Wednesday, March 18, 2009

Mish Must Need Cash

Mike Shedlock is pumping some option trading product on his blog called OptionMonster.

He thinks he's disclosed enough when he says:

Those trading options or interested in trading options may wish to check out OptionMonster, a service that I feel has a lot of potential for option traders. Yes, I stand to profit if you sign up and stay signed up, but I would not mention this service if I did not think it was worth a look.

And then later:

I cannot personally vouch for OptionMONSTER because I have not tried it. However, I can vouch for the founder's reputation. I have high respect for "Dr. J".

Okay, I'll finish the disclosure.

This product is crap. The two examples Mish gives from the *service* highlight nothing. One of them involves scalping a vertical put spread in US Steel.

To me it's a dead giveaway that someone is an option Moron when I hear them talk about 5-point or 2.5 point spreads. And don't mention *iron butterflies* either - that's another screaming badge of ignorance.

[Hint - y'all can't make any real money with those sissy trades!]

Mish writes:

Someone Always Knows

OptionMonster publishes research based on the idea that unusual trading activity (puts, calls, etc.) predicts future price movements.

This also is utter CRAP.

The idea that one can build a profitable trading strategy around coattailing savvy option trades may be marketable to retail fools, but it's just another brand of snake oil.

In a nutshell, the trades are way too hard to identify and probably not sufficient in number.

All that energy trying to figure out what *the smart guys* are doing would be better spent reading the tape and doing more eclectic research - like reading blogs!

For sure there are plenty of savvy traders out there whose knowledge can be profitably tapped.

But the best resources are out there are definitely not pumping or selling retail products (or writing books).

Just think, if Dr. Najarian of OptionMonster had a winning option trading strategy, would he be peddling it over the web?

Or would he be implementing it quietly with proprietary capital?

All he has is a *marketable* strategy - just like Fidelity!

What's humorous AND deeply ironic is that *Dr. Najarian* made all his money over 25 years in the CBOE options a marketmaker taking the other side of retail trades.


Anonymous said...

Mish goes off the rails now and again, but his k-cycle playbook has been dead on the money. If I had discovered Mish in '05, I'd be a deca-millionaire today.

Good luck with that SRS. I've made damn good money trading it, but the volatility decay has kept me out of any long term commitments. SDS might be the better bet, but a flat S&P would grind it down like SRS.

CaptiousNut said...

If you gave him you're money you'd only be up a few percent!

Anonymous said...

Right, I did not mean that in the sense of using Mish as a money manager. But, reading Mish, one would have:

1. Shorted subprime lenders.
2. Shorted prime lenders.
3. Shorted builders.
4. Gone long gold.
5. Traded interest rate futures.

Wheat from the chaff, or chiff, if you prefer.

CaptiousNut said...

Mish's calls are more than a little opague.

For example, he's been beating the drum on *deflation* for a while. But did he short oil at $100? At $60? At $40?

If he mentioned it I didn't notice. Getting the story right is hard enough; so I give him credit there. But I get the impression he's not really a trader; I also get the impression he's just trying to amass assets-under-management and beat a benchmark. In fact I sense that he's a bit afraid to put his money where his mouth is.

I think he has mentioned that he got crushed in gold miners last year. Speaking from vast experience, this is an area where he'll get killed again. Gold - yes. Miners - no.

Having said all that, I think he may have won me over to the *deflation* side on many levels. For example, I am strongly considering shorting this oil rally.

Anonymous said...

Mish has emphasized that careful risk management is one of the top goals of his approach. Therefore, it is unreasonable to expect "shoot the lights out" returns from anything Sitka flavored.

Mish's calls are deliberately opaque...he IS trying to get some business. But he did hammer on some key companies while there was still a lot of meat on the bone. He also stated that Sitka was long oil and cashed out at $140, long gold during Bear Sterns and cashed out at $980. So they do some trading.

Nor is Mish k-cycle gospel. Trust, but verify. All the gears mesh, and the results have been exceptional.

Oil is, maybe, a special case. The Economist - and they are not amateurs - typically forecast oil as being affected by deflation. I don't know, so I avoid trading it.

Vast experience? Unless you were alive in 1875 or 1931, I question the relevance of such experience as it relates to gold miners. Now, granted, gold miners are the crappiest stocks on Earth. The best that can be said about them is that they are a call option on gold in the ground. That's not a bad thing, no options heaven to worry about.

Miners are going to shoot the lights out...AFTER gold crosses $1,000 and - most critically - stays there. Of course, I am heavily invested in GDX, AUY, and a mutual fund, OPGSX (401k).

See point #7: