Saturday, November 21, 2009

TradeMonster's Friendly Options Play

TRADEMONSTER, AN ONLINE BROKERAGE THAT caters to options traders, has introduced a new analytical feature called tradeLAB. Barron’s got an early peek at the new tool, which will be available on tradeMonster’s Website Nov. 16.

Skip Shean, a vice president at the firm, explains that the device takes three complex pieces of information about an options strategy—the underlying stock price, implied volatility and time to expiration—and distills them for less sophisticated options traders. This fledgling investor most likely has an opinion about the underlying security—bullish, bearish, or neutral. TradeLAB will then show the prospective trader whether an options transaction selected—either from the site’s strategy menu or its spreadMaker tool that helps create strategies—would be profitable if the stock pick turns out to be correct.

“The intent is to arm our customers with better, more actionable information to analyze a position and decide whether or not to place the trade,” Shean says,

Like most of the tools on tradeMonster’s site (, you can get to it from anywhere in the application, including the positions screen, the quotes window, or even an order ticket, before you push the Send button. There are also links from spreadMaker and adjustTrade ("Hardly a Lazy Summer for Brokers,” Aug. 10). Once you’ve popped a tradeLAB window open, the Analyze button loads the strategy you’re considering into tradeLAB.

TradeLAB has two components, a snapshot analysis of how the trade could look at expiration, and a spectral analysis, which shows a range of possibilities from the date of the trade through to expiration.

There are tools similar to the snapshot analysis on most options-trading Websites, although tradeMonster’s version makes key events (such as ex-dividend dates and earnings dates) easier to view. You can change the purchase price or the implied volatility of the strategy to see how that affects your profit possibilities.

The spectral-analysis feature is obviously where tradeMonster has focused its proprietary work. In spectral analysis, tradeLAB lays out the characteristics of a strategy in a way that makes the possibilities much easier to understand. The initial display is a standard candlestick chart, showing pricing in the recent past. The chart then extends into the future to show a color map of the characteristics of your strategy and how it will perform in any scenario.

The spectral chart is color-coded, so that deep green is a 50%-plus gain and deep red a 50%-plus loss, with lighter shades of green and red in between. When you point your mouse cursor to a particular point, tradeLAB shows what the exact gain or loss is. The chart style can be changed. You can display the earnings dates or blow up the entire chart to see a more detailed view. You can also alter the volatility forecast, using a drop-down menu box that lets you pick from the 30-day average, 52-week high or low implied volatility, or any possible volatility you enter yourself to see how the strategy responds.

Shean says that tradeLAB hammers home the effect of volatility on a trader’s potential profits. “Being able to change the volatility forecast and immediately see how it affects the profitability potential of a position helps people take it to the next level of understanding,” Shean observes. “We think it’s a really revolutionary tool.”

The spectral chart is made up of multiple calculations for every trading day in the forecast, so there’s a lot of number-crunching going on. All the analysis performed by tradeLAB is done on your local machine, not tradeMonster’s server, which should keep the site from bogging down when trading volume is high. Once you’ve tweaked the options strategy to your specifications, hit the Create Order button in the lower right corner to generate an order ticket. (Fees are $7.50 per stock trade; options fees begin at 50 cents per contract with a $12.50 minimum.)

This very interactive and graphical tool allows a trader to stress-test a position, and assesses the potential profitability of a trade under a variety of conditions. TradeMonster officials doubt that they will make tradeLAB available for hypothetical, or paper-trading, use; you will have to fund an account to use it.

Another feature just added to the tradeMonster site is the ability to detach windows, which allows the user to separate out, say, a favorite chart or watch list, from the overall platform and run it independently. That capability can come in handy for those using multiple monitors. Shean notes that the platform behaves like a downloadable software system, but in fact is accessible through your Web browser. “Every time a customer logs in, they have the latest version and they don’t have to download any patches or reconfigure their system. It runs on any browser or any operating system, as long as it has the [Adobe] Flash plug-in,” he says.

When tradeMonster was launched a year ago, I expressed some reservations about its survival, given the stock market’s gyrations. Shean says the privately held company, a unit of optionMonster, turned a profit in early October, a milestone it didn’t expect to reach given the headwinds in late 2008 and early 2009. It looks like tradeMonster will be around for a while yet.

: Retail investors surveyed during the last week of October by online broker TradeKing ( believed that an economic recovery won’t happen until next year. TradeKing conducts a quarterly survey of sentiment; this time around, 47% of the respondents described their market outlook as “neutral” or “not sure.” The firm says those are the highest readings for those sentiments since the survey began in July 2007.

U.S. unemployment claims continue to be the top trade trigger for both equities and options traders, with 41% of those surveyed saying that this is their primary concern. U.S. housing, consumer spending and interest rates tied for second, at 30%. These concerns knocked quarterly earnings from the No. 2 spot in the prior quarter, falling sharply from 36% to 27% in the most recent survey.

The two most popular sectors for long investments are energy, registering with 58% of respondents, and technology, with 47%. And what are the most prevalent short-selling sectors? Transportation and travel topped the list, followed by finance and retail.

“One thing is certain: Uncertainty dominates right now,” says Don Montanaro, chairman and CEO of TradeKing. “We see at TradeKing how investors’ bullishness comes in the form of very specific moment-in-time opportunities, but the overall sense is that the market could go either way on any given day until we see some solid trending data signaling long-term recovery.”

Published in Barron’s, November 16, 2009. 

