Category Archives: Books

McMillan on Options – Lawrence G. McMillan

McMillan on OptionsTrading options is perversely challenging for a myriad of reasons, yet that’s what keeps my attention. Whether your market perspective is bullish, bearish or neutral, you can speculate, invest, swing, box, chase and hedge. The ability to react to divergences across asset classes, markets, or prices make option trading an enormous puzzle with, if you’re lucky smart, a little satisfaction when you close out. Finding a trustworthy trading reference, isn’t easy. McMillan on Options is one of the best.

I pull it off the shelf often, which is usually a good sign, and in fact that’s what prompted this little review. I should share something about this book, I thought. Yet every review should be critical of something, otherwise what’s the point in showering praise? In this case I’ll share my criticisms first.

Using Stock Option Volume as an Indicator is a section that I just couldn’t effectively use. Theoretically it’s masterfully done and the examples are clear. But it seems from a different time (1994-1995, 1997-1999). The insight on how an Arbitrageur or Market Maker might use options is insightful. But this insight is better communicated elsewhere. Keep this in mind, he says, while you’re looking at open interest and volume movement. I spent about 6 months looking for signals in volume, unsuccessfully. At least my successes felt edge-less.

The Put-Call Ratio is another indicator Mr. McMillan passes some quality-time on. He should put in bold print the following: Index options, for example, are quite useful- but not all of them. Whenever an index option is heavily traded by hedgers, or arbitrageurs, its usefulness as a contrary indicator wanes. This is understated. My feeling is that the current environment of QE ad infinitum, has made these indicators nearly obsolete. Identifying extremes and divergences in these ratios has become a fine art form better left to the algos. That’s my take, the next time I pull the McMillan off the shelve, I’ll revisit the question.

Now for the good stuff. One difference, when compared to other options trading books, which jumps out at you is his integration of futures contracts into his discussions of basic option strategies. And in turn some easily missed differences when trading futures. For example, defending against a limit move. This is great information, and well explained. A futures contract may help you flatten your delta, but changes your risk profile.

And that leads me to my favorite part of the book, Delta Neutral Trading. One of the hardest things about trading options isn’t mastering the basic strategies, it’s evolving those strategies (or getting out of them) as time moves forward. Considering evolution of an options position in terms of the Greeks is a great way to look at the evolution of your position. McMillan covers this superbly and is one of the reasons I open this book again and again. Where’s my gamma risk with this strategy, my delta risk, my volatility risk? What are my choices with expiration closing in? How might I flatten, evolve or take profits on this trade? And most importantly, how does this modification change my risk?

McMillan confers that taking profit is a bit of an art form with options, and learning different strategies to flatten or protect profits makes this a must-have for any options trader.

Timing Solutions For Swing Traders

Timing Solutions For Swing TradersWiley Trading has the best trading books I’ve found. Timing Solutions for Swing Traders: A Novel Approach to Successful Trading Using Technical Analysis and Financial Astrology is no exception.

The curious thing about this book is “Financial Astrology”, for me it was a first and caught my attention. What is financial astrology? According to Robert Lee and Peter Tryde, “Financial Astrology is an analysis of financial matters based on the observation of planetary movements.” Fair enough, here’s a site the book references and gives you an idea of why lunar cycles might impact turning points in the S&P. The authors suggest harmony with the planets is important. I can’t disagree, yet… Well, ok but I have enough on my plate. Luckily they don’t overdo lunar, solar, zodiak, or planetary cycles; it only adds color to an otherwise excellent technical discussion, and if you’re open to the arguments they make, a fascinating potential indicator.

Essential Patterns, Elliott Waves, Volume, and Key Indicators make up the proportion of the book with excellent examples, the charts are in color which I appreciate, but they’re a bit small. Hong Kong is their market of preference.

This book is worth keeping handy if you like to dig into Elliott Waves, decipher trend with common indicators, and refresh your pattern recognition.

