Be Flexible And Catch Stocks Before the Hot Money

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May of 1985 was tough for me.

It was the month of my high school prom and I had Debbie Olson in my sights. I had decided that she was the lucky gal who would accompany me to the dance. The day I was to extend to her this coveted invitation I put on my best clothes, threw an extra handful of Dep in my hair, and slapped on my father’s best cologne.

But I was too late. Phil LaMont had already asked her.

So how did I handle this rejection? Did I run home crying like a little girl? Did I drive my car past her house all night long to see if that jerk Phil was over there? Did I call her number ten times in a row until she answered and then hung up? Not as far as you know.

Instead I asked her sister to go. Unfortunately she already had a date. So I asked her best friend, who apparently already had a date as well. Then I asked her cousin, who although didn’t yet have a date, was restricted by her religious beliefs from dating someone with more than two vowels in their first name. I assume that because she showed up to the prom with a guy named Brad.

The point is, no matter how much you prepare for a certain scenario to play out, sometimes you have to be flexible enough to look for secondary opportunities. This concept works the same way in the markets.


Let’s say you’ve got a stock on your watch list and one day it just gaps up over your buy point. Your gut reaction may be to swear at the screen and run home crying like a little girl. But don’t. What you want to do is to look for secondary stocks related to your target stock that have not yet moved, but soon may in sympathy.

So if you are gunning for a 3D printing stock like $DDD and you miss the initial move, check out others in the same space like $SSYS or $XONE that haven’t moved yet but may be setting up. You might even look at a “cousin” type stock like $PRLB which doesn’t make 3D printers but provides related services.

And it is always a good practice when developing your daily or weekly watch list to make sure you are familiar with and know the charts of two or three “related” stocks for each of your prime targets.

These types of secondary stocks will usually not move as much, and will fade quicker that the primary stocks so you have to be nimble and limit you’re trading to the short term. But if you think ahead and somewhat out of the box you can get into these movers before the “hot money” hits and turn them for a quick profit.

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).


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When The Market Gives You A Pass

Pregnant women should drink alcohol.  And smoke.  Seriously!  And they should be exposed to as much cigarette smoke as possible.

I have a photo of my parents at a baby shower thrown to celebrate the coming birth of a certain “bclund” character, and in the photo both of them are drinking and smoking. And get this; when my mother was at the hospital in the maternity ward, not only could the patients smoke, but the nurses and the doctors could smoke as well.

“Hello *puff* *puff* Mrs. Lund, how are we *puff* *puff* *hack-hack* doing today?”

“Oh just great Dr. Empysema, how about you?”

“Super!  Now, let’s *cough* *sputter* see about getting this *puff* *puff* kid out into the world shall we?”

And I can only thank God that my mother smoked.  If not, instead of being a reasonable six-foot four inches tall, I probably would have been some grotesquely freakish eight foot tall colossus.

I don’t mind being tall, but as far as I can tell it’s never really been a benefit in my life. I don’t think I got any more dates, was hired more often, or picked earlier for sports teams because of it.

Sure, I can get stuff off the top shelf, but I also have to watch my head around low hanging objects, so all in all it seems to be a “scratch” at best.  In fact there is only one time in my life where I can state without reservation that I was able to use height to my advantage.  And it was all thanks to my uncle Paul.

Technically Paul was my great-uncle, being that he was married to my grandmother’s sister.  I liked Paul.  He was my favorite non-blood relative.  A pudgy, short man with glasses, Paul more than made up for his lack of stature with his giant heart and sly sense of humor.

It was always a treat to see him at the holidays, especially on Christmas Eve.  That night was just not the same if he wasn’t there wearing his bright red plaid blazer and fringed Santa hat with bells on it.  And it was at just one such occasion where he gave me the “scoop” on how my height could come in handy.

“Brian, my boy…how the heck are you?  I can’t believe how tall you have gotten,” he shouted as he waddled through the front door.  “You’re even taller now than your dear old mom it seems.”

“Come over here son,” he whispered as he motioned me over to the corner of the room.  “Now is the time in your life where you are going to be able to use that height to get what I call a ‘free pass.’  It’s something you can do when you most need it–when your mother gets really angry with you.”

“But I have to warn you, it can only be used once.  One time!  That is all.  If you try it twice,” he said with a knowing gleam in his eye, “well then I can’t be responsible for what happens to you afterwards.”

With that he turned and stood toe-to-toe with me, and looking up, began to wag his finger at me in mock disapproval.

