Posts filed under: Podcast

Should you buy when corporate insiders are buying, and sell when insiders are selling?  Do insider transactions mean anything at all for the future direction of stock prices?  What about the market as a whole?  Join me today as I cover the topic of insider trading.

 

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Section 1: Insider Ownership

Founders or controlling shareholders

C-suite executives

Boards of directors

Executive compensation: performance-based incentives

Warrants vs. options

Restricted stock as a retention incentive

Employee stock purchase plans (ESPP)


Section 2: Common Types of Transactions

Exercise of stock options

Open market purchases

Open market sales

What’s legal and what isn’t


Section 3: How to Trade in Response to Insider Buying & Selling

A review of the research on insider trading

Figure out who the major insiders are, and how they typically transact

Routine vs. non-routine trades

Isolated vs. sequenced trades

Look for anomalies and follow suit (if everything else checks out with the company and its chart – always do technical analysis)

 

 


 

References

 

List of Insider Transactions (finviz.com)

SEC Info: Insider Trading Reports

Institutional Holdings: NASDAQ.com

Trends in Board of Director Compensation: Harvard Law


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How can you and I profit from corporate mergers and acquisitions?  What should you do when one of your stocks gets a buyout offer?  Today I’ll be discussing all kinds of corporate deals and what they mean for investors.  I’ll also present a couple ETFs that allow you to emulate the merger arbitrage strategy used by many hedge funds.

 

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Section 1: Transaction Types & Examples

Cash buyouts

Stock-for-stock transactions / mergers

Combinations (cash + stock)

Merger of equals

Spinoffs


Section 2: How to React to a Buyout Offer

Terms: – what are you getting for your shares, what are the tax consequences, and what’s the chance the deal gets done?

Valuation (two of the best books are by Aswath Damodaran: The Little Book of Valuation and Investment Valuation: University Edition)

Likelihood of a bidding war

Recent price history of the stock


Section 3: Profiting from Corporate Deal-Making

Merger arbitrage strategies: active & passive

ProShares Merger ETF (MRGR)

IQ Merger Arbitrage ETF (MNA)

Buying stocks in anticipation of a deal


 

References

Largest corporate spinoffs – Wikipedia

Largest corporate acquisitions – Wikipedia

Paper on merger-arbitrage strategy by Brenda Kahn, University of Southern Indiana (PDF)

The Hedge Fund Journal – Ride the M&A Wave With Merger Arbitrage (PDF)

Fairmark.com – tax consequences of cash received in mergers


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Market orders, limit orders, stop-on-quote orders … what does it all mean?  In this episode, I start with the basics of order flow and execution: what happens behind the scenes when you buy or sell stocks and ETFs.  Then I go through the various order types, from simple to complex, to help you understand your choices.  You’ll get examples of situations where you might use one order type over another.

 

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Section 1: How Securities are Traded

Bid and ask prices

Market depth

Exchanges and other trading platforms

Order routing

National Best Bid and Offer (NBBO)

Price improvement

Brokers often get paid for order flow – is that fair or are we getting ripped off?


Section 2: Basic Orders and Conditions

Market orders

Limit orders

Conditions: All-or-nothing (AON), Fill or Kill, good ’till canceled (GTC), good ’till date (GTD), day orders, market on close (MOC), limit on close (LOC)

Stop orders

Stop-on-quote

Trailing stops


Section 3: Complex Orders

One Cancels Other (OCO)

One Cancels All (OCA)

Conditional orders

Pegged orders


 

References

Scottrade: Anatomy of an Order (PDF)

TD Ameritrade: Order Execution FAQ

SEC Investor Publication – Trade Execution


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Are you ready for the next financial crisis?  No one knows for sure when the crash will happen, but here are some sensible steps everyone should take to keep from being caught off-guard when it does.  I also tell you what signs to look for that will foreshadow the next crisis, so you can be calm and confident while others panic.

 

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Section 1: What Will the Next Crisis Be Like?

A brief review of the last few major financial crises

Signs and signals to watch for, this time around


Section 2: How to be Safe During Normal Times

Cash

Diversification

Alternative assets

Hard assets

Know your goals and risk tolerance, and keep your assets in alignment with them

Multiple income streams

Preparedness outside of the financial world


Section 3: Getting Defensive When Risk is Elevated

Move to a conservative asset allocation, as I have already done with my own assets

A little-known tactic to avoid getting trapped within your retirement account

Protecting a portfolio using options without selling the stock

What to sell

What not to buy


Section 4: What to do When the Crisis Arrives

From smoke to fire: The stages of a crisis, and the actions you should be taking in each

Embrace risk as others are becoming the most fearful of it

Follow trustworthy news sources; stay away from mainstream media as much as you can


References

Episode 15: How to Get a Return on Cash

Washington Post (April 2, 2007): Huge mortgage lender files for bankruptcy

The Survival Podcast – rational preparedness without the prepper mania

ZeroHedge – Why the Fed is Trapped: A 1% Increase In Rates Would Result In Up To $2.4 Trillion Of Losses

Battery1234 – Steven Harris’s website on how to make your own home battery bank for emergency power


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Trading and investing are all about information: Accessing it, processing it, and turning it into an action that makes you money.  In this week’s episode, I go through my favorite learning tools, data sources, news providers, and more to help you locate the most beneficial info and toss out the rest.

