Published in Barron's
Columns and featured published in Barron's.
Saturday, July 22, 2006
Hard-Working Money
WHEN YOU TAKE A VACATION, do you give your portfolio a little time off, too? Or do you prefer to keep your money sweating away while you sip piña coladas miles from the nearest Internet connection? If you’re inclined toward the latter, then automatic trading may be for you.
To set up an auto-trading system—which means authorizing trades of specific dollar or share amounts to be entered on your behalf—you need to check with your online brokers to make sure they can enable it. You can devise your own trading framework, or subscribe to an advisory service that generates trading signals that are automatically converted into orders at your online broker. You should also do a gut check to decide whether this exercise will ruin your relaxing time away.
Some of the brokers that let you sign up for auto-trading include thinkorswim’s Autotrade (http://www.thinkorswim.com), optionsXpress’ Xecute (http://www.optionsxpress.com), Trade-Station’s EasyLanguage (http://www.tradestation.com), ManSecurities Auto-trade (http://www.mansecurities.com) and Terra Nova Online’s Auto-Trading (http://www.terranovaonline.com).
This week, we looked at automatic options trading.
Brokers will usually require you to specify the size of each order you want executed when a signal is received. The size can be based on a dollar amount or on a set number of shares or contracts. Or you can key it on a percentage of your current buying power or portfolio. When a trade is executed, the broker will charge its typical commission.
It’s easy to find a trading strategy that you can sign up for: Check the contents of your e-mail spam folder—just kidding. For real, though, there are dozens of advisory newsletters that online brokers partner up with. You can then authorize your broker to trade for your account on triggers generated by those specific newsletters.
ONE THAT CAME TO our attention recently was the Naked Options Trading System (http://www.options-trading-system.com), published by MarketVolume (http://www.marketvolume.com). Using this system requires that the user go through the Securities and Exchange Commission-mandated qualification process for trading naked options, which can be highly risky; the process is meant to verify that the investor has some experience trading options and understands the risks.
Vlad Korzinin, MarketVolume’s Vancouver, B.C.-based CEO says, “We believe that our product is successful because it’s based on market-volume technology and trend prediction.” His system depends on an accumulation of volume surges, which he says can predict institutional trading activities like, say, a big buying program from a mutual fund. MarketVolume’s patent-pending technology analyzes volume surges that don’t result from general market shifts.
These calculations, based on moving averages, are compared with historical performance going back to 1999, and then are used to project what a particular volume surge might mean. This lets a user discern a momentary reaction to market news from a fundamental jump in institutional interest. Korzinin says, “A newly calculated surge has to reach or exceed an earlier surge to mean anything.”
These surges generate trade triggers for written puts (puts sold short) or written calls (calls sold short) for QQQQ (the exchange-traded fund that tracks the Nasdaq 100 Index) options. The signals are for options with up to six months to expiration. The system generated nine entries and nine exits in 2005, and so far has generated four entries and four exits in 2006. To mitigate risk, Korzinin recommends that traders put less than 15% of their investment assets into naked options and trade only options on indexes rather than taking far-riskier positions in individual stocks.
The system’s trade triggers are audited by Ernst & Young, which verifies the signals in a quarterly report.
Through the end of July, a subscription to MarketVolume’s Naked Options Trading System is $95.95 a month, $243.95 a quarter, or $779.95 a year. However, these are promotional prices that are slated to increase at the beginning of August. Subscribers to the Naked Options Trading System can auto-trade on ManSecurities, optionsXpress (as of last week), Investrade (http://www.investrade.com), Terra Nova and Synergy Investment Group (http://www.synergyinvestments.com). More brokers are expected to offer it shortly. If you don’t have an account at a broker that can auto-trade this system, you can receive an e-mail alert that will prompt you to place the trade manually.
Naked Options’ publisher MarketVolume also offers its own charts detailing volume-based trading signals for U.S. indexes. The user can specify a time period for the chart, and the underlying calculations generating the triggers are automatically adjusted.
