From here there is no limit to how much the market can grow. There will simply be as many contracts as there are buyers and sellers to support the demand.

A thing of beauty. Enough day dreaming about the markets though, let’s get into this.

What Is Open Interest?

Simply put open interest is the open number of contracts that remain for an expiration month. This includes contracts that have not been exercised, offset, or expired.

It’s pretty common that beginning traders confuse open interest with volume. As a stock trader, you only really have 1 measure of liquidity and activity which is volume. As an options trader you have to consider both volume AND open interest. The truth is that they are completely different data points.

Let’s explore…

O.I. Only Increases With New Contracts

When brand new contracts are created, that did not previously exist, option open interest will increase. This means that a new buyer must take a long position and a new seller must take a short position. Together they create 1 new contract in the market.

Open interest can decrease then if both the buyer and the seller close their existing position. In this case the 1 contract that they had between each other would terminate and reduce the market’s open interest.

Let’s Go Through An Example

What better way to explain what could be a complicated topic than an a great example. First let’s assume that we have 5 separate traders labeled A through E.

A decides to buy a contract at the same time that B decides to sell a contract = the result is 1 brand new contract being created.

C later also decides to buy 5 contracts again at the same time that D decides to sell 5 contracts = just like the transaction between A and B, the new agreement creates 5 brand new contracts. Now the total is 6 open contracts.

After 2 days of trading A decides to sell his contract. At the time B is not willing to sell his contract but D is willing to sell 1 of his 5 = this results in a valid transaction and the closing of 1 contract. OI drops to 5.

Finally, trader E comes into the market and decides to buy 5 contracts from C. Trader C already owns the contracts so his sale will help fund the purchase for E = since no new contracts are created, open interest remains the same.

The Only Benefit of Open Interest

In reality the only real benefit I see in open interest is the ability to trade a more active contract. The increased liquidity helps fill orders faster and at smaller bid/ask spreads. And if you’ve ever traded an illiquid option or stock you know first hand how hard it is to get out of the position (let alone at a decent price).

Some people incorrectly assume that higher open interest means smarter traders – not true. Higher open interest just means that – higher activity and interest in the particular strike. Remember that 1 contract means you have a buyer AND a seller and they both can’t be THAT smart.

I Understand O.I., What About Volume?

If you’ve followed me this far you probably have a real good idea about what open interest is and isn’t. Just for the sake of clarity let’s make sure you still understand volume as it relates to options trading.

For options, volume is simple the raw number of contracts that have changed hands on the particular day. This is irrelevant of whether a new contract was created or not.

This might explain why you might see large volume of say 10,000 contracts on the day but open interest of just 5,000. Well, that’s because some of the contracts that were traded must have been closed out before the end of the day.

Tracking Open Interest

I’m going to leave this question for the comments section below. Most traders think that open interest is always posted live on the quotes tab of your broker platform – but that’s incorrect. It’s actually posted completely different that you might have thought before.

Take a stab at guessing when and more importantly why the final figures are not shown live throughout the day by adding a comment below.

Watch The 1st Video In This Free 4-Part Series

I’ve been told by tons of people that you’ve got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio.

And I’m sure you’ve heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money.

Honestly, there is no “magic secret” to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I’ll go over the exact checklist I use for selecting trades each month!

Arguable the most anticipated IPO in history you cannot help but get caught up in the hype and news surrounding this historic event. Honestly I hate when people try to shrug this off as just “another IPO” when it’s clearly exciting!

Love it or hate it you have to at least be interested to see what happens.

I still remember one of the first times I logged in to Facebook “back in the day” and now to think that our stupid status updates and post about nothingness have turned into such a huge success. Go figure!

Of course Facebook has come a long way (and has a long way to go) from it’s start in the famous Harvard dorm room. And as potential investors in Facebook’s stock we should all take just 5 mins from the new hype and dig a little deeper into the numbers to see if this is worth your hard earned money or not.

Make Your Own Damn Decision

I’m not here to tell you to either buy or not buy the stock as an investment. Nope you’re not going to get it out of me :)

Instead you’ll need to figure that one out on your own. Look through the information below and decide if this is the right type of investment for you or not. At the end I will however tell you exactly what I plan to do the day Facebook IPO’s

Let’s get down to business (Don’t check your Facebook page for at least 10 minutes. If you do just be sure to “Like” our Facebook Fan Page first).

Created by: AccountingDegreeOnline.net

In all the reading I’ve done leading up to the IPO and the background I bring from being a Mergers & Acquisitions Analyst for Deutsche Bank on Wall Street, I still cannot fathom the valuation of this company!

The Glaring Number That Smacks Me In The Face

If all goes right Facebook will be valued close to $100 billion dollars this Friday. Take a second to breathe that number in one more time – $100 BILLION.

In 2011 the company made just shy of $2 billion in operating income! That means that Facebook will be trading between 70 and 100 times it’s earnings! Sure valuations are forward looking but 100X earnings? Are you kidding me?

Let’s compare this to Apple just for giggles. Apple is currently trading at a P/E of approx 13.6 right now with a market cap around $520 billion. If we applied the same 70 to 100 times earnings multiplier then Apple would be worth more than $3 trillion dollars.