“Now, how often has this happened to you?” he continued.  “Your mother is yelling at you about something or another and you are just looking down at her thinking, ‘yeah, yeah, yeah.’  Well the next time that happens–and remember, you can only do this once, so save it up for when you really need it—while she is yelling at you, look down, pat her on the head, and gently say, ‘now-now mom.'”

“She will be so taken aback in the realization that her baby boy is now bigger than her that she will forget what she was upset about and let you off the hook.”

“Awesome,” I thought to myself.  As a typical juvenile delinquent male I needed every free pass I could get.

And not too long after that Christmas Eve it did come to pass that I was in the exact scenario that Paul had described.  My mother was yammering on about something I did wrong, and I was just staring at her, eyes rolling back into my head, hoping that my cerebral cortex didn’t snap, when “BAMM!” I pulled out the pass.

And you know what….? It worked!

My mom actually laughed out loud, hugged me, and then shooed me off while mumbling some half-hearted life lesson or something.

It was a nice moment for me, a mini-victory of sorts.  The type you need when you are an insecure teenager who doesn’t yet have much control over the course of your life. But as I looked back on the event a month or so later, I realized how risky my actions actually were.

There was no guarantee that it would work.  That my mother wouldn’t have gone ballistic right then and there in front of a room full of people.  Or that I wouldn’t be grounded until 2020.  In fact it hit me–Paul probably never was taller than his mother–and therefore his theory untested.

Wow….!!!  I got lucky.  I got my “free pass.”  And I decided that I was smart enough not to push my luck and try that same crap again.

Traders often find themselves in a bad spot in the market.  For some reason or another they may have made a mistake, a miscalculation, or took an overly risky position and now find that they are screwed.  Often panic sets in and with that panic an inability to act.  They freeze and stare at their screens in disbelief.  Or worse, turn their screens off and pretend that “this is not happening.”

In most of these instances the bloodletting only gets worse.  But once in a while, once in a great while, the market gives you a free pass.  The market reverses, your P/L rebounds, and you are given that rarest of chances–to get out of your screw up clean and unscathed.

When that happens, in addition to giving some humble thanks to the trading Gods, taking a moment to acknowledge your “pass” and how lucky you were to have gotten it is probably a good thing.

Immortalize that pass by printing the chart of your trade out and taping it over your desk, or better yet, tattooing it on your forehead.  Honor it like some sort of shamanic talisman–in the best Val Kilmer playing Jim Morrison sense–and use it to ward off the evil spirits of bad trading.

Let it remind you not to make the same mistake again.  To never tap the market on its head and try to pacify it, no matter what your favorite uncle tells you.

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).


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How To Turn $400 Into $150K

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A couple of weeks ago I watched a trader turn $483 dollars into over $150,000 in three days.

He was trading OTM weekly options in $NFLX going into their earnings announcement, and despite how much of an outlier event this seems at first glance, I am starting to think that there might be more to weekly options than meets the eye.

Most people are familiar with the Market Wizard series of books by Jack Schawager, which provide a rare glimpse into the world of some of the greatest traders. Although the profiles are interesting, one of the major takeaways from those books for me is how many of those traders made their initial market fortunes.

Not an insignificant number of them made their money trading products like options, forex, and futures when they were new and pricing inefficiencies existed, which they then exploited. That is where I think weekly options are right now.

Weekly options are still relatively new and that fact combined with their extremely short life span I believe is providing a window of time where smart and aggressive traders can use them to garner outsized returns.

The irony is that most successful traders stay away from weekly options because they feel too much like a gamble. Traditional money management concepts that are used to trade equities or even longer dated monthly options don’t really work with weekly options. With those products you are trying for a 30-40% win rate and taking minimal losses on the other 60-70%. However with weekly options the win rates are more like 5-10% and you are likely losing your whole investment on the other 90-95% which are losers.

However, just a few wins in weekly options can more than make up for you losses; even if those losses are 95%+ of your trades.

Though it’s more like a lottery win, just for fun let’s look at that risk/reward ratio on that $NFLX trade. It comes out to 1:310, which means you would, in theory, only need to win once out of 310 trades to break even. Yeah, crazy right?

But I have also seen a lot of 10, 20, 50, and even 100 baggers from weekly options traders as well. There is something going on with weekly options right now that I don’t think will be there in a year or two as more participants begin to use them and pricing inefficiencies disappear. I don’t know exactly what the strategy is for playing them successfully, but I am working on it, and you should probably be doing the same thing as well.

