Saturday, December 23, 2006

Getting Your Timing Right

MY E-MAIL IN BOX IS THE DESTINATION for several notes a day touting various traders’ stock market timing tips and asking me to pay to receive these insights. I read the claims of magnificent gains and wonder, “Can this really be true?” before moving on quickly to other business.

As it turns out, there’s a site that can help you tell if such awesome predictions do ever occur: TimerTrac (http://www.timertrac.com) measures the performance of nearly 600 market timers and is steadily adding new contenders.

First, a clarification. The phrase “market timing” got a bad rap a few years ago when mutual funds were discovered to be allowing favored clients to buy fund shares after the markets had closed. Although it was called market timing it was really just fraud and unrelated to traditional timing practices. The term usually refers to the act of trying to make a purchase before the overall market goes up, and selling before it goes down. “Buy low, sell high” is another way to think of the goal.

TimerTrac.com keeps abreast of long-term (securities held for longer than one year), intermediate-term (3 to 12 trades a year), short-term (12 to 50 trades per year) and fast timing (several trades a week). It does not yet follow day-trading timers, who place multiple trades per day.

The service was started because the founders wanted the data for their own trades. Now the technology they developed is used to track the performance of other advisers. Subscribers can view a graph that displays the timing of trades and click on an individual trade to review details. A user can click right through to the adviser’s site for additional information. The site includes both long and short players and various combinations.

Dave Garrett, a principal of TimerTrac, says, it’s “useful in helping investors make decisions, deciding whether you can trust an adviser or whether their numbers are for real. We know exactly what these advisers have done since they signed up for us to track them.”

Advisers who agree to be monitored are issued a “TimerTracked” medallion that they place on their site. Any visitor can then click on the medallion and view the various triggers that prompt a service’s trades. When a timer wants to be tracked, he or she can sign up for free but must agree to provide proper contacts and accurate information, among other items. The advisers then forward TimerTrac their signals, complete with the date and time stamp their subscribers would receive.

Statistics furnished by TimerTrac show that some timers are delivering outsized-if not quite magnificent-performance. For instance, Brazilian firm Timing-Lab, which advises on long and short positions, posted a 37.53% gain this year (through Nov. 30) with just four trades in the Nasdaq 100 Trust Shares ETF (ticker: QQQQ), according to TimerTrac’s records. Timing-Lab’s (http://www.timing-lab.com) trading returns were more than four times the Nasdaq 100’s 8.88% rise over the same period.

Subscriptions to TimerTrac are billed either quarterly ($74.95), semi-annually ($119.95), or annually ($179.95). Financial advisers are the main subscribers, says Garrett, but individual investors have also signed on.

If you’d like a free taste of what the site offers, check out the TimerTrac Broadcast. This is an e-mail service, consisting of a digest sent out three times a week. It contains three to 10 current commentaries, provided by medallion holders. “It’s a nice service to see a little bit of TimerTrac without having to pay for it,” says Garrett.

ELECTRONIC TRADING AND INVESTING platform Trade Station (http://www.tradestation.com) recently announced the launch of real-time market data services from Europe’s biggest derivatives bourse Eurex, which is owned by the Deutsche Börse and the SWX Swiss Exchange. Included is information from Eurex’s Futures and Futures Options markets and Deutsche Börse indexes. As a result, Trade Station Securities’ futures brokerage clients can now design and back-test futures strategies and then execute Eurex trades. Subscribers to the platform who don’t use the brokerage services will still have access to the data for charting, analysis and back-testing. The company expects to launch a similar offering for Euronext-Liffe in 2007.

OPTIONSXPRESS (http://www.optionsxpress.com) now offers 24-hour trading for electronically traded futures contracts, including financial, interest-rate, currency, metals, energy and housing futures. To support night owls, optionsXpress also offers 24-hour live help from licensed futures professionals. The firm’s CEO, David Kalt, says the service is designed for the growing number of individual investors who use futures as a portfolio management tool. “Because many of our customers may be less familiar with futures than other investment vehicles, we believe it is critical that we offer market access and licensed support whenever they need, day or night,” says Kalt.