Nevertheless I am NOT convinced right now that investing long term in Facebook will be beneficial – for me anyways.

Huge Potential – But It’s Just That Right Now

The only thing I see going for Facebook right now is the upside potential (yet I’m not willing to pay for that right now before any proven results). They have a huge user base that is growing daily. Revenue per employee and per user is growing. And finally the much needed cash from the IPO (~$10 billion or so) which I’m sure it will use to upgrade, acquire and fund new projects and growth.

The other major strength I see is the ability to hyper-target ads which means higher prices for ad revenue and better performance for advertisers. Not even google can hyper target specific ads to men between 23-25 who like Twitter and live in New York, NY (or whatever it is). This means we can reach our exact audience faster and easier than ever before.

The upside is truly unlimited right now but the it’s just that – potential.

What’s My Plan of Action for IPO Day

According to Bloomberg, Facebook has already stopped taking orders as the IPO will be massively oversubscribed, despite citing underwhelming demand from investors a few days ago. This means there is going to be a lot of demand just bitting to get into the stock after the open. I will be one of those investors.

My plan is to scale into a sizable position for 1 day. I’ll start purchasing as soon as the shares start trading and sell early in the afternoon. This plan is worked quiet well the day LinkedIn IPO’d back in May of last year. At the end of the day – I’ll sell out of everything for better or worse.

Anything after Friday and I’ll be more of a net-seller than a net-buyer at this stage.

YES or NO: Are Buying Facebook?

It’s 9:30AM on Friday – are you going to buy Facebook stock or not? Add your comments below and let me know your thoughts as always.

Oh yeah and in the spirit of FB, why now “Like”, “Tweet” or “Share” this page on your favorite social network. Hell you could even do everything except Like it on Facebook if you are against the IPO.

Watch The 1st Video In This Free 4-Part Series

I’ve been told by tons of people that you’ve got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio.

And I’m sure you’ve heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money.

Honestly, there is no “magic secret” to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I’ll go over the exact checklist I use for selecting trades each month!

History really fascinates me, but my finance degree helps pay the bills (nothing personal here history majors! Feel free to beat me up in the comments section on this jab).

As an options trader though I feel you have to have short term memory loss at times. This isn’t to say that we should forget and repeat the same mistakes over and over, but rather that we should look at each new trade independently of the last.

Each Trade In A Completely New Animal

Whatever happened on that last trade is over and done with – in the past! You could dwell on it for the next two months or move on to the next trade. For better or worse it’s over and you cannot change what happened.

The market is now a completely different animal than it was even 10 minutes ago. Your outlook could have changed since you made your last trade. Your capital available could be lower/higher. Volatility could have increased changing which option strategies you might select.

There are 1,000 things that could have changed to make this new trading environment different that the last one you traded in. And if you want to be a successful options trader you have to wipe the table clean and reanalyze everything from scratch.

3 Common Traps You Might Fall Into

Short term memory loss is a great asset as an options trader. It help you forget about what has already happened (for better or worse) and quickly move onto the next trade full steam ahead. And maybe you don’t know if you should develop it or not, so I put together this quick list of 3 common traps you might fall into with short term memory loss:

1) Riding The “Greed” Cycle – You made an awesome trade and banked more money than you know what to do with! Investment banks should be calling right now to hire you. But this classic scenario can leave you extremely open to the “invincible” feeling that quickly leads to losing trades. Don’t think because you made 1 awesome trade that you can repeat it consistently.

2) Dwelling On Losers – On the flip side you made a horrible trade. We all have. That’s not an excuse to not make the next trade. Again, the market could be different now and your strategy might just work. Time to get back to the drawing board and analyze the technicals. Get back in the saddle!

3) Using The Exact Same Technicals – Not one single technical or sentiment indicator is right 100% of the time. So why do you use the same 2 indicators on every trade? You need to realize that just because you got some “golden” signals on this trades doesn’t mean they will work the same one on the next one. Forget about them and start all over again. Look for patterns in the technical that are broad based and across multiple markets.

Do You Have ST Memory Loss?

I hope you really don’t have this or you would have already forgotten the first paragraph!

We all have skeleton’s in our closet when it comes to investments/trading. Lord knows I’ve had my fair share of bad months but I tried to quickly forget about them and move on.

Do you think you do a GOOD or BAD job forgetting about past trades and moving on? Is there anything you know you could do different? Add your comments below and share!

Watch The 1st Video In This Free 4-Part Series

I’ve been told by tons of people that you’ve got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio.

And I’m sure you’ve heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money.

Honestly, there is no “magic secret” to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I’ll go over the exact checklist I use for selecting trades each month!

And after you watch this video I want you to add a comment below and let me know if you have ever seen this happen before (I’m assuming some of you have)?

Look, social media is growing so fast that news is literally traveling faster than TV stations can get it on the air. TV news is really dead at this point for breaking stories and more just for the commentary afterwards (if that!). And in this video I’m going to show you why some buzz on twitter could have made for a hefty day trading profit.

