New York HS Student Allegedly Made $72 million From Trading

The recent article about the Stuyvesant High School Student Mohammed Islam making $72 million is now under question but he still supposedly made a few million trading on the stock market.  

The reporter stated that she saw his account statements but didn't verify that all the money was from trading.  Either way the story of a high school student trading on his lunch break and netting millions is an inspiration to many who have dreams of being a successful trader.

I am the first person to champion the benefits of trading but I also want people to be safe and not lose their life savings.  I do believe that it is possible to build wealth in the markets and that if you plan and strategize effectively you will be successful.  

Here's the article:

NY Post Article

*Update: This story has since been debunked 12-16-14

Bull Market Indicators

An interesting article shows how the International Security Exchange Equity Ratio is showing that the market may be showing bullish signs.

I don't understand the angle about options traders being "fearful" but I gather that he is saying that people who are short on the market are skiddish.

He shows how there were only 4 other times since 2006 where the ratio is where it is now and most of them were key bullish indicators.

Yahoo Article

Strategy Update

I successfully exited my bull put option spread on Facebook today.  It was a volatile week and I had hoped to have gotten out yesterday, but there was a lot of negative chatter about the effect of oil prices on the market.  That kept Facebook from bouncing up on the positive news from the Instagram announcement.  Instead the bounce came today which was helped me exit my trade.  

After a month and a half of successful trading and 7 consecutive wins, I can now confidently recommend my strategy.

Here it is again if you missed it:

YCTT Bull Put Spread Trading Strategy

Current Market Conditions

There seems to be a bias to the downside in the current market because of the bottoming oil price fear mongers.  I personally (and apparently many others) think low oil prices are a good thing because the general consumer has more money to spend.  Many pundits on the other hand think failing oil companies will cause loan defaults that will bring down the banks and that will somehow reach other markets.  

I don't think low oil prices are going to be a problem but the market has it's own reason for moving which may or may not coincide with my belief.  Because my current strategy is bullish I am going to proceed with caution and look to time my trades after pullbacks.

IMPORTANT NOTE ABOUT OPTIONS

If you are trading large numbers of contracts:

NEVER LET AN OPTIONS TRADE GO TO EXPIRATION

Let me say that again NEVER LET AN OPTIONS TRADE GO TO EXPIRATION

I don’t care if you are up and you can make more money if you let them expire.  It’s not worth the risk especially if you are trying to make more money by overleveraging your trade. 

Let’s say you sold 10 contracts on AAPL and bought 10 for a put spread.  Your high strike was 114 and your low was 110.  Your thinking the most I can lose is $4,000 because of the spread.  WRONG

When you get close to expiration the 110 contracts go down to zero value and there are no bids out there for you to close your trade if you really need to.  

Once your insurance trade has gone to zero you are essentially in a naked put and you are at the mercy of the market for whatever happens.

If your 114 contracts become “In the Money” you are now on the hook for $114,000 with no way of exiting the trade.  You can’t sell or roll over to the next week because there are no bids out there for your 110 contracts. 

SO I REITERATE… If you don’t have the margin to cover the trade NEVER LET AN OPTIONS TRADE GO TO EXPIRATION

Trading Large Numbers of Options Contracts

I’ve been experimenting with using larger numbers of contracts on my credit spreads for a larger gain and after executing a few trades I can say that I do not recommend this strategy for everyone but it has been very lucrative.  You have to be a lot more vigilant when executing these trades and there are some tighter rules you have to follow.

• Make sure you are only trading larger name stocks with a large amount of volume (liquidity). Names like AAPL, SPY, BABA, etc.
• Make sure the lower leg of your trade has some bids out there so you can close your position or roll your position, preferably no less than .05.
• Never let these trades go to expiration.  You never know what the stock is going to do and you don’t want to be exercised with high volume contracts especially if you don’t have the money to cover the transaction. 

This last reason is the precisely why I do not recommend these trades for everybody but if you can stomach the risk they can be highly lucrative.  Just be ready to deed your house over to your broker if it goes south on you.