* I’ve stumbled on a planetary cycle discussion board, if you’re interested. (here)

Market Wizards – Jack D. Schwager

Market Wizards Book ReviewMarket Wizards: Interviews With Top Traders
Author: Jack D. Schwager

This is the first book by Jack Schwager that I’ve read. His name is often associated with many of the most popular trading books and honestly, that’s been my principal reason for avoiding them. His titles read like the Dummy Series and fair-enough that’s a great way to sell millions of books.

I’ve had the book in my ipad-kindle app for about 6 months and it shows 47% finished. If I can’t finish a trading book that would mean it’s either written for a PhD in Mathematics or a 7th grader, this book falls in the latter category. His editor knows what sells.

Market Wizards aims, in my opinion, to be inspirational, a how-to book which repeats a few simple concepts over and over. The difference is, that Market Wizards gives a subset of fortunate traders an opportunity to repeat these simple concepts creating an effective authority.

The trading anecdotes and early mistakes of the traders he interviews will ring true for beginners and sound cliche for the more experienced.  Market Wizards admitedly has some voyeuristic possibilities, unfortunately, I have been picking this book up for the same reason I might turn on CNN or listen to Adele, it’s comfort food.

Get Market Wizards at Amazon

Grant Williams and TTMYGH

Grant Williams

This is absolutely the most well considered financial newsletter and thought provoking information I receive (or find) over the course of my week.  He’s got a cool photo as well… I’m going to do the same in black and white, here, soon… If you read brandnet and don’t subscribe, you should. I can’t do justice to Mr. William’s thinking. Subscribe here, really.

I thought I’d pull out the references from his latest issue. I hope he’ll take that as a compliment.

They are all WORTH reading:

For the charts and videos which are also excellent, you should subscribe.

Good Trading.

The Daily Connoisseur

Saw this on CNN and it surprised me: The Daily Connoisseur

Five Lessons Learned from Living in Paris, Clichè but cute. It’s a slow market day for me…

You get 5 lessons, and then if you want 20 you have to buy the eBook, The Top 20 Things I Learned While Living in Paris. Merde

I should write The Top 20 Things I Learned to avoid While Living in Paris.

End of Week

This Time Is DifferentCarmen Reinhart, This Time is Different: Eight Centuries of Financial Folly

  • “Just as failure to honor sovereign debt might conceivably trigger broader responses in international relations outside the debt arena, so might domestic default trigger a breakdown in the social compact that extends beyond being able to borrow in the future.”

Caught my attention…

Get This Time Is Different at Amazon!

Inner Voice Trading Review

The Inner Voice of TradingThe Inner Voice of Trading by Michael Martin

This is a book to read with your coffee in the morning. You won’t learn anything particular, but you might be reassured. It’s a warm and fuzzy book for new traders.

I can’t tell you the number of times Mr. Martin refers to Jack D. Schwager’s book Market Wizards, but it’s too many. More than once, I’m watching subtle product placement.

It’s a book which affirms, reaffirms and affirms again that psychology and balance play the greatest role in successful trading. This is surely true and very interesting, but like the best (or worse – depending how you look at it) self-help book, we read over and over how important it is to find balance/well-being internally and externally through yoga or other ‘meditating’ activities. I appreciate the point of this type of book, but tire of hearing the same point berated over and over.

Writing a book isn’t easy, I appreciate the effort and energy Mr. Martin has taken. (Some of my best friends are authors <— shameless product placement!) It’s hard to write a self-help book for traders, any active trader learns over time to find a balance and takes stock in their mistakes. Some are better at this than others, but like all self-help books, with a simple message, there’s little reason to keep the message simple. It wouldn’t be a book otherwise, there has to be examples, ample reiterations, anecdotal conviction, etc. Risk management is obvious after a couple good mistakes, and admittedly new traders need to be told this, potentially taught (though I’m skeptical of teaching ‘balance’).  The examples are vague enough to make the point, and complicated enough that we feel someone with experience is doing the writing.

I enjoy the journey as much as Mr Martin does and he sounds like the type of trader/author I’d like to have a coffee with. That’s a strong compliment considering all the ‘bad’ books on the market.

It’s Gandhi meets Wall Street with a commercial tossed in.

Get The Inner Voice of Trading at Amazon