MarketVolume membership comes in three flavors: Silver, Gold and Platinum. Silver members ($44.95/month, $389.95/year) receive real-time volume indicators, daily commentary and volume charts for many U.S. exchanges and indexes. At the Gold level ($87.95/month, $764.95/ year), you also get signals for exchange-traded funds 45 minutes before the market’s close. Platinum members ($157.95/month, $1,369.95/year) receive real-time indicators for advances and declines for all major U.S. indexes and exchanges, aimed at highlighting critically negative or positive sentiments before price-trend reversals. It’s info your money can use even when you’re not around.
Published in Barron’s, July 17, 2006.
Saturday, July 08, 2006
Tears at Waterhouse
This is the second column that I changed somewhat from the print edition of Barron’s. There are two reasons for the change this time: fixing the error that started in the June 19 column, and fixing a change made by an editor that insulted some readers. You can see what was printed in Barron’s by clicking on the link at the end.
AMERITRADE’S INTEGRATION OF TD WATERHOUSE customers into a combined trading platform has caused significant pain to some of the newcomers. Over the weekend of June 17, TD Ameritrade implemented a security upgrade as it linked the two systems. Unfortunately, the hoped-for improvement caused problems, some of which prevented former TD Waterhouse customers from logging into their accounts.
A number of frustrated legacy TD Waterhouse clients described the situation in various grades of invective in e-mails to Electronic Investor (electronicinvestor@yahoo.com).
What actually happened, according to TD Ameritrade’s corporate communications manager Donna Kush, was that the TDW customers were routed to a new login page that had additional security features. Under the old system, the investors could opt to store their user IDs, which are made up of a long string of numbers. But the automatic ID storage was disabled at the new page. So folks who were used to having their computer enter those numbers for them had to dig out the account number and type it in again—and again and again. The new system, in keeping with the added security, doesn’t store account numbers.
Ameritrade also experienced what Kush calls “some technical issues” that prevented a number of former TDW clients from logging into their accounts on Monday, June 19. She reports a backlog of customer-support calls on Monday, but says that volumes dropped off as the week wore on.
Kush says that TD Ameritrade fixed the problem as quickly as possible, and changed its software on June 21. “We expect that will help improve the situation,” she says. “We’ve also contacted affected clients by e-mail and phone to apologize and explain the issue. We’ll continue to give them updates,” Kush says. Adds her TD Ameritrade colleague Kim Hillyer, “The technological fix has provided significant improvement, and most clients should now have a completely normal log-on experience.”
Clients who can’t log on using the Web have other options—visiting one of the company’s offices or utilizing its touchtone trading system. However, those options cost more than the $9.99 for online stock trades—phone trades are $34.99 and a broker-assisted trade costs $44.99. Hillyer says the company will deal with each customer individually regarding any additional charges.
I reviewed some of the message boards that discuss TD Ameritrade at Yahoo! Finance and saw a lot of expressions of anger. I’ve also gotten e-mails asking how long it takes to get an account moved to another broker. One piece of advice: That process is time-consuming and can incur fees, so it shouldn’t be done lightly or out of momentary anger. Frustrations are bound to occur as firms with different technologies integrate. You can move your account prior to integration—but that’s no guarantee of satisfaction. Besides, given the wave of industry consolidation, your new broker probably won’t remain independent forever.
Professional Money Managers with a broker and clearing arrangement set up are the target market for SDS Trader, published by New York-based SDS Financial Technologies (http://www.sdsft.com). SDS Trader provides financial information and trading-related services for brokers, traders, exchanges and corporate clients. It’s a market-data and trading platform that lets customers—both professionals and frequent individual traders—view, manage and place transactions. Retail clients can purchase SDS Trader from On Point Executions LLC (http://www.onpointx.com) and Raymond C. Forbes & Co. (http://www.rcfco.com/index.html). Once the accounts are defined, the user can get a variety of quotes for stocks, options, futures, commodity and currency options, bond chains, stock derivatives, Treasury bonds and more.
The package contains a traditional charting system with advanced analytics that are easy to change and customize. One feature we liked was Quadrant Chart, which lets you define four charts that will be displayed simultaneously. You could have one chart with real-time tick-by-tick data, another with monthly data and trend overlays, and two others displaying analytics.
The program shows its power in the trading platform. You can create order routing preferences in the Broker Preference screen, including specifying preferred exchanges. You can also restrict the routing to exclude certain destinations, such as an electronic communications network, or ECN, with high fees or a bourse that doesn’t offer much price improvement.