Posted by twcarey on 11/21 at 10:22 AM
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Saturday, November 07, 2009

Fidelity Helps Investors Shop Abroad

FIDELITY HAS JUST LAUNCHED A NEW, online international-trading center for customers, with the goal of making investing in foreign equities and currencies easier and more affordable. Retail investors can execute trades in a dozen foreign markets and eight currencies from their Fidelity brokerage accounts.

The 12 markets—Australia, Belgium, Canada, France, Germany, Hong Kong, Italy, Japan, Netherlands, Norway, Portugal and the United Kingdom—represent 95% of current Fidelity clients’ international trades, which until now had to be executed through a live broker. Customers will be able to settle their trades in eight currencies: the Australian dollar, British pound, Canadian dollar, euro, Hong Kong dollar, Japanese yen, Norwegian krone and the U.S. dollar.

One interesting twist to the Fidelity platform ( is the ability to settle trades, no matter where they occur, in U.S. dollars. This eliminates the added step of having to exchange currencies prior to placing a trade. Fidelity will perform a currency exchange so long as the trade goes through in the exact amount required; if the order isn’t filled, the currency exchange won’t happen.

Trading in international markets obviously isn’t a new idea, but when a broker the size of Fidelity enables retail investors to participate online, it shows how widely accepted foreign investing is.

James C. Burton, president of Fidelity’s retail-brokerage arm, notes, “When you consider that over the last 10 years, 80% of the world’s best-performing stocks were listed outside the U.S., it is understandable why investors are increasing their focus on international investing.”

To be eligible to trade internationally, you must hold a nonretirement account and qualify for Fidelity’s gold-level commission. Gold-level customers are those who either trade at least 120 times per year and have at least $25,000 in a Fidelity account, or have $1 million or more in household assets held at Fidelity.

Fidelity just raised the suggested level of exposure to international equities to 30% from 20% of a portfolio (see Barron’s, “Fidelity Shifts Its Assets Allocation,” Oct. 12). This new weighting will be reflected across Fidelity’s online-advice and guidance tools, including asset-allocation portfolios and managed accounts, as well as the Freedom Fund product lines. (Freedom Funds are target-date mutual funds.)

If you are eligible for international trading, your first step probably would be to explore the research available at Fidelity. You can get real-time quotes when international markets are open. Most common stocks and exchange-traded funds (ETFs) are available to trade online, while other types of securities (rights, warrants, Class A or Class B stock) might not be.

FINDING A STOCK SYMBOL allows you to get a real-time quote; when you look up a symbol, you will also see the various countries where you can trade. Note that once you buy a stock on an exchange, you have to sell it there, too, even if the shares trade on several bourses. The symbol look-up also shows 10-day average volume, which should help you locate the markets where there is more action.

To trade, you have to have enough U.S. dollars on hand (displayed as cash available to buy securities) or the foreign currency needed to place the order. For instance, if you’re buying a stock that trades in the U.K., you will need to have enough pounds sterling in your account prior to placing the transaction, or enough U.S. dollars if the trade is settling in dollars. Once you’ve placed your orders, either for stocks or for foreign currency, they’ll be displayed on your “Open Orders” page; once they’ve gone through, you can see your international holdings on your “Positions” page.

International exchanges have some restrictions that may seem—pardon the pun—foreign to investors who are most familiar with U.S. exchanges. Most markets have a tick-size requirement (meaning a price has to move a certain minimum amount before the stock price will display as having changed), as well as a lot-size requirement (a minimum number of shares); these are all detailed on the Fidelity site. Fidelity has live help available 24/7, with specialists who can walk you through the complexities.

Your international returns will depend on two factors: the usual market volatility that affects every stock, plus the fluctuations in the foreign currency against the U.S. dollar. Fidelity doesn’t pay interest on foreign-currency positions.

You will also have to keep commissions in mind; each foreign market has a different rate. For example, trading an Australian stock online will cost A$32, which is roughly US$28.90. A trade in Japan is 3,000 yen, or about US$32.90. Euro trades run €19, or about US$28.10. There are added charges for placing a trade with a live broker.

If you aren’t ready for international-equity trading, Fidelity has a mutual-fund and ETF evaluator that focuses on other types of foreign-investment approaches; please see the Website noted above.

The entire site reflects the firm’s emphasis on international trading. Fidelity’s “Markets and Sectors Overview” page now displays a world map, showing changes in indexes not only in the U.S. but globally. You can customize the indexes displayed by clicking on “More U.S. & World Indexes” just beneath the map.

Overall, this appears to be a good way for a U.S.-centric investor to look further afield for opportunities. Fidelity customers can get it all done without having to open a new account, unlike E*Trade’s international-investing feature. The interface is easier to use than that of Interactive Brokers, but the cost is higher.

and Tulane University are holding a trading contest that will wrap up with a live competition Nov. 13-14 at the Freeman School of Business at Tulane in New Orleans.

Twenty-two teams of four from 14 universities competed Oct. 12-23 using Trading Technologies’ software and live-data feeds from Advantage Futures. Teams from Tulane, the University of Chicago, Carnegie Mellon University, the University of Texas and the University of Toronto qualified for the final round.

Trading Technologies specializes in futures-trading. X_Trader, its flagship product, offers access to U.S. and global commodities exchanges, with links to Excel-spreadsheet analytics. The students’ performance is judged on risk-adjusted rate of return. Top prizes include internships with a leading trading firm. Good luck!

Published in Barron’s, November 2, 2009. 

Posted by twcarey on 11/07 at 01:16 AM
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