Market Strategist -
J. Peter Liddy
Investments, and strategies outlined here are proven methods within the trading and investment industry. Each product and service is used by financial institutions and brokerage houses (the "Big Boys") as well as small time traders (the "little guys") to provide diversified income and security in every investment portfolio. Options, futures, scalping, and short selling, et al, are all common products, services, and strategies that are fully and completely legal. Albeit risky.
"I’m gonna use our life savings to invest in the market" ~ Teddy McGonagle (first guy to the ground, Oct. 1929)
The general strategy is that of short-term focus. Extremely short-term. There is no interest in establishing a portfolio based on a long term investment strategy. While there is nothing wrong with that approach, it is a prudent and proven way to go for sure, but it's simply not the focus at AJFM. The primary interest is getting in and out as quickly as possible. Positions are taken with an outlook to a few weeks, 1 - 2 months at the very most, and minutes as the least (certainly no position is held overnight with day trading). By swing trading and day trading stocks, options, and futures we are able to capitalize on the volatility and liquidity of the marketplace within these time frames. The Big Boys move the market at will, and AJFM will ride their coattails.
There are two methods by which to base investment decisions:
Fundamental Analysis of potential earnings, upcoming contracts, current board members, et al, ad nauseam, and etc. This method means nothing at AJFM. Simply not the focus. Boring. Couldn't care less.
Of more interest is:
Technical Analysis. Charting current price, historical highs and lows, trend lines, volume, moving averages, and other factors that provide hints to the possible price direction.
RULE #1 - There is always downside risk. Don’t blow your rent money at AJFM.
STOCKS - Pretty much everyone knows; A company issues stocks which allow you to participate or share in it's "ownership". The shares are placed in the open market where they are bought and sold like apples and bananas at Sprouts. Nothing more complicated than that. AskJesusForMercy will be a willing participant in the stock market.
OPTIONS - An option is simply that - an option (or right) to purchase a stock at or before a later date for a pre-determined price. What you are actually purchasing are options contracts. You are entering into a contract with another party to buy or sell a stock up to a future date. Each contract controls 100 shares. Therefore, If the cost of a particular option is $1.50 then the total cost of that single bundle of contracts is $150.00 (100 x $1.50). You can buy as many contracts and spend/risk as much as you like or feel comfortable with.
The key elements to every options contract are: the purchase price of the option, the pre-determined future price of the underlying stock (the "strike" price at which you will exercise your option), and the date by which you may exercise your option (the "expiration" date). There are definitely far more variables and strategies involved in the purchase of options that need not be mentioned here, but perhaps the most important thing to keep in mind when trading options is that you are only ever purchasing an option. Literally an option to execute or not. It's your "right" to exercise the option or not. You are never obligated or committed in any way to purchase the underlying stock. You could buy an option and do nothing. All it would ever cost is the amount you just spent. It's your decision. You can sell your option, exercise your option, or let it expire. No obligation whatsoever. As always though there are risks. The option could expire completely worthless, in which case you would lose your initial investment. The risk is always high.
Let's say Stock ABC is $50.00. You've researched it and you think it has upside potential pretty soon. Instead of risking a large amount of capital (e.g. 100 shares at $50.00 = $5,000.00) you look at options. There will be various options available. You see there is an option available priced at $3.00 which will allow you to buy ABC 3 months from now at $55.00 (the "strike price"). If the stock rises to $60.00 that means you could exercise your right to buy the stock for $55.00. Your immediate gain would be $60.00 minus the $55.00 you paid for the stock plus $3.00 for the option ($60.00 - $55.00 + $3.00 = $2.00). In essence, you bought it for $58.00 and it's worth $60.00.
Now remember, with options you're never locked in. Your obligation is zero. You can simply do nothing watch it rise and let your option expire. Of course you'll lose your initial investment which, by the way in this example would be $300.00 since options are sold in groups of 100 contracts.
You may be saying, "Yeah that's great, but I would never buy a stock for sixty dollars, or even fifty dollars. That's well out of my budget and comfort zone". Well the old adage "everything is for sale" is never truer than in the stock market. And so it is with options. They themselves are a playable vehicle. As the potential for the stock rises so it goes with your options. You buy your option at $3.00, it looks obvious that ABC will easily jump in price, that sends the option price up as well, say to $4.00, thereby giving you the opportunity to sell your option for a $100.00 profit (100 x $1.00) even before the option expiry date.
The downside risk of course is that the stock underperforms, never hits the "strike price" of $55.00 within the 3 months, and so your options expire worthless. You lose your $300.00. Having said that, you could at some point before expiry sell your options at whatever the market will give you in order to recover at least some of your investment. There's always a market (a buyer or seller) waiting in the wings. Well, somewhat of a market... I mean... who's going to pay you for a worthless option? Be warned.