Original published in Barron’s, July 3, 2006.
Saturday, June 24, 2006
A Hand for Heavy Lifters
First, a confession. I made a huge mistake in the version of this column that was printed in Barron’s in the June 19 edition. I had a correction published in the July 3rd issue, but here in InvestorBrain I have done some editing to get rid of the problem altogether. If you have access to Barron’s Online, you can see the original messes. I have posted the link at the end of this piece and of the July 3 column.
“HOW CAN I KEEP TRACK of my portfolio performance, especially when I’m trading more than just stocks?” It is one of the questions I’m most frequently asked, and there’s no single answer. It might be best to put your personal finance program, such as Intuit’s Quicken or Microsoft’s Money, to work. Or it might be worth checking out programs that are designed for heavier lifting.
Portfolio Systems, based in New York City, publishes several programs aimed at this group of muscular users that includes frequent traders and portfolio managers.
Of these, Option Money (last reviewed Oct. 29, 2001, “Exploring All Options"), intended for the very active individual investor, does a terrific job of tracking options positions as well as helping prepare your tax returns. The program has 40 options strategies built in, including a variety of spreads, butterflies, condors, straddles and strangles. The program’s analysis module provides the graphing of volatility, profit/loss and the “Greeks,” as well as other intriguing analysis.
Option Money also tracks futures, fixed income and mutual funds. If the 40 built-in trading strategies aren’t enough, you can create your own. Its reports, which can be customized, are helpful in figuring out which trades are working for you, and which are costing you money.
One of our chief criticisms the last time we looked at Option Money was that it required manual data entry. Portfolio Systems has fixed that in its current version 7 (development of version 8 is under way, and should be published later this year). You can now import transactions into Option Money from online brokers including E*Trade, Fidelity, Schwab, optionsXpress, TD Waterhouse, Ameritrade and others. The full list is available on Portfolio Systems’ Website, https://secure.scscompany.com/brokers.htm. (Note that some brokers, such as E*Trade, prevent you from downloading transactions during market hours.)
Option Money will set you back $30 a month, or a one-time payment of $345. Active traders who want to analyze their portfolio performance ought to look at the demo and take advantage of the free trial period.
For the professional portfolio manager, broker/dealer, hedge fund manager, family office or investor with multiple active accounts, Portfolio Systems offers Portfolio Director (http://www.portfoliodirector.com). This program offers consolidated reports, market data in real time, quick profit and loss calculations and the ability to generate numerous customized reports.
Portfolio Director is designed to be expanded as the number of users increases, and costs $150 per month for a subscription. It can import data from most online brokers, or the user can enter them manually. The opening page gives the user access to a number of summary reports that take various cuts at portfolio performance. In addition, the user can create a customized benchmark, such as a group of stocks or several indices, and use it for comparison.
Advisers will find client-management capabilities, such as templates for model portfolios, customizable reports and Web access to reports. Version 8 is currently available.
TRANSITIONS: I’VE HEARD from quite a few former Brown & Co. customers who have been transmogrified into E*Trade (ticker: ET) clients. Overall, this transition has gone significantly more smoothly than the Harrisdirect takeover, which began in January and dragged on for several weeks. I received about 400 e-mails complaining about that hand-off, and only 35 missives about the BrownCo linkup—several from people who were also Harrisdirect customers.
Harris had about twice as many customers as BrownCo, but the 90%-plus reduction in complaints tells me that E*Trade was better prepared this time around.
One of the biggest mishaps communicated to us involved a stock split the day the transition was completed. The customer promptly entered an order to sell off his post-split shares, but the transaction got seriously muddled, resulting in short sales, margin calls and a variety of other problems. I forwarded this customer’s complaint to my contacts at E*Trade, and an E*Trade senior vice president called the customer and fixed everything.
We’ve gotten several messages from former Brownies who wanted to know why they had to enter the cost basis for their positions manually once they were moved to E*Trade. Unfortunately, cost basis in Brown’s portfolio reporting was not available online, forcing customers to maintain it themselves. The lack of electronic storage meant the data couldn’t be transferred to E*Trade. The result? Some unpleasant data entry.
Original published in Barron’s, June 19, 2006.
