Trading RM, LLC.

For those who actively trade options on an intra day bases or swing you will be happy to know the cost of buying an option has in theory been reduced today(in 75 stocks). The NYSE arca penny pilot program has been running for a little over year now with a slower than expect roll out. The tightening of option spreads from a nickel to a penny is the primary purpose of the program. So how does this program make trading options cheaper? Well, in theory a nickel wide option you have to pay the spread no matter what, usually .05-.15 on average. Now the spread "in theory" will be a penny wide, though most still price in a spread of .07 or so. Thus when entering a position you can essentially put in an price you like all the way up to a penny away from the ask, or vise versa. What makes this program interesting in my opinion is not the reduced cost of entry, it's the fact options now price and trade in a more fluid and predictable manner than in nickels. There are now greater opportunities to exploit inefficiencies in pricing because you can see where everyone sits in the book and at what price. This makes for great scalping.

A real quick snap shot of a RIMM set up I saw today. We saw futures spike post ISM #.

The S&P futures are in red on the top chart to the left. I circled the spike in the S&P price post ISM.

At the same time RIMM (in green on top chart) was weak. RIMM was -$4 on the day. RIMM had absolutely no uptick with the market.

Below we see the daily on RIMM. I am an amateur chart technician at best, but it is clear there is the gap to fill on this chart. So we had a weak stock, divergence with the market, and confirmation on the daily chart. When the market sold off RIMM accelerated a bit to the downside. I like the percentages with this set up.

Monday

CLX


PRGO

TXRH

Tuesday

ADM

MHS

MVL

MA

HIG

DRIV

MYGN

KFT

Thursday

NDAQ

LEAP

Friday

MIR

The U.S. Dollar carry trade continues on as the equity markets continue to sell when the Dollar strengthens and are bought on a weaker Dollar. During last few trading sessions we have seen the Dollar gain strength and on increasing volume as the Dollar bears scramble to cover their shorts in what is now a very crowded trade and have to unwind their equity positions. The equity markets have also come into some strong trend lines that will act as support levels as the Dollar approaches resistance levels. The equity markets have seen increasing volume as there is finally institutional involvement with the markets and the Dollar may be seeing signs of capitulation.

Today Trading RM was visited by Jeff Quinto. Jeff is a 37 year veteran of the markets. His experience includes the Kansas City Board of Trade, Chicago Board of Trade, running an electronic futures trading prop firm, and serving as a personal trading coach to many traders. In addition to coaching traders, Jeff also teaches a course at Northwestern University school of continuing education: Introduction to Electronic Trading, does a monthly video at Option News Network, and has frequent podcasts available on itunes. Jeff also has some great videos available on his website or on the website of the CME Group. I highly recommend these videos. Please visit Jeff's website for more detailed information.

Jeff broke his talk to us into two parts.

Breaking up the day

Jeff talked to us about breaking up the trading day. He divides the trading day into 5 "quintos." Jeff likes to use open, morning, lunch, afternoon, and close. The exact number of parts to the day or their exact specific time is not important. What is important is recognizing that there are different areas of the day where the market behaves differently. This is because the various market participants behave differently. What does a fund manager do at lunch? What does he do at the open? What are day traders doing at the close? What are market makers doing in the afternoon? Accordingly, we, as day traders, must adjust our trading during these parts of the day.

Despite the world being a 24 hour trading environment, the market seems to revolve around U.S. equity hours. What happens is we see a flood of liquidity during the open period. The morning is characterized by liquidity and fluidity. During lunch volume dies down. Into the close we often see big players closing, not entering positions. None of the above is true 100% of the time. But over the long run this is more or less what happens.

As traders (short term traders) we must recognize these scenarios and adapt. Every trader and every product is different. Certain time periods may call for less size, more size, not trading at all, being more aggressive, bidding vs. paying up, etc...

Pre and post market work

The main theme is a trader who follows a mediocre plan is ahead of both a trader who has a great plan but does not follow it and a trader with no plan at all. Not many successful traders can come in at the opening bell and leave at the close without thinking about their market before and after.

Another theme Jeff brought up is "man plans and God laughs." In other words, sometimes plans and goals do not always turn out perfectly. But the key theme is that no plan at all is a recipe for disaster. A great plan is never perfect, but it puts a trader far ahead of the game. As far as goals, for every level trader the key is to have attainable goals. Jeff used the example of a tennis player. It is one thing to say "I am going to start playing tennis" and buy a racket and go hit a few balls. Yet it is unrealistic for this beginner to expect to be a pro immediately. A goal to be a tennis pro is probably unattainable (at least in short term). More realistic goals include: getting 70% of my serves in, practicing three times a week, etc...

Likewise traders need to have attainable goals. For a beginner trader it may be "make $1.00." Or learn 20 new stock symbols and charts. A more advanced trader should have more advanced goals. But they should still be attainable.

Thanks to Jeff Quinto for his time.