RULE #2 - Trading options can be extremely profitable with the realization of high reward very quickly but never, ever skip a car payment to invest in AJFM.
The downside risk is always high.
FUTURES - Trading Futures is essentially wagering that the price of a stock will be some other price in the future. Dead simple.
The favorite way by far for traders to participate in the futures market is through the S&P 500 Index. The S&P 500 is a basket of 500 companies listed on the New York Stock Exchange. In order to trade the Index various products have been made available. The E-minis (the "ES") is the vehicle of choice for scalping, or day trading. This is how you trade in this highly volatile market. The current price (at the time of this writing) of one S&P 500 Futures contracts is $3014.25. However, in order to bleed the little guy dry, the Big Boys have made it easy for us to get sucked in. It's a widely accepted practice for your broker to lend you the money through a "margin" account allowing you to trade the S&P, as long as your account meets the minimum funding requirements (anywhere from $500.00 to $10,000.00 and up), and you meet the minimum "margin" requirements. In some cases the minimum funding requirements are slightly different than the minimum margin requirements. More brokers are now lowering their minimum margin for the E-minis so you can actually buy a contract or two with as little as $500.00. In the last few months the CME has introduced the Micro E-minis which cost even less. I guess the thought process is, "How can we make more money? Let's make it easier for the little guy to lose more money."
The price of the S&P 500 Futures Index is calculated to the second decimal point and can move in one cent increments (i.e. 0.51, 0.52, 0.53, etc) but the price of the related E-minis changes by twenty-five cent increments. Each incremental move is known as a tick. In the ES, one tick corresponds to $12.50 and one point consists of 4 such ticks. When your position moves in your favor by 1 point you make $50.00 per contract. And believe me this can happen within seconds.
RULE #3 - If it’s between a pack of smokes and a futures contract well, we’ll go the other route here; choose the futures contract.
There is no downside risk. In most cases it’s better to be broke than dead.
SWING TRADING - Is more akin to what most people associate with "playing the market". That is, buying a stock, then holding it for a period of a few days to a few weeks or even a few months. It used to be a few years but ain't nobody got time for that. Trades can be new startups and penny stocks, or well known blue chips like Apple, and Coca Cola. The downside to swing trading is that investment capital is tied up and you may miss other opportunities for the length of time your holding the position.
I would say no example is required as it's a fairly straightforward strategy; Take a position (short or long) and hold until the target is reached.
However, there is always significant downside risk.
RULE #4 - Don’t dump your grocery money into AJFM.
DAY TRADING - Day Trading is the buying and selling of securities on the same day on the basis of small, short-term price fluctuations. Any market and most stocks available to trade can be a vehicle for day trading, but typically (and in our case) the focus is on the Index Futures, and Equities (or Stock) markets. In addition, we are only interested in a fast moving, volatile market and stocks with high volume and liquidity. It's pointless buying a stock if there's not enough people around when you need to sell it (or buy it if we are in a short position. But more on that later). Having said that, our primary market for day trading is the actual S&P 500 Index itself. There are several ways in which to participate in this market but the SPY (the ETF representing Index) and its other related funds, and the E-mini futures contracts are where we focus. The index is both volatile and highly liquid, and is usually the vehicle of choice for most day-traders. This is not to say we are limited to only the S&P. We will trade any stock or index that presents a trading opportunity within our day trading strategy. "Scalping" day trades takes advantage of volatility and liquidity to provide profit (or losses) within seconds. Based on chart patterns and momentum, you see that as the stock moves toward a particular price it will most likely change direction. When that happens you take your position. If you've done your homework correctly, and the stock indeed does go your way, because the move is rapid, you're in and out in minutes.
The S&P Index is moving quickly today. The charts show a very definite trend developing with good momentum and volume. The moving averages are indicating a potential long position. You set your buy order for 3125.25. It hits, and your order is filled. It's volatile and bounces around - up 1 tick. Down 3 ticks. Up 2 ticks. Down 1 tick. Up 2 ticks. Down 1 tick... And so on. You get the picture. But I emphasize this is happening (typically, but not always) within seconds. Now it's moved in your direction. It's up 6 ticks to $3126.75. You place a sell order at market, and it's filled immediately. Your profit is $75.00 (6 ticks x $12.50 per) minus commission. Not bad for 30 seconds of sweat and stress and heart palpitations. But realize, too, it could go against you just as easily and you end up on the losing side (plus commission which falls usually between $2.00 and $4.00 each way depending on the broker). Same amount of stress, but with less money.
Despite the example's emphasis on the S&P 500 Futures, we are not restricted to it. Other futures and stocks can be day traded as well. We will day trade any stock as long as the potential gain is high and the risk is low.
