April 17, 2007
Stock Du Jour (FMD) & Random Observations
Strong buying all day long, so the new lows list is filled with “UltraShort” ETFs, and there’s poor Sirius Sat. Radio (SIRI) as well — I always thought subscription radio was doomed. Sallie Mae (SLM) bought out, eh? Solar stocks continue their ascent: JASO, FSLR, TSL, SOLF. Steel strong. Old Amazon.com (AMZN) on the new highs list. 156 out of 384 ETFs I follow at new highs - yowza.
First Marblehead (FMD) was the stock du jour, though of course it was going in the opposite direction of the broad market and no day trader was interested in the short side.
Cat: | Time: 7:04 am (utc+8)
April 17th, 2007 at 10:31 am
not a day trader, but i was interested in the short side. tried to short FMD friday, but TradeStation wouldn’t let me: security not easy to borrow… bummer!!!
April 17th, 2007 at 11:11 am
Born2: Shorting on a strong day is spitting into the wind, no matter how ugly the chart. I’m surprised FMD is difficult to borrow — thought there’d be plenty of shares available in that kind of big, liquid, NYSE-listed stock.
April 17th, 2007 at 11:31 am
yeah, i tried to short Friday, not today. I had been in puts in AHM and NDE and took my profits last week. Was looking to rotate into other names in the same “area” while waiting for another entry into AHM/NDE.
FMD almost kissed its falling 50 DMA on Friday and fell like a rock. I thought it was a low risk setup with a stop right above the 50 DMA.
I’d have to say that one the things that i do not like about TradeStation is their “easy to borrow” list. I have been denied on many occasions in the past, none imploded this way though. guess i should’ve bought puts instead. such as life… looks like FMD has a support zone between $30 and $35, so may end up going long instead if is starts trending higher… hopefully TradeStation wouldn’t have problems finding shares for me to buy :)
April 17th, 2007 at 11:39 am
Born2: I should do a survey sometime of which brokers my readers use; would be interesting to write up the results. I thought TradeStation appealed exclusively to day traders so it’s interesting that you use them — do you trade enough to avoid paying their “platform” fees?
April 17th, 2007 at 12:09 pm
i take a day trade every now and then, but mostly try to stick to swing trading and and trend-following using shorter time frames (10 and 20 DMA). i trade my IRA and an individual account there, they aggregate the accounts for the purpose of the platform fee. i have not had to pay the fees yet, you need 5000 shares a month which is not hard to do swing trading a six figure account.
over the past 15 years i have used plethora of brokerages: American Express, Morgan Stanley, Datek, Ameritrade, ScotTrade, Vanguard, and TradeStation. Not too crazy about any of them. I currently keep most of my money at Vanguard for variety of reasons and actively trade the TradeStation accounts.
My two problems with TradeStation are the easy to borrow list, and the way the enforce the margin-day-trading rules. They enforce them on Cash accounts (i.e. IRAs) and enforce them where they do not apply, i.e. if you have three open equity orders they do not let you open an order to sell a covered call.
completely bizzare and their support people do not understand why they shouldn’t apply MARGIN rules to cash accounts or apply exchange specific rules to a mix of equity/option orders.
other than that, i completely LOVE the platform.
April 17th, 2007 at 12:19 pm
Born2: Interesting, and thanks for the details. With the cash account, do you mean they don’t allow day trades if it’s under $25,000 or what? I don’t understand what the problem is … are there rules about not having more than X number of open equity orders? (It’s been awhile since I reviewed the pattern day trader rules obviously).
April 17th, 2007 at 1:31 pm
From my experience (a couple of years ago) with TradeStation their shortable list is appallingly.. short. I think it got worse after they switched to their own clearing firm.
April 17th, 2007 at 7:58 pm
ok. my area of stuff.
first - PDT rules is roughly, you can do 3 day trades in 5 days. 4th one triggers the hold on your account (you can close existing positions but open no new ones), unless you have over 25k in there. some firms interpret the rules tighter outside of stocks…
on shorts - TS is disappointing. they don’t clear through penson / sws (who usually don’t allow shorting cheapies or have some of the tougher stocks). firms which have MUCH MUCH MUCH better shortlists include AMTD, IB, sogo, terranova. there are also others i’ve checked with which are significantly better, but i don’t have their names handy.
April 17th, 2007 at 9:39 pm
bob: Thanks for sharing your expertise.
April 17th, 2007 at 9:53 pm
The pattern day trading rule is an exchange specific rule (the Nasdaq has one, NYSE does too) that allows a trader 4x margin for day trades. In order to control who gets the 4x margin, the exchanges implemented similar rules so that only people with enough equity can regularly use the 4x margin. As Bob said if you do more than 3 day trades in any rolling 5-trading-day period then your account is marked as a pattern day-trader. Then you can only place orders to open positions if you have over $25k in equity.
Vanguard and ScotTrade do not have the issue, because they only give you 2x margin. So the rules are not an issue.
