- Published on Wednesday, 08 August 2012 12:21
- Written by Bryan Bottarelli, Contributing Editor, Insiders Strategy Group
- Hits: 634
There is a new member on the Inside Investing Daily team. If you've been paying attention, his name should sound familiar.
My name is Bryan Bottarelli.
As Sandy told you yesterday, I've now partnered up with the Insiders Strategy Group to offer you market forecasts, technical due diligence and trading advice.
In a moment, I'll tell you a little about my personal trading methodology -- which has contributed to consistent profits in this increasingly unpredictable stock market.
These important methods are outlined in my three "Trading Axioms" below.
But first, it's important for you to understand my trading background -- and how I've become so close to Sandy and the Insiders Strategy Group.
Then you'll understand why this new partnership is so exciting -- and why it could lead to some rather sizeable trading returns for you.
Here's how it all played out...
Straight out of college, I entered the game of options trading in the most direct way possible -- on the intense floor of the Chicago Board Options Exchange (CBOE).
Believe me when I tell you that trading options is a cutthroat game.
Standing for eight hours in a sweat-filled trading pit, competing against the world's best floor traders, makes you grow up in a hurry.
Deep in the Apple Computer pit, I fought, scratched and clawed for trades any way I could.
It was very hard work, and the stress was tremendous.
Fortunately, two of the best options traders in the business took me under their wings and taught me their most heavily guarded secrets to success -- methods that have made millions in the trading pits of Chicago and New York.
Back in 2001, I was the "CBOE clerk" for two of the top floor traders in the country, named Dave and Cabot (they prefer to keep their full names anonymous).
Dave was a CBOE legend, ranking in the top 1% of professional floor traders in the world.
Cabot was a true trading pioneer. The trading tactics he developed back in 1977 are still taught behind closed doors at the top floor-trading firms today.
Because I shared Dave and Cabot's rifleman-like mentality, they picked me as their top understudy, and we quickly became friends. They brought me into their inner circle, teaching me the secrets that made them each rich.
We dined at Chicago's top restaurants, sat courtside at Bulls games and, on cold winter Sundays, watched the Bears from heated club-level seats on the 50-yard line.
In the media room of Dave's four-story Lincoln Park greystone, we sat in oversized leather chairs, sipped Remy Martin Louis XIII brandy and talked politics.
I admit, it was a great position to be in.
But it wasn't a cakewalk.
On average, Dave and Cabot made 800 transactions per day -- and they remembered the time, cost and risk level of every last one of them. Early on, I mistakenly wrote down an order for $5.50, instead of $5.25. Even though I overbid by just 25 cents, it cost Dave $25,000. Needless to say, I learned to pay attention to detail very, very fast.
With repetition comes mastery, and I soon began to see the same patterns and identify the same formations as my mentors. As I spent more time on the trading floor, things began to click, and the game began to make more sense.
In an average month, Dave and Cabot each made $150,000.
A really good month brought in $400,000.
The day Apple Computer split its shares 2-for-1, for example, I placed a trade that made Dave $33,000 in eight seconds.
Hundreds of traders were constantly asking Dave and Cabot to teach them their secrets. But like David Copperfield, these trading magicians never revealed their secrets.
That's when it hit me...
As their CBOE clerk, I knew how they made every penny.
By standing next to them and placing their trades, I was secretly learning the blueprint for the greatest wealth-building tools imaginable.
I was the one person who fully understood the incredible trading secrets Dave and Cabot spent countless hours perfecting.
But unfortunately, that's where the honeymoon ended...
After a year of record-breaking profits, our firm decided to alter its bonus structure, cutting our profit share 50% across the board without a salary increase.
It was a calculated risk by the firm, and it backfired miserably.
Many of the top traders left the firm -- led by Dave and Cabot.
Seeing my two mentors walk out the door, I also left the firm and joined a Baltimore-based publishing company headed by Sandy Franks.
Sandy understood that it's not every day that a former CBOE trader walks in the door and offers to publish their specialized trading advice for a select group of readers.
Recognizing the opportunity, Sandy gave me the tools to launch one of the first active trading options newsletters in the country.
Together, we offered this service to a small group of active traders right around the time the tech bubble was bursting in 2001-2002.
Bad timing? Not at all...
You see, as most investors watched their tech portfolios get crushed, my traders were using Nasdaq-100 Index options to make a killing.
I distinctly remember a series of emails from clients who made $50,000, $163,000 and even $498,000.
Sandy still talks about these customer testimonials to this day.
After all, she had never seen returns like this ever before.
With success like this, I decided to move back to Chicago and launch my own franchise of trading products, called Bottarelli Research.