To most of the population, you buy a stock, you sell a stock. That's how it's done. That's the stock market in action. And to that extent it's true. It's that simple. Buying is referred to as "long", i.e. "going long", "taking a long position", "I'm long ABC", etc.
However, while everyone knows about buying a stock, owning it for a period, and selling it, not many outside of the trading and investing community are aware of the practice of selling a stock before you own it, and buying it back later. If you think a stock will go down in value, you can make money (maybe). Referred to as "shorting", or "shorting a stock", "taking a short position", "I'm short ABC", etc.
"Wait a minute. Whaaat? You can sell a stock before you own it? That sounds so friggin' shady. Is it even legal"? Yes, you actually want the stock to lose money. And yes, shorting a stock is perfectly legal. It can prove to be as profitable as going long, and perhaps even more so. The market moves on fear and greed and when fear kicks in, panic selling takes over and down she goes faster than a five dollar hooker. Escalator up, elevator down. And of course the Big Boys know this. They push a stock price up on purpose to suck the little guy in, then when all the little guys have margined themselves to the hilt to buy the thing, the Big Boys send it to the basement - at will, and of course, who do you think was selling their stocks to the little guy on the way up? That's right, with the full knowledge they were going to short the shit out of it when everyone was long and buy it back at the lower price. Now, is that legal? Probably not. Certainly not ethical or moral. But it's the Big Boys. The 1 percenters. They control the money. They control the market. They control the world. Who's gonna put them in jail - Batman? It's fixed and rigged. Just know it happens. Go with it.
So how does shorting work?
Let's say you've researched your stock - ABC. You bought options because you thought it was going to go through the roof. You thought wrong. It's a loser. You wouldn't touch it now with a ten foot pole.
Not so fast, Hombre! If it's gonna go down, wouldn't it be great if you could sell it now, high, and buy it when the price is in the basement? You can, by shorting it. Here's how:
ABC is at $55.00. You think it's going down based on your research and analysis. It hit $55.00 pretty quick and your figuring it's looking tired and will probably head south. You put an order in to short it at $55.00. You don't actually own it, but your broker has access to 100 shares that they can "lend" you. They sell it for you and give you the $5,500.00 "profit". It's a false profit, though. Not unlike Madame Zora at the corner of Fairfax and Santa Monica. Don't get too excited. You still have to give those 100 shares back to the poor guy the broker "borrowed" them from. You'll have to invest some money to buy them later.
After a few weeks everything looks great. ABC is heading down. It's sitting at $50.00. You're happy. You decide to get out. You place an order to buy 100 shares at $5,000.00. Remember you "borrowed" them to sell, you need to give them back. You buy 100. Your broker takes the 100 shares you just bought and gives them back to the guy they borrowed them from. That cost you $5,000.00. You sold them a few weeks ago for $5500.00 and your left with $500.00 profit ($5500.00 minus the $5000.00).
Hocus Pocus, you just made money even when the stock was going down.
Don't forget though, you could have been way off base and it goes up. Remember, you thought it would when you bought your options. You were right after all. If only you'd hung on. Oh well, la dee dah. If that's the case you need to cut your losses tout de suite and buy them at $60.00. You got $5500.00 for selling them a couple of weeks ago but it's going to cost you $6000.00 to buy them back (100 shares x $60.00). You lost $500.00. Just like that.
Volatility is a friend. Ride the emotional roller coaster. We truly don't care if the market is going up (Bull) or going down (Bear). Gains can be made in any market, up and down, long or short. Hmm, we should get a motto or slogan. "AJFM - we're always selling ourselves short", or "AJFM goes both ways". Something like that. I like it.
RULE #5 - There will never be a circumstance where you should take your ex’s alimony payment and child support to “play the market”.
The downside risk is always a factor to consider.
SWING TRADING & OPTIONS TRADING - An online trading account funded with at least the minimum capital requirement as established by your broker. As always and obviously, the more capital you have to invest the better, but you can probably get away with as little as $500.00. You typically won't make much return, but at least you can get in. The only limitation is how much you are willing to spend.
Once you've made your decision to take a position, swing trading (stocks and options) can typically be done without much monitoring. That's not to say you don't keep your eye on it. Regardless of which stock you've bought the market can move quickly and you most definitely don't want to miss the opportunity to get in or out. However swing trading allows you to do other things throughout your day. In addition, a subscription to a service that will send text alerts based on criteria that you set such as price, volume, targets, etc. will let you go to the mall to buy new stuff with all this money you're gonna make. In this case your trading platform should have a solid and reliable mobile app. As well as a reliable internet connection. Either Wi-Fi or cell.
That's it. Away you go. You're trading.
DAY TRADING - Is a completely different animal. A hideous beast that will chew you up and spit you out, then lick you up and eat you again, then puke and leave you on the sidewalk. Rotting and stinking as an example and lesson to others who think it's an easy road to moneytown. I guarantee it will enjoy every single minute of it. Be warned!
