Saturday, November 21, 2009

Changes Over the Last Several Years

Option traders are about to see an important and long overdue change. Option symbols are finally changing so that it will be easier for traders to identify the option they are seeking or trading. At the initiative of the Options Clearing Corporation option symbols will become much more straightforward and easy to understand. The old symbols have been used for the past 25 years and gradually will be replaced by the new symbols that are more intuitive and more easily deciphered. For example, the April 2010 $35 calls on XYZ may formerly have been XYZDG but now will be XYZAPR1035Call showing the stock symbol, expiration date, strike and option type. Though longer, these new symbols seem much more self explanatory.

Knowing these changes in option symbols were about to be implemented got me to thinking about other changes in trading over my lifetime and particularly in just over the decade in which I have been trading for a living. One very dramatic change has been in commission structures. I remember paying a couple hundred dollars in commissions when I made my first trade almost too long ago to recall. Once, in a seminar in the early 2000's I mentioned a stock trade I had made where I paid a $12.50 commission to buy 1000 shares of stock. An older man in the front row was completely disbelieving, blurting: "You did not. No way you only paid a $12.50 commission." He had been trading for years and was accustomed to the high commissions charged by the full service brokers. I had to show him my confirmation before he would believe me and he was irate with his own broker because he had made the same trade and paid more than $150.

Option trading for retail traders was quite rare before the '90s. Commissions and illiquidity made options difficult to trade for the littler guy and quotes were both untimely and hard to find. I recall when I began trading for my living I was still using newspaper option quotes as my starting point.

As with so much of our lives, home computers have made a huge difference in our trading. I recall beginning to make online trades enjoying very reduced commissions and utilizing quotes that were only 15 minutes delayed. Real time quotes were still expensive to obtain and the 15 minute delay was remarkable. Now, of course, many online brokers provide real time quotes free of charge and charting services have real time charts for very little cost.

Charting, too, has been revolutionized. Though I never did my charts by hand, I did use what would now be considered some pretty primitive charts. Today charting has become so sophisticated that almost any indicator can be attached to and used in conjunction with the charts.

Clearly, technology has made much more available and in many instances at a very reduced cost. I'm sure the readers could add many innovations to the few mentioned here.

The problem continues, however, that so many traders continue to be overall losers. Technology and the other changes have not changed that problem except, perhaps, to add more traders. What I believe we all must keep in mind is that it is we, not the technology, who trade. We must deal with our own psychology when money is at risk. We must understand how to discipline our trades, when to cut losses and how to let profits run. These are issues about which I have regularly written and about which I regularly teach in my coaching sessions.

Enjoy the advancements. Understand, though, that people made money in the markets long before the advancements and people still lose money in spite of them. That might teach us that there is more to learn and that learning through reading, through seminars and DVDs, and through a coach or mentor may well exceed the technological advancements in importance.

by Bill Kraft, Editor
Copyright 2009, Makin' Hay, Inc.
All Rights Reserved

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Cliff said...

Good article Bill as always. I've been following your writings for a month now and you are spot on. It's not the tech that makes the trader its the person. I trade with a lap top anywhere in the world and make money. What do you think about Strangles in options? Just wondering.

Cliff Stratton

Bill Kraft, said...

Cliff, thanks for the kind comments about the articles, I'm glad to hear you've been enjoying them. I personally prefer straddles to strangles primarily because there is a fairly wide range of maximum loss in strangles while with straddles maximum loss only results at expiration when the stock price is exactly at the strike price. Of course, straddles are more expensive, but have a higher probability. I cover them both in "Trade Your Way to Wealth." Thanks for writing.
Bill Kraft