AMTD counts the number of trades for you and gives you a big warning on the login page. They do not enforce anything unless you actually become a day-trader. In other words, if you open 5 positions in a single day, they will give you a warning. If you do not close the positions by EOD then you are fine and the warning goes away.
TradeStation works differently. The Platform prevents you from placing more than 3 simultaneous open orders per day. If you day-traded in the previous 5 days then they subtract those trades from the “3″ allowed.
So, if you get stopped out from couple of volatile trades then you are stuck for a week. You can place only a single opening order at a time.
My individual account is a PTD so no issue there. My IRA account has a bit under $25k in it. Obviously it is a Cash account. no 4x margin, no 2x margin, no margin what so ever. Yet they enforce the rules on it, and to make things worse they count option orders in the “3″ total. which is absurd…
When establishing a new trend-following position i like to use their commission structure to scale into a position as the price trends. But due to their restrictions, i cannot setup my trades ahead of time… pretty annoying, but not the end of the world.
April 17th, 2007 at 10:26 pm
Born2: Did you contribute your 4K this year to get it over 25K? And can an IRA account’s holdings be marginable ever?
April 17th, 2007 at 10:45 pm
yes, i contributed… back on january second :).
i am couple of thousands short, so i should be there with some good trading sometime this summer.
I do not think you can ever have a margin IRA account. But up till recently i thought you could only sell covered calls in an IRA account and then learnt that TS (and few others) allow up to level III options in an IRA.
i am not a big fan of margin. i almost never use it even in my margin accounts.
If i am SO confident in my position that i need margin then i know for sure i am about to make a bad trade :)
If i want leverage i just buy ATM options.
April 18th, 2007 at 12:37 am
IRC does not allow margin on tax advantaged accounts like 401(k)s and IRAs.
If you like tradestation (or don’t) check out thinkorswim. I’m a longterm investor that swing trades regularly and writes spreads every week, and it’s the best. Hands down, you cannot beat thinkorswim. Cheap, great service, and generally no restrictions beyond those required by the exchanges or law. Great folks out of chicago with a killer options platform.
April 18th, 2007 at 12:58 am
thanks Tote, i am out of Chicago too so that’s an extra advantage… i will check them out.
April 18th, 2007 at 4:21 am
i second the thinkorswim recommendation
April 18th, 2007 at 6:36 am
Brad: What’s IRC? (forgive my ignorance)
April 18th, 2007 at 7:54 am
he probably meant the IRS.
April 18th, 2007 at 8:04 am
IRC = Internal Revenue Code
TOS also gets my vote.
April 18th, 2007 at 12:09 pm
Steven: Thanks. I wonder how much trading is done out of tax-advantaged accounts anyway?
April 19th, 2007 at 4:53 am
CM: More than most might expect. Especially for those who do not depend on trading as source of near term income a tax-advantaged account simply makes more sense to trade in than a regular account, while a regular account would do better as a buy-and-hold type of account.
The lack of info on “trading” within a tax managed account may also be due to a mis-preception that tax advantage accounts are small sized due to the contribution limits, but in reality one can easily shelter $25,000-$40,000+ per year into a tax adavatange account(s) if one does research.
April 19th, 2007 at 6:12 am
Yeah, what steven said. IRC is internal revenue code. I’m a cpa and when I wrote that I almost said “The Service” as it is referred to in common parlance, but went with the correct term instead.
Oh, one other interesting tidbit: you can trade options in a tax advantaged account, as long as there is defined risk on each position.
Anywho, I’m looking for a career change and in the fall or winter (after working at the racetrack over the summer) I’m planing to try to get a job with an asset management firm, basically in sales. Do you have any advice for someone who wants to be a retail investment advisor? The biggest problem I see is that most of the products offered by these firms I would never buy, like their heavily loaded funds and such. High net worth outfits have some promise, b/c i can believe in their offerings, but those gigs are harder to come by. Any advice you have would be great.
April 19th, 2007 at 7:01 am
brad: I’m a CPA too (non-practicing obviously, lol). I’m the last guy to ask about career advice given my decades of unemployment, but people usually find work by knowing people, so you should ask around as much as possible.
April 19th, 2007 at 10:25 am
i posted earlier but your spam filter rejected me… let me try again.
It makes a lot more sense to trade in a tax-advantaged account. compounds tax deferred, no schedule D to worry about and with inverse funds and options you can go either long or synthetic short.
unless you need the income, it does not make any sense to trade in a regular account unless your tax-advantaged account is fully invested.
As Steven said, i am self employed and can put up to $44000 a year in my SEP-IRA if i earn enough that year. Add to that $5620 in an HSA account, $4000 in a non-deductible IRA and all of the sudden you have lots of money to trade with.
April 20th, 2007 at 12:29 am
I’m not tabbed into that circle, so I s’pose i’ll have to go the mass resume circulation route, and will probably end up dialing for dollars. I used to audit a coupla hedge funds a decade ago, but the partners were so protective I got minimal client contact. Still, there’s a coupla fellas I can put word out to. Thanks for the tip. Hugs and accruals /BRAD