 

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Section 1: Market News, Commentary, and Data

Newspapers: Wall Street Journal, Barron’s (subscription required to view articles)

Online: Reuters for high-quality reporting on breaking news

Television: Bloomberg TV

http://www.dailyspeculations.com/ – Vic Niederhoffer’s blog

Economic articles & blog posts: Financial Sense, Monetary Metals, Keith Weiner Economics, Armstrong Economics, Let’s Talk Bitcoin

Podcasts: Financial Sense Newshour

Live prices in various futures markets around the world at Marketwatch.com

Live currency cross rates

Calendar of economic data releases and other important events

Daily historical prices for stocks, ETFs, and indices: Google Finance and Yahoo Finance

Live prices and stock charts: TD Ameritrade, Scottrade, Fidelity, Google Finance and Yahoo Finance

Economic data series from the St. Louis Fed

Historical oil price data from the Energy Information Administration

Various data series that can be imported into R, SAS, Python, and other advanced statistical tools

Cryptocurrency price charts


Section 2: Learning Advanced Topics

For serious students, I still think books need to be a part of your study plan.  Here are my ten essential books for traders and investors.

Spreadsheet skills: Microsoft Excel courses on Lynda.com from LinkedIn

YouTube – here’s one of my favorite presenters of high-quality technical analysis

Live streamers on Twitch.tv – a very new but promising niche

Personalized instruction and coaching, customized to your goals


Section 3: Sources to Avoid

“Hot stocks” from email newsletters, pump-and-dump scammers, or social media groups

Poor-quality, overpriced garbage like Online Trading Academy – you’re paying $4,995 for what exactly??  Their obnoxious radio & junk-mail ad campaigns?

Instructors who promise massive returns overnight, turning $1k into $1M in three simple steps, etc.  Don’t get scammed.

Anything you use to get blind recommendations – always do your own diligence before making investments.


What are your favorite sources for news, commentary, data, and education?  Please share!  Leave a comment below.


Resources

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Today, I’ll present another simple strategy that new and experienced traders can use right away.  The idea here is to find stocks that have extended too far in one direction and are lined up for a short-term bounce or pullback.  I show you how to filter down a long list of potentially good setups into the ones that are most likely to succeed.

 

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Section 1: How to Setup Your Chart

  • Choose timeframe
  • Bar chart with OHLC (open-high-low-close)
  • How to read a bar chart
  • Green OHLC bar

Section 2: Support & Resistance Lines

  • How to spot a trend
  • Uptrend

    Uptrend: Moving averages in alignment

  • Drawing support & resistance lines
  • Slope
  • A trading range
  • Narrowing vs. expanding formations
  • Why it works
  • How to select the best setups

Section 3: Momentum Oscillators

  • What is momentum?
  • Overbought and oversold levels
  • My favorite momentum oscillators

Section 4: The Mean-Reversion Strategy

  • How to do it
  • Why it works
  • Momentum crossovers
  • How to select the best setups

Section 5: Trade Management Basics

  • Protective stops
  • Taking profits

Examples

Example 1 - Macy's (M)

Uptrend within a channel: 1 buy signal, 3 sell signals


Example 2: CMG

Price reaches major resistance level, and conditions extremely oversold: good short-term buying opportunity – but a tighter stop-loss would have been needed to preserve profits.


Example 3: T

Strong buy in AT&T signaled as price reaches long-term resistance AND prior support lines, along with highly oversold conditions


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Today, I’ll present two simple trend-following strategies that new and experienced traders can use right away. I explain two easy methods for trend trading along with my top tips for profiting from these strategies.  I show you how to filter down a long list of potentially good setups into the ones that are most likely to succeed.

 

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Section 1: How to Setup Your Chart

  • Choose timeframe
  • Bar chart with OHLC (open-high-low-close)
  • How to read a bar chart
  • Green OHLC bar

Section 2: A Basic Pullback Strategy

  • How to spot a trend
  • Uptrend

    Uptrend: Moving averages in alignment

  • Trend persistency
  • Wait for a pullback
  • Trade entry
  • Why it works
  • How to select the best setups

Section 3: Moving Average Pullback Strategy

  • What is a moving average?
  • Which moving averages to select
  • Daylight
  • Trade entry
  • Moving average pullback example

Section 4: Trade Management Basics

  • Protective stops
  • Trailing stops
  • Taking profits

 


Resources

The Layman’s Guide to Trading Stocks, by Dave Landry

 

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Most 401(k) plans contain a variety of fund choices, so it can be hard to decide which ones to put your money into.  In this episode, I explain the best way to evaluate funds, separating the winners from the losers.  I also give my recommended asset allocations for the remainder of 2017, based on where we stand as of May.