Despite the move, Sandy and I remained close friends -- always exchanging investing ideas, trading methods and market philosophies.
And this past June, she approached me with an offer I could not refuse...
Exciting New Changes
Sandy and I have worked out a new partnership arrangement in which, beginning in August, I'll once again start contributing my Bottarelli Research trading, market commentary and due diligence to the Insiders Strategy Group.
Sometimes, this could mean trades on earnings plays or high-beta stocks or studies on key support/resistance levels.
Other times, it could mean sector analysis, sentiment readings or studies on key pivot levels.
Once you start receiving this due diligence, I'm confident that you'll quickly see the benefit of Bottarelli Research.
That's why I'm so excited to plug you into our elite group of clientele.
After all, there's a good reason why our current roster of Bottarelli Research clientele includes the country's top hedge fund managers, investment bankers, venture capitalists, real estate speculators, CBOE floor traders and even a handful of retired professional athletes.
Amazingly, there's also a current Olympic athlete in this elite group.
With this new partnership in place, you'll begin getting exposed to the trading methods and secrets that were developed on the CBOE -- and that are still being used today to make phenomenal trading returns.
So... before we begin this new relationship, let me tell you a little about my personal trading beliefs.
I call them the "Bottarelli Research Trading Axioms," and I feel that they're critical to success in today's unpredictable market.
Below are the rules that guide all of my trading decisions...
Trading Axiom #1: Always Be Reactive
Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage. -- Peter Lynch
When I launched Bottarelli Research back in February 2006, the stock market followed the same general directional bias for two-three weeks at a time. For example, a standard uptrend would typically last (on average) 15 trading sessions -- while the same time frame also worked in a downtrend. Knowing this trend, I was able to bias our trading ledger to the upside using calls during the bullish periods -- and then flipping over to a bearish ledger during the down periods. As long as we were diligent about riding the trends and flipping from bullish to bearish at the correct time, we made substantial profits. But unfortunately, those days are behind us.
Here in 2012, there's no telling which way the markets will open on any particular morning. For example, a trend in 2006 that lasted 15 sessions might last for only two-three hours in 2012. Therefore, we had to adjust our methods to account for this new pattern. I call the new strategy shift "being reactive." The idea is to always be ready for a big move in either direction at any given moment.
To accomplish this, we select a stock chart of a company struggling to move above an established resistance level. This is our bearish candidate. Then we also select a stock chart on a company that's building a bottom at an established support level. This is our bullish candidate. Armed with these opposite chart formations, we'll buy call options on the stock at support -- and also play put options on the stock at resistance. Then, going into any given morning, we're covered, no matter if the markets gap up or crap out at the open. Typically, we take profits on the call (or put) right on the opening move -- and then hold the other side for an eventual reversal.
The point is, we're going into every stock market open with exposure to both sides -- and then we're simply locking in profits on the side that moves in our direction. This "reactive" type of trading has properly prepared us for whatever direction the markets are moving in at any given market opening. And more importantly, we're never chasing moves. Rather, we're prepared for them ahead of time.
Trading Axiom #2: Follow Charts (Not Your Opinions)
Buy and hold is far from the sure thing it's made out to be. It may work if you've got 20 years to wait. Otherwise, it's risky. -- John Rothchild
Early in my trading career, not following this rule got the best of me. But now, I've learned to follow it religiously. As a result, it helps me to avoid making many bad trades -- and eliminates the headaches that come with making these mistakes.
You see, early on, I can't tell you how many times I've said to myself, "This stock is garbage -- it's burning through cash, it has no revenues, and it's treading at an absurd P/E multiple. It's got to move lower."
But in the days and weeks that follow, the stock kept moving higher and higher.
On the flipside, there's also many times when I say to myself, "This stock is hitting on all cylinders. It's making record profits, it's got new projects in the pipeline, and its latest earnings report was spectacular. It's got to start moving higher."
And once again, in the days and weeks that follow, the stock kept moving lower and lower.
Cases like this never make sense. But they happen all the time. Even to this day, a stock like LinkedIn or Yelp looks grossly overvalued, while a stock like Las Vegas Sands looks like a tremendous bargain. But despite your personal opinion on these names, Wall Street rarely takes your views into account. In fact, Wall Street has a habit of doing the exact opposite of what you think should happen. Therefore, instead of fighting against these frustrating patterns, the research staff at Bottarelli Research has compiled a list of the names that we like and dislike -- and we've set price alerts on every one of them at the best support or resistance levels. Then we let the charts dictate our entry and exit points.
