okay day

sold my NUE short, way too early. AH yesterday, STLD got smushed...and i had a gut feeling that steel and NUE would also crack worse than the prices i was seeing at the open, but after the IBM fiasco yesterday, where i was too slow to sell, i was out of the trade in 2 minutes in from open. i probably wouldn't have held till the afternoon when we saw max. smushage, but i should have been able to game another 400/500 off it easily. 5 more minutes actually.

GS...i was slow to get into that play. it cracked from 143, which would have been the correct entry point, but i did see weakness at 142 and thought that it would break inline with the rest of the market smushage. my first mistake was that i entered a speculative play, 145 puts, GS is at 142 and they are selling at 7. that's a $4 risk premium. second GS wasn't breaking, at least not in the clean break sort of way that i like. there was resistence. thirdly, the rest of the market was already close to the bottom, i could see, and this thing is still only down a duck. screw that, it was too risky. it was spiking around like mad, so on the next run up, i doubled down and on the next spike down, i dumped it for +.15 and +.2...not big profits, but i was glad to be out of that trade. within that set of spikes i could have gamed .20 cents more and later in the afternoon it did break 142, but around close it zoomed to 144 in 15 minutes.

why the long writeup, because this was well traded. i saw the impending break - good. watched closely for 30 minutes and saw it was too risky. exited the trade promptly. if you don't like it, get the fuck out of it.

the double down also needs to be explained. my initial position size of 10 was good, it's GS, don't go nutty. but, i screwed up by buying 145 puts...it was the type of option buy, which requires large moves on the underlying to really pay up. for $1 move in that, GS would have to move $2. i realized that within minutes and switched strategy to double down, to capitalize on the smallest of moves. i basically decided i was gonna be out of the trade within minutes. all of this only because of the ass lickin' PDT (pattern day trader rule). google my site to read my venting on it.

although i tracked the YM, i was too chickenshit to play. get this, around 3:42, i'm thinking this day is pretty much over and after looking at the charts, i enter an order to buy POT calls, at a price 20 cents lower than current spread. i'm thinking it'll either hit it or i'll fine tune the price or whatever. i had other stocks lined up as potential buys. so i'm looking at the YM and xx18 seems like a good short entry point, i enter click transmit, check on some stuff, go back and bam it's at xx32...wtf, it's zooming up at the end of the day again. a move of 60 points in minutes. luckily, my POT order went through just seconds ago and so my YM order didn't have enough money to get triggered. phew! thank you GOD>

btw, i figured out the reason for the end of the day spike. the big guys (and me) were waiting for mad smushage into the close. we had smushage, but we didn't have mad smushage. and so that meant, things were still safe and the swing trade was go long. the same time i went long POT, the big boys went long everything else and that pumped everything up big time, plus that kind of runup triggers all kinds of stops and short covering, which fuels the runup even more. that's why it's such a spike.

i feel very good here. i'm in touch with the trading flows. i'm synced. fingers crossed.

Underlying	Quantity	Action	Price	Description	Time	Date	Exch.	Commission
NUE	10	SLD	9.20	JUN09 55.0 PUT Option NUERK	09:30:57	20090603	NASDAQOM	7.00
GS	10	BOT	6.99	JUN09 145.0 PUT Option GS RI	13:09:28	20090603	NASDAQOM	4.50
GS	10	BOT	6.95	JUN09 145.0 PUT Option GS RI	13:30:28	20090603	ISE	7.00
GS	2	SLD	7.15	JUN09 145.0 PUT Option GS RI	14:05:53	20090603	ISE	1.40
GS	2	SLD	7.15	JUN09 145.0 PUT Option GS RI	14:05:53	20090603	ISE	1.40
GS	2	SLD	7.15	JUN09 145.0 PUT Option GS RI	14:05:53	20090603	ISE	1.40
GS	2	SLD	7.15	JUN09 145.0 PUT Option GS RI	14:05:53	20090603	ISE	1.40
GS	2	SLD	7.15	JUN09 145.0 PUT Option GS RI	14:05:53	20090603	ISE	1.40
GS	10	SLD	7.15	JUN09 145.0 PUT Option GS RI	14:05:58	20090603	ISE	7.00
POT	10	BOT	12.00	JUN09 100.0 CALL Option PYPFT	15:44:45	20090603	PSE	7.00

how to get around the Pattern Day Trader (PDT) designation

as we discussed a couple of posts earlier the Pattern Day Trader (PDT) rule has caused quite a lot of grief in my life. and i suspect many a other trader has suffered under the insanity of this abomination foisted on us by an idiotic SEC.

so recently i was PDT'ed again and because I was worried about just such an occurence I had been doing research on how to get around it. Below, are some thoughts on the various mechanism's found on the net. all legal ofcourse.

1. To the best of my knowledge, PDT applies to all the following trades. stock buy/sell, stock options buy/sell, futures buy/sell, futures options buy/sell. i am not sure about currency or commodities trades. but, frankly you can't trade those two without a fairly large account. 100K++.

2. Open an account with a brokerage based overseas. There are 2 problems with this. I could not find a single decent brokerage outside of the USA, which had a nice internet front end and fairly cheap trades. I checked out UBS, Australian brokerages, etc....but, nothing good. This might work though. Except, when I tried UBS, which is Swiss, the moment they knew i was an US citizen, they funneled me to their USA offices. So, that didn't work out. I gotta check out Japanese brokerages though.

3. Go through a proprietary trading firm which sets up a shell account in their name, but with whatever level of capital you bring. i don't think you can trade their capital, except on exhorbitant margin rates. plus they charge all types of fees and here's the worst part they take a % of your gains. but not your losses. stay away from them.