 

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Section 1: Stock Funds

  • Domestic vs. international
  • Market cap (small/mid, or large)
  • Growth vs. value
  • Active vs. passive
  • Expense ratios

Section 2: Bond Funds & Fixed Income

  • Treasury bond funds
  • Corporate bond funds
  • Mixed bond funds
  • Bond fund duration: long-term, intermediate-term, short-term
  • Active vs. passive
  • Stable value funds
  • Money market funds

Section 3: Target Date Funds

  • How they work
  • Dangerously simple, and simply dangerous

Section 4: Alternative Funds

  • Commodities
  • Real estate
  • “Real value” funds
  • Should you invest in these?  When?

Section 5: My Target Long-Term Asset Allocation



Resources

401(k) statistics from the ICI

 

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Newsflash: If a financial advisor or fund manager brags to you about “beating the market”, it’s NOT what you want to be hearing right now!  In this episode, I debunk the popular myth that you should be trying to “beat the market” when times are good.  I also lay out the questions you must ask instead when evaluating a mutual fund or investment manager.  Don’t get caught chasing high-beta strategies after one of the longest bull markets in history has already unfolded.  Investing and trading are contests of endurance, not of raw speed.

 

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Section 1: Today’s Market in Historical Context

  • There are bull markets, bear markets, and range-bound markets
  • Long-term chart of the S&P 500


Section 2: The Unpleasant Truth: How Mutual Funds and Managers Beat their Benchmarks

  • Cherry-picking returns
  • Sketchy math
  • “Marking the close” – see Resources section below
  • Leverage
  • High-beta stocks
  • Illiquid portfolios
  • Lack of diversification
  • Asymmetric risk profiles
  • Very few: superior management
  • Focus on how they did during the more challenging years in the market
  • Size of fund: rapid growth can limit future opportunities

Section 3: The Questions to Ask Instead


Section 4: The Real Way to Beat the Market Over the Long-Term


Resources

Study: Mutual Fund Managers “Mark the Close” to Manipulate Quoted Returns

Mutual Funds & Performance Manipulation

 

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Volatility is such a vital concept, but it’s commonly misunderstood.  You can’t trade for a living without knowing volatility inside and out.  In this episode, I introduce some powerful strategies to harness volatility for profit, but not before laying out the foundations such as: how to measure historical volatility, the difference between historical and expected future volatility (e.g. the VIX), and the reasons why markets often misprice volatility.

 

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Section 1: Historical Volatility


Section 2: Future Volatility

  • All about the VIX (the “fear index”) – definition, how it’s traded, limitations
  • Factors that impact the market’s expectation of volatility for a stock or an index
  • Mean-reversion
  • Volatility risk premium

Section 3: Volatility & Options (Calls and Puts)

  • Expected volatility across different strike prices and expiration dates
  • Impact of volatility on option pricing
  • Vega: one of the Greek letters used by options traders

Section 4: Using the VIX as a Portfolio Hedge

  • Definition of a hedge
  • VIX ETFs or ETNs
  • Buying or selling VIX options
  • Better methods for hedging your assets against volatility, if that’s your goal

Section 5: How to Trade Volatility Without Going Broke

  • Stop trading VIX ETFs and ETNs!  Just stop!
  • Writing OTM options has been called “picking up nickels in front of a steamroller” by those who don’t know the correct way to do it
  • Study the examples of those who failed: Karen the Supertrader, Vic Niederhoffer (see Resources section below)
  • Set reasonable goals
  • Write close-to-the-money, at-the-money or in-the-money options instead of deep OTM
  • Layer fundamental analysis on top of technical analysis
  • Multiple layers of technical analysis, such as intermarket analysis to find confirmation or divergence
  • No “autopilot”!! – Manage positions carefully throughout their lifespan
  • Three simple trading strategies based on volatility
  • Complex strategy, but not really so hard to learn: The Options Ladder – stay tuned, more details coming in the future!

Resources

Karen the Supertrader: series of interviews on TastyTrade

Karen the Supertrader – SEC fraud accusations

New Yorker article on Vic Niederhoffer, from 2007

 

Difference between the VIX and 30-day historical volatility of the S&P 500

 

Technical note: The 18% historical volatility (to be precise, 18.6%) I cited for the S&P 500 was based on a 252-trading-day lookback period.  When I use a 21-trading-day lookback period instead, I get 16.6%.  The 21-trading-day lookback period is more appropriate when drawing comparisons against the VIX because the VIX is the implied volatility 30 days (21 trading days) into the future.  I used the 21-trading-day lookback period in the chart of volatility risk premium above.

 

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