You see, using specific pivot levels on a three-minute chart, we know exactly when our bullish and bearish play candidates reach their very best support and resistance levels. When these support and resistance levels trigger, we get instant alert notifications. Then we know it's exactly the best time to act. With this method in place, the stock charts now support our trading opinions -- allowing us to trade our favorite companies at only the very best price levels. This is how proper charting helps us to avoid letting our opinions about certain stocks get in the way of profitable trading.
Trading Axiom #3: Take Profits Quickly
You can never go broke by taking a profit. -- Meyer Rothschild
Long-term investments are short-term investments that have gone wrong. -- Anonymous
Following this rule has saved us tens of thousands in trading profits. You see, gone are the days when you could have held an option showing a 25% or 30% gain -- and expected to take 70-100% off this asset a week or two later. In today's market, your 30% gain in the morning turns into a 25% loser by the afternoon. It happens every single day. Therefore, unless you're taking your profits early and often, you see more reversals than a high school wrestling meet. At Bottarelli Research, we are always looking to take fast profits off the table early and often. We monitor and track every single recommendation every minute of the day, and the moment we see an indication that a play is running out of steam -- or reversing -- we close it out. No matter if it's up 30% or only 10%, when it's time to sell, we don't think twice. Sure, this could lead to a series of trades that gain only 15%, 11% and 14%, but this sure beats holding too long and hitting a string of 30% losses.
To be perfectly honest with you, starting in 2011 (and especially in 2012), there hasn't been one instance when my staff or I have regretted taking profits too quickly. In this market, in which a gain one minute can turn into a loss the next minute, taking profits quickly can save you tens of thousands in trading returns. At Bottarelli Research, we're always locking in our profits fast. In our view, when it comes to taking a profit, we'd rather be early than late.
CONCLUSION: In the days and weeks that follow, you'll begin to receive more alerts and analysis from me and my staff. As you receive these alerts, keep these three Bottarelli Research Trading Axioms in the back of your mind. Then you can get the most out of our new partnership.
Above all, I look forward to beginning our profitable journey together.
On that note, our current Bottarelli Research clients are playing a handful of exciting trade opportunities right now. I'll list two of them below for your review.
Bottarelli Research Options:
SBUX September 43 Calls (O:SBUX 12I43.00): Last week, we played Starbucks (SBUX:NASDAQ) lower and made 27% and 32% in a matter of days. Now shares are getting so low that SBUX looks like a nice bargain. Our key pivot level on SBUX was a move above $43.60. Since the move occurred earlier this week, we're now playing SBUX higher, going into September.
HOG September 42 Puts (O:HOG 12U42.00): Great trading opportunities continue to present themselves in shares of Harley-Davidson (HOG:NYSE). At the beginning of last week's trading, HOG said that its net income jumped 30% as demand for its motorcycles continued to grow. But unfortunately, HOG's revenue for the quarter fell short of expectations. Revenues jumped 17%, to $1.57 billion, but this was below the analyst expectation of $1.64 billion. Making things even worse, CEO Keith Wandell offered the words that no investor wants to hear. He said, "We continue to remain cautious in our expectations for retail sales globally in an environment of greater economic uncertainty, including in Europe, where sales are clearly being affected by the challenging eurozone economy."
Notice the three red flags in that statement? No investor wants to hear the words "cautious," "uncertainty" and "challenging" in the same sentence -- especially coming from a CEO. To put it another way, that's CEO-speak for "don't expect things to get any better going forward." On this news, HOG shares fell over $4. But then, by the end of the same trading session, it reversed all of those losses.
What happened? Maybe it's short covering -- or maybe it's people thinking that they're bottom-feeding. But whatever the reason, HOG continues to bounce after every sell off. This bouncing action simply offers us the opportunity to reload our puts and continue playing this one lower. In my view, if you add puts dated into September, a retest of those lows would pay handsomely.
That's just two ideas from Bottarelli Research.
We have many, many more.
In the days ahead, we'll discuss more of these opportunities.
But above all, I look forward to a great partnership with the Insiders Strategy Group.
P.S. As a final send-off, here are some of my favorite quotes about money, wealth and trading. Enjoy!
Every day, I get up and look through the Forbes list of the richest people in America. If I'm not on it, I go to work. -- Robert Orben
I haven't reported my missing credit card to the police because whoever stole is it spending less than my wife. -- Ilie Nastase
A wealthy man is one who earns $100 more than his wife's sister's husband. -- H.L. Mencken
The successful man is one who makes more than his wife can spend. And a successful woman is one who can find such a man. -- Bienvenida Buck, How to Marry a Millionaire
There are old traders around and bold traders around, but there are no old, bold traders around. -- Bob Dinda