4. OK, HERE IS THE BEST WAY TO GET AROUND THIS. open two trading accounts with different firms. in one trade only as a daytrader, i.e. with net worth over 25K. in the other trade with the daytrading rules in mind. So that way, if you get over 25K, you wire the funds from one firm to another and now you can happily day trade away. and if you dip below 25K, no problem wire the money to your daytrading restricted account in the other firm and you're all set to go. the only bad part, is the wire cost, about $50 max and the delay in moving funds around. but, hell that's barely a day.

NOTE: I don't absolutely know for sure that this will work. I have already opened another account, but for now i will soon be over 25K (hopefully) and IB is my primary broker. I really honestly don't think your previous trading history is available outside of one firm, so they really don't know if you are a daytrader or not. so basically, even if you are pegged as a daytrader at one brokerage, the other doesn't know about it. unless they transmit the info. to the SEC and it retransmits it back down. and i can't imagine the SEC being that on point :)

so, there you have it. my thought's on how to escape the PDT designation.

oh btw, here is another way to get around this, but it is so whack...it worked for me though. i got designated a PDT about 2 / 3 months ago. the rule say's you can get one reset only in about 180 days. so i got a reset. then i got redesignated and i said WTF i'll ask them to reset it again. AND IT WORKED. they reset my account a second time. maybe they don't keep track of the resets. maybe they just don't care. maybe 2 months is too long a time for them. they sure like my commissions of course :)

SEC ABOLISH THE PDT RULE, u nitwits ;p

the aftermath

well, as you can see after the GS fiasco, i was severely, well not depressed, but certainly disenchanted with my performance. how could i screw up so much !!! i needed some time out to think over things and to heal. also , i wanted to watch this latest rally, to see what i could learn from it. there were some technical aspects which needed to be studied at leisure.

however, an even bigger problem has been looming on my daytrading amitions...it's the mother fucking Pattern Day Trader (PDT) rule.

this rule created by the SEC, stipulates that if you make more than 3 day trades in a 5 business day period, you are a pattern day trader (PDT) and need to have at least $25K equity in your account. this equity can be a combination of stocks and cash, but the amount is at least 25K, with brokerages having the ability to set this level even higher but never lower.

1. the real reason for the PDT rule is to protect brokerages which lend to traders on margin. The SEC saw that brokerages were lending traders 2 to 4 times leverage which when used with risky positions, like naked shorts, writing calls/puts, could lead to rapid losses, the decimation of the entire position, and in fact put the fucking brokerage in hock for your position.

THE FUNNY THING ABOUT THIS IS THAT THEY REGULATED YOU, THE SMALL TIME TRADER, WHEN WALL STREET WAS LEVERAGING 10 to 20 ON EVEN RISKIER INSTRUMENTS....the irony here is unbelievable.

So, basically they said have $25K in your account, so that there was some cushion for the losses.

BUT, the whole problem is margin...DON"T ALLOW MARGIN and the whole problem is MOOT....but not in our lobbyist oriented congress...the brokerages MAKE MAD MONEY ON LEVERAGE, on any given day they are lending millions at 5-8%...allowing rampant and systemic SPECULATION.

Here's some common myths about this rule which i would like to debunk (since i have been researching it for months now):

1. it was created to protect you, John Doe the helpless public -- bullshit -- this rule has the opposite effect, since it doesn't allow you to trade with smaller amounts and learn from experience, but instead makes you save 25K, which then causes all kinds of stress and panic. Case in point, take me, i have flirted with this level many times and many times i'm thinking more about this level of funds than my position, worried if i go lower, i can't trade. it really shouldn't be a factor in trading at all.

2. the poor brokerages have to be saved -- i don't disagree -- but, this problem was solved long ago...the good brokerages just didn't allow you to trade risky positions on margin. simple. want to buy calls or puts, no margin, have the cash. 0 risk for the brokerage. now for more complex positions....firstly they were disallowing margin...however, for some of these types of trades...for eg, shorting a stock is net debit transaction for your account...basically you sold something you didn't even have...stock goes down...good all around...stock goes up, now your account is going negative...since there is no limit to how much a stock can go up, it can eat up your account and then the brokerage is on the hook.

however, brokerages hate to lose money and long ago, they put severe restrictions by themselves on these types of trades. perhaps pre 2000 the technology was not quite there, but i know that the last couple of years, most good brokerages have real time monitoring of your credit situation. that is they let you short, tell you how much losses you can suffer for your account before they liquidate your position. and they are very conservative....i have only written naked calls or puts a handful of times, because the margin requirements for these transactions are very severe.

just to be fair, here is the only scenario the PDT will work...you are in a risky position, very close to be being called by your brokerage, i.e. being collapsed out of the position by them, and the trading day is over. now you have an overnight. a plane could hit the headquarters of your company, the US could go to war, Brad Pitt could go back to Jennifer Aniston, Bernanke lowers the Fed rate to -1 %...haha...oh my i have so many more of these...but basically your position could get blown out of the water....and next day you can't cover and the brokerage now loses money.

this kind of price movement overnight is very rare, especially over one stock and in any case the margin's are usually calculated with 15%-20% price volaitility in mind....something which was never done with mortgage loans, or the CDO's (collateralized debt obligation) based on the loans or the CDS (credit default swaps) based on the CDO's.

and here they are regulating us little fish Patter Day Traders...like us with our chewing gum money are going to wreck the financial system. HOW IRONIC !!!

so the PDT sucks...read the next post on ways to beat it and my own current experience with it :)