Our 12th annual review of online brokers is in the works, scheduled to appear in early March 2007. What do you wish your broker offered that isn’t currently available to you? Let us know what you want to learn by e-mailing us at electronicinvestor@yahoo.com

Published in Barron’s, December 18, 2006

Posted by twcarey on 12/23 at 08:00 AM
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Saturday, December 09, 2006

The New Penny Options

REMEMBER THE HUBBUB OVER the decimalization of stock prices back in 2000? Well, get ready for a little déjà vu, because it’s coming to the options market early next year.

Options are currently priced in increments of a nickel, which means that a one-tick change in price changes the overall cost of a single contract by $5. (Each contract gives the right to buy or sell 100 shares of underlying stock.) Cutting the increment to a penny means that a one-tick change alters the price by $1.

More aggressive exchanges that help a trader get price improvement on a trade—that is, an increase in the selling price or a decrease in the buying price—are likely to find even greater flexibility in pricing when a contract is priced in the new, smaller increments. The net result should be a cost saving to investors, as well as an opportunity to turn a profit on smaller price moves.

The Securities and Exchange Commission has mandated that a pilot program in penny options pricing get under way Jan. 27, 2007, when 13 underlying stocks will have options offered in penny increments on various exchanges. One of those bourses is the NYSE Arca Options platform (formerly the Pacific Exchange and the Archipelago Exchange, or ArcaEx), which said in October that it would participate in the program.

Why didn’t options pricing shift to pennies when the stock market decimalized? The answer is bandwidth. In stocks, you have only one IBM, for example. But with options you have to contend with multiple strike prices and expiration dates, and also have to display the various puts and calls. A single stock can have hundreds of related options contracts.

The initial 13 tickers include QQQQ (Nasdaq-100 Tracking Stock), IWM (iShares Russell 2000 Index Fund), GE (General Electric), MSFT (Microsoft) and SUNW (Sun Microsystems). The pilot program could go on for a year or longer, depending on how quickly any technical issues can be resolved.

In a statement, the NYSE said the “proposed quote-mitigation plan will significantly reduce overall quote traffic in all of NYSE Arca’s options issues, not just those selected for the pilot program” and that the exchange proposes “to disseminate quotes only in ‘active’ options series.” Because of the smaller price increments, prices will change faster and more frequently, significantly affecting the amount of information the bourse can provide. Five other U.S. exchanges will also participate in the penny-pricing test.

Several online brokers have already begun to offer new ways for options traders to participate in penny options pricing. For instance, optionsXpress (http://www.optionsxpress.com) has introduced penny-increment pricing capabilities on certain options spreads. Options spreads are common strategies that help investors balance risk and reward, and involve buying and/or selling a combination of two or more different options at once.

“Tighter prices should bring more opportunity for more investors and more liquidity, as trades will require smaller market movements to be successful,” says David Kalt, chief executive officer of optionsXpress Holdings.

Interactive Brokers (http://www.interactivebrokers.com) is taking the penny pricing a step further and allowing customers to trade options with each other on most contracts, not just the 13 in the test. Only account-holders can place trades—but even noncustomers can see what’s available, since the exchanges require brokers to make the information publicly available.

IB rolled out its penny options-trading system in mid-October, and it’s seen a lot of volume and good liquidity, according to Steve Sanders, managing director. “I’m excited about this one,” he says. “This is one of those things that really changes the industry.”

ONLINE BROKER NEWS: Fidelity Investments (http://www.fidelity.com) has unveiled its new Trading Knowledge Center, featuring interactive video and charting as well as articles, interviews and video transcripts. Paul Graham, senior vice president of Fidelity’s brokerage-products group, says, “Launching as many products as we’ve done over the last couple of years, we wanted to consolidate them and facilitate interactive learning.”

The company’s primary goal in rolling out the center is to help customers learn to use the new tools, but also to educate them on trading strategies, and how to employ them with Fidelity’s offerings. Students can practice what they’ve learned at the end of each module before applying their new knowledge to their account.

The Trading Knowledge Center is accessible from Fidelity’s main page by clicking on Investment Products, then on Trading. On the left side of the Trading page is a table of contents; one of the arrows says “Learn about Trading.” After clicking on that, hit “Trading Knowledge Center” to launch the application.

“We want to give everyone a scalable, seminar-type environment to learn all these techniques and tools,” explains Steve Deroian, director of Fidelity’s Active Trader Group.

Published in Barron’s, December 4, 2006

Posted by twcarey on 12/09 at 02:19 PM
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