Who knows, if you figure it out in time, you may end up in a future edition of Market Wizards yourself.

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One Bad Trade

As traders, or even as human beings, we basically have one job; don’t fuck up. Put more delicately, we strive to avoid that one bad trade.  The deal killer.  The one where you buy the farm.  The one that takes everything you have worked and strived for and rips it to shreds, throwing you out on the street in the process.

The irony is that no matter how much wealth you amass and no matter how much of a rainmaker you become, the tail risk of bad judgment, intransigent ego, and the inability to take a loss can shut you down.  Case in point, Marv Adelson.

Though the name may not be familiar to you, Adelson was a giant in his time–real estate developer, mobbed up Vegas visionary, husband of Barbara Walters, and founder of one of the most successful independent television studios in history.  The shows that came out of his company, Lorimar productions, read like a list of “must watch TV” from most of our childhoods.

The Waltons, Eight is Enough, Knots Landing, and Dallas were just a few of the vehicles produced by Lorimar.  When Adelson sold his company to Warner Communications in 1989 he was worth a cool $300 million.  At sixty years old that should have been it.  Done.  Check please.  Congratulations, you have won at the game of Life.  Feel free to relax in hedonistic comfort for the remainder of your days as the toughest decision you will have to make will be whether to have the cracked crab or lobster for dinner Winthorp.

Merv and Baba Wawa in the halcyon days.
Merv and Baba Wawa in the halcyon days.

But one bad trade took Adelson, who used to golf with Bill Clinton and rub elbows with Hollywood’s biggest stars, down so far that at age eighty-three he now lives by himself in a tiny one bedroom apartment.

Warner Communications eventually became Time-Warner, which as we all know made one of the most disastrous mergers of all-time when it bought AOL.  Warner Communications had bought Lorimar in an all-stock deal.  That stock became Time-Warner stock which was at a high of $58 prior to the merger, and as AOL Time-Warner stock eventually hit a low of $7.00.

And Adelson didn’t sell one single share.

In the process his net worth dropped by over 90%.  In theory that should have left him with $30 million dollars, a nice haircut to be sure, but more than enough for most people to live out the rest of their life in luxury.

Unfortunately Adelson had used his AOL Time Warner stock as collateral to fund other ventures, none of which were particularly successful.  At the end of the day, when his highly leveraged stock position collapsed, he was in debt to the tune of $112 million dollars.

In the course of a few short years, the man who once by his own words could “pick up the phone, call my private pilot, and be in Paris for breakfast the next morning,” was broke.  And it only took that one bad trade to undo fifty years of wealth creation.

And why didn’t he sell his stock when he was down 20%?  Or 50%?  Or even 75%?  His friends say that it’s because he “never believed that the stock wouldn’t recover.”

For another angle on that same bad trade read my post “I’m A Lawyer. No, I’m A Trader. Damn, I’m A Lawyer Again.”

Former TV Macher Merv Adelson Talks About Financial Ruin and His Las Vegas Mob Ties (Vanity Fair)

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The Worst Thing That Can Happen To A New Trader

I’m going to tell you one of the most painful things about my life.  It’s not the acute “fuck, I broke my arm” type of pain, nor the soul crushing type that comes with losing a loved one or wondering how you will get your child’s next meal.  No, this is a pain born of luxury, the luxury of not having to worry about the real problems of life.

Still, it hurt.

It was a slow burning discomfort that built year after year, decade after decade, in such a dainty and covertly refined way that I ended up making a friend of it.  A friend I fed, nurtured, and wore around my neck like an invisible amulet with excusatory strength.  Then one day it in a moment of utter despair, at the nadir of my brittle ego, it turned on me and revealed itself in all its retarded glory.

And then I realized the true nature of the pain.

“Brian, I need you to go with this gentleman up to the front office,” said my second grade teacher Mrs. Carron.  “He wants you to do a test with him, kind of like a game actually.  You’ll have fun and be back here by lunch time.”

And with that I followed some Vince Guaraldi-looking guy (look him up) down the hallway, past the teachers’ lounge, and into the belly of the beast.

The front office was not generally a place most second graders wanted to find themselves in.  There was nothing good in the front office for a second grader.  The lesser of two evils was a trip to the nurse’s room; the other option was the principal’s office, where in a pre “let’s not allow school official’s to beat the hell out of our children” California, a giant wooden paddle hung on the wall.

But as I followed my new beatnik friend we passed by those two less than desirable options ending up in a small side room that I never knew existed.