Anyway, moving on...
Minimum Account Capital - Depending on the broker, but you can get away with $2500.00 but $1500.00 would be sufficient. More than $5000.00 would be comfortable. Anything over $15,000.00 to $20,000.00 is pretty much what a pro trader would need. In every case, every losing position will deplete your capital and you will have to "top it up" to meet your broker's account minimums and drawdowns. At least in the situation where your account isn't well funded to start with.
Day trading requires a full time commitment during market hours (Mon. - Fri. 6:30AM - 1:00PM PST). Chart analysis should be done well before, which requires some homework to implement a strategy based on price fluctuation, momentum, and trend lines. When a position is taken there should be no other distractions due to the volatility and quick moves. There can be no other distractions. Taking advantage of opportunities as they may arise minute to minute is paramount. Those opportunities are sometimes plentiful and sometimes not, but as quickly as they present themselves so too are they over. It requires constant watch and monitoring. Complete zen-like focus.
A solid and reliable trading platform and Internet connection is an absolute must. It's doubtful anything else can be done while actively day trading.
RULE #6 - Scalping day trades is extremely risky and volatile.
Never use money you wouldn’t be willing to use to light your Cuban, or mop up your spilled gin and tonic.
Two possible ways to participate in AJFM:
1. Anyone who's interested opens an individual account and starts trading. Each trader would be responsible for their own account, costs, research, and market strategy. Text alerts of potential swing and options trades would be sent to each account holder (*additional fee).
2. The possibility of opening an account with "pooled" capital could be explored as an option. There are possible limitations to that, however it may be worth considering.
No matter which structure is adopted, it's always prudent to paper trade for 90 days to evaluate the potential of your trading setups. Paper Trading is the term used whereby your broker sets up an account (a Paper Trading Account :-/) usually with $50,000 or $100,000 that will allow you to make trades and such. But not really. Don't get excited. It's fake. Pretend Monopoly money. It's used as a way to try out your ideas and setups (and get used to a new or unfamiliar trading platform). It lets you practise with fake money. It's a pretty good simulation. It is in real-time but it's no way like trading live. It's fake money. You lose a million dollars. Who cares? It's make-believe, yes, but it's still a very good way to test your setups. There still is a bit of an adrenaline rush. It's fun.
A paper trading account is almost always a free service provided by your broker, but in order to truly simulate "real-life" the options alerts and swing trading alerts subscriptions should be included to really nail it. It would be a monthly cost with no real returns, but worth it.
Each trader must be responsible for their own affairs, and other financial matters that may affect their taxable income. Due diligence is your responsibility.
Here are the basics of the AskJesusForMercy strategy and what's required to get started:
What you're going to do -
Swing Trade Stocks & Options.
Day Trade Stocks & Futures.
How you're going to do it -
Online Brokerage Account - Cash or Margin.
Trading Platform (free version usually offered by your broker).
Membership based structure or Individual
What you need -
Required Minimum - $500.00
Suggested Minimum - $1500.00 - $2500.00
Recommended Minimum - $5000.00 and above.
(*excl. exchange fees, broker commissions, and trading platform)
How much it's going to cost* (optional) -
Alerts subscription service - up to $500.00/mnth. depending on type of Alert.
Anything else -
90 day paper trading evaluation period (free).
Trading in the stock market is extremely risky. It's volatile and definitely not for the squeamish or faint of heart. Never use money you can't live without. Before you know it you can easily lose everything. You should know before going in that the money you are about to spend could be lost. You've just handed over five hundred bucks of your hard earned cash to the Big Boys (and believe me they're taking it gladly). All decisions to take positions are solely at the discretion of the account holder.
Membership in AskJesusForMercy:
Any participant in AskJesusForMercy is aware of the risks involved and will hold the account manager harmless from any damages or losses of investment capital that may occur. All decisions to take positions are solely at the discretion of the account manager. The responsibility of due diligence falls to each and every participant. Withdrawals can be requested at anytime. Funds will be transferred upon request unless the requested amount is not available due to current holdings. Positions will not be liquidated to meet the withdrawal request. Cancellation of participation can be made at anytime. AskJesusForMercy is not a licensed securities broker and is not soliciting or acting as such. Participation or membership does not constitute ownership of any material used by AJFM whether licensed to or by AJFM or not. Any registered participant may, at any time, audit the AJFM account. The Account Manager is free to setup third party accounts and other subscription services as may be required.
"Just sign this. It's nothing. Never mind. It's okay. Just sign it. Don't worry about it." ~ My ex-wife's divorce lawyer.
If you're interested in learning more about trading with AskJesusForMercy please contact by text or email.
In the meantime; Stay well. Stay healthy. Stay invested. Stay empowered.