a bikini babe, who apparently doesn't understand English.  The bikini babe just stands there as Riff taps her ass and he talks about his date with Katy.

Friday, February 21, 2014

Tasty Trade Appearance

Got on TastyTrade again 2-21-2014, we talk about Delta, Karen the Supertrader and naked PCLN straddles.

Thursday, February 20, 2014

TMZ Live and TMZ Sports

Got on TMZ live again 2-20-2013.  This was a flash appearance on TMZ.  Christi from TMZ Skyped me asking for a quick opinion about Emma Smith.  I wasn't even watching the show, but someone had dropped out and she they saw me online.  I quickly read the story and gave a 10 second comment.

I was also on TMZ Sports on 2-18-2013, but it looks like they cut my comment.  Probably for the best, but the clip was great and worth a look to see Kate Upton!

Tuesday, February 18, 2014

Trading Volitility

Last year was my best trading year ever.  I decided to refocus my efforts in trading and have evolved into mainly trading volatility instruments.  I will also play some momentum stocks as they come up, but I'm primarily watching the VIX and sell puts when the VIX gets high, which is now between 18-20 point range.  I will also start shorting the VIX, via selling calls on UVXY, when volatility finally collapses.

Below is a chart of the VIX for the last year.  You can see in 2013 the VIX had 6 spikes above 18, including the 1st day of the year where the VIX was over 23.  After each spike, it quickly fell an average of 40%!

Since you cant directly bet on the VIX you need to use ETFs like VXX, UVXY, XIV and SVXY to make your bets.  UVXY is a 2X leveraged fund and will move 2X the VIX futures, so it will decline twice as fast or increase twice as fast.  UVXY will decline an average of over 50% when the VIX collapses.

Chart of UVXY for 2013, the numbers are huge because UVXY has a few reverse splits during the year.  This is an ETN that can actually go to zero, but it routinely has 10:1 or 4:1 reverse splits to get its nominal value back up.  Just sell this short or sell naked calls, it eventually will go to zero, but can have huge spikes up before it does, but it never lasts for very long.  The spikes up are usually not more than 4 weeks.

The nice thing about trading these instruments is that if you can follow the market direction, you can really out perform the indexes, since they move so much faster than the index you can make up loss ground quickly.  So when the market starts to turn down, go long UVXY.  It usually rises 4X what the decline in the S&P is.  When the market starts to climb back up or stabilizes, then buy the SVXY and short UVXY.  Your gains should be 4X the SandP rate of return.  Usually the problem with these ETFs is staying in them long enough to gain the benefit.  Since they move so quickly, they can scare you out of your position so you need a strong stomach to with stand the volatility.  Trading volatility is volatile, but volatility always reverts back to a mean!