“Brian, my name is Mr. Fluglebinder,”-not his real name-“and I am from the district office.  Today we are giving all second graders a test of sorts.  This test will show us if you should be put into a special program we call “MGM.’”

I later learned that MGM stood for “Mentally Gifted Minors,” a new State funded program that attempted to distill out from the general population those students who showed early sparks of genius and then encourage it by segregating them into separate classrooms with specially designed curriculums.

It was later renamed “GATE,” which stood for Gifted And Talented Education.  They should have just saved time and called it “DWGBUIHS,” or Dorks Who Get Beat Up In High School.

Anyway, my memories of the specific questions asked of me that day are hazy at best.  I am pretty sure one of them was “who wrote Romeo and Juliet,” and another had something to do with a lion.  I remember thinking that the test was very easy and that I answered the questions with little effort.

I do know that out of all of them I only missed two, which I was led to believe was pretty good as I was asked to join the MGM class.  I remember even at that early age feeling a smug superiority wash over me as I heard my teacher and Mr. Dobie Gillis (look him up) marvel at my performance; contrasting it with most of my classmates who had struggled to get even half of the answers right.

That was the moment in which that the idea, which would later in life cause me so much regret and remorse, was first implanted in my mind.  The idea that without trying, without any effort on my part, that I was in fact innately smarter, naturally more insightful, and ultimately gifted beyond the norms of the common man.

And I loved it.  I loved that feeling.  The superiority.  The illusion of control that it brought.  And I fucking bought into it hook, line, and goddamn sinker for the next thirty years.  And it was the worst thing that ever happened to me.

Of course reality continually attempted to interject itself into my fantasy.  In around fourth grade a strange phenomenon began to occur as my classmates started to score just as well as I did on their tests.  I won’t bore you with the long and laborious double-think process I went through for the next three decades after that, suffice to say that I found many delusional ways to preserve the idea that just by the act of breathing I knew more than 99.9% of mankind.

Initially that same attitude pervaded my attempts to make money in the markets.  I have previously detailed my first ever trade, in Altos Computers, but besides the quaintness related to the time, it was not a trade of any note, ending in a scratch.

After that I vaguely remember buying a stock possible named Cherokee that had invented some sort of caffeine gum.  That too was a trade of no significance in which I broke even.  It wasn’t until my third ever trade that I was able to infuse my self-decided view of life superiority into the markets.

This would have been about 1986 or so, and one of my roommates, a relatively older guy at the ripe age of twenty-three, worked as a computer programmer.  He told me that the company he worked for was going to be chosen as the standard desktop publishing software for $IBM.  He insisted that this was going to be huge for his company and that the stock was cheap at its current price.

Having a year’s worth of stock market knowledge under my belt and possessing the gift of intellectual superiority over the masses I decided to buy five-hundred dollars’ worth of the stock.  It was a relatively unknown company that goes by the symbol $ADBE.

One week later $IBM did in fact announce that $ADBE would be bundled with all their computers.  A week after that $HPQ did the same thing.  In the following two weeks any computer manufacture worth its salt did the same thing.  In one month I turned five-hundred dollars into five thousand eight hundred dollars.

I was working as a bellman at the time making minimum wage plus tips, and in one month $ABDE made me more money than I could make at that job in six months.  And it was the worst thing that ever happened to me.

As a second grader I had no context to know that I was only smarter than my classmates because I had matured sooner than them.  Because I was more curious.  Because my parents took more initiative in reading and teaching me things early on.  Instead I thought it was something innately inside of me.  Some Mozart-like divinity that would propel me to greatness throughout the course of my life without having to open a text-book, study for a test, or prepare for a job interview.

As a virgin trader that same lack of context existed.  I thought that making money in the markets was easy.  That it came without studying charts.  Without learning risk management.  That I could just roll out of bed on Sunday, read some stories in Barron’s, and with that pick stocks that would allow me to retire before I was thirty.

But just like in life, that is not the way the markets work.  They may temporarily reward the lazy, the egotistical, and the unprepared, but right when you are about to crown yourself the next Paul Tudor Jones, your bill will come due, with brutal interest.

The worst thing that can happen to any new participant in the market is for them to make a shitload of money on their first trade.  It sets them up with a false confidence that can drive them to trade bigger and bigger until such a point that they have all their discretionary capital at risk, and that is when, not unlike the “sevening out” in craps, the markets will wipe them out.

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

Click here to “Like” the bclund Facebook page.