Hi Andrew; Don't worry too much about me and that AMZN.
I bought more than $360,000 of it today, but I sold it all off
the same day.
This is the nature of day trading. No overnight
positions.
Or overnight positions with such a small number of shares
that you can't hurt yourself.
Regarding that $2000, that is the most that a $100,000
account should put at risk on a given trade.
If you're buying (or shorting) the stock, I would limit a
$100,000 account to a position no larger than $20,000,
and use a stop loss of 10%. This means that your risk
should be limited to about 2% of the total equity. I hope
this explains where the $2000 and the $80000 come from.
The basic thing to recognize is that the money in one's
account is not there to buy stocks. It is instead what
one would like to increase through stock purchases
and sales. Stock ownership carries the risk of loss,
so a daytrader minimizes that risk by owning the stock
for very short periods of time. Fundamental analysis types
minimize the risk by holding positions for long enough
periods of time that the market recognizes the fundamental
value (or lack) in the stock.
But those put options are riskier than the stock, so the
same size account should probably be limited to $2000
of the options, IMO. (By the way, AMZN time premiums
are brutally high. You might try puts on the Internet
index instead of the individual stocks. If you are making
a play on the whole industry being brought to its senses,
it would follow that a general internet index put would
give a better deal. This is in distinction to the usual fact
that an index always carries a lower time premium than
the stocks that make it up. Instead, when you "invest"
in the index put, you are taking advantage of the
correlation between stocks that one might expect.)
It is true that daytrading (and professional investing) is
mostly about risk control. Having the right tools for the
job helps control risk. Being observant about what is
going on in the stock you are playing helps also.
Today, I observed that the market maker SWST seemed
to have an unnatural appetite for AMZN stock. I could tell
this cause he was frequently the only MM at the bid, and
he absorbed a lot of shares without pulling. Consequently,
when he showed up at the bid, I bought too.
I also observed that the market maker PFSI seemed to have
a huge supply of AMZN. When he was alone at the ask,
he was able to supply everybody who wanted to buy, and
he was responsible for preventing the stock from rising
higher many times. Consequently, when he showed up at
the ask, I sold too.
Observing these things was profitable for me today, as I
took advantage of my observations. Those who are day
trading this stock without level-2 quotes, (and maybe also
a workstation directly connected to the Nasdaq) are, IMO,
giving themselves quite a disadvantage.
I hope the above explains how daytraders control risk.
Information is the most important thing, the second most
important is speed.
No apologies needed, I have a lot of respect for the people
who can put their money on the line on the basis of fundamental
analysis. I used to do this, but I came to the conclusion that
the world is insane. On the other hand, there is no way I
would hold AMZN overnight - I expect it to hit single digits
before its profitable. Similarly, it would also be pretty rough on
my pillow to hold AMZN short overnight.
-- Carl |