Now of course I’m not a fan or day trading but after seeing this I’m reconsidering the quick trades on major news events. You can be sure that I’ll be watching the Twitter feeds from now on right before things hit the “major news wires.”

What is really just crazy about this is that the markets reacted quicker to the buzz on twitter than the actual release of the official statement! Sure it’s just 3 mins, but in that time you could have made a decent killing on this news BEFORE the general market of investors.

Interested in the details? Check out the video I recorded below and I’ll go through everything step by step.

This “social investing” transformation we are going through is getting very powerful. And I’ll be the first to admit that I have a long way to go in understanding the full implications. But I’m going to try my best to keep up with it because there is a lot of money to be made.

If information is power then access to information quicker than anyone else is a golden ticket!

Again, before you leave please add your comments below and weigh in on this social investing stuff. I would love to hear what you have to say about the video.

Watch The 1st Video In This Free 4-Part Series

I’ve been told by tons of people that you’ve got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio.

And I’m sure you’ve heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money.

Honestly, there is no “magic secret” to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I’ll go over the exact checklist I use for selecting trades each month!

Hell I don’t even do that nor would I ever want to be glued to my chair all day either. And so as traders we have to learn how to use contingent orders to help place trades while we are not around.

I know it probably sounds really cool; placing trades all over the market while you are sitting on the beach somewhere drinking a beer. While this can happen, the reality is that you have to know when to use these types of contingent orders and when not to use them.

Contingent Order Basics?

This is a very simple concept to grasp so stick with me. A contingent order is a type of order that can be placed ONLY IF certain conditions are met (contingencies). If the contingencies are met, the order is removed from the sidelines and gets placed into the market live. If not, nothing happens and the order just sits on the sidelines until you cancel it or the contingencies are met.

Like I mentioned before, it also allows you to place the order after setting your parameters without having to sit in front of your computer screen and wait for these specific conditions to occur.

A Ridiculously Simple Video Tutorial

If you’re interested in learning how to use the 5 different contingency orders the right way then check out this video tutorial below. I covered everything from stop-loss orders to multiple contingent orders.

What Order Type Do You Use Most?

Add your comments below as I’m interested to see which orders are used most often! I would assume that stop-loss orders are a favorite of investors but I’ve been pleasantly surprised before by the readers here. Let’s here what you have to say…

Watch The 1st Video In This Free 4-Part Series

I’ve been told by tons of people that you’ve got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio.

And I’m sure you’ve heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money.

Honestly, there is no “magic secret” to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I’ll go over the exact checklist I use for selecting trades each month!

How about checking out the McClellan Oscillator. It’s one of the most popular market breadth indicators around and sadly I have not done enough to cover it on the blog in detail.

So this post is 110% devoted to McClellan and his Oscillator!

What Is It & How Is It Calculated?

Without getting to complicated, the McClellan is a market breadth indicator that is actually based on the Advance/Decline issues from the NYSE. It’s a smoothed indicator that tries to remove the daily noise and give an easier to use signal for traders.

Each day the indicator takes the difference between an approximate 19-day EMA and a 39-day EMA of advancing minus declining issues. This helps us establish a relative measure of broad-based market participation.

But enough with the geeky calculations…

How Does Market Breadth Help Me?

Technical indicators that use measures of advancing or declining stocks generally will give you some insight into the amount of participation in the current trend’s movement. This is referred to as the market “breadth.”

In a raging and healthy bull market, there will be a large number of stocks making price advances. Sure you will have a few stocks here and there that decline but overall the general market is advancing on a broad scale.

On the other hand, a weak market will see only a very small number of stocks advancing (but advancing at larger prices). This gives the false appearance that the market is healthy when the underlying fundamentals tell a different story. In this case only a few stocks are leading the way while the majority of stocks are lagging or declining.

This type of divergence in advancing/declining issues often signals an end to the trend and of course the opposite happens in bottoming markets.

The Buy/Sell Signals

There are 2 main signals given by the McClellan Oscillator. In all honestly most people get them completely confused and use them incorrectly (at least in my opinion).

You first have to understand that there are 4 “trading zones” to this indicator. On the top side there is an overbought region between +70 and +100. Any above +100 is considered extremely overbought. Likewise on the bottom side with -70 and -100.

If the M.O. falls to -90 and turns back up a short term buy signal is generated. However, if the indicator slams through the -100 level then it actually signals the start of a new downtrend and you shouldn’t be buying. This is where some traders fall into a deep and painful trap.

In up-trends the same came be said. If the M.O. climbs to +90 and turns over a short term sell signal is generated. Again, if it continues past the +100 level then a new bull market move is starting and you shouldn’t be selling just yet.

What Do You Think About Divergence?

Time for some community engagement.

As with nearly all momentum and breadth indicators, I believe divergence plays a key role in identifying solid signals. I don’t use the McClellan Oscillator as a stand-alone indicator; but rather pair it up with RSI and Stochastics to get more meaningful alerts while watching for clear signs of bullish/bearish divergence.

That’s just what I think…what do you think about using this indicator with divergence? Has it worked or not worked for you in the past? Add your comments to this post and share your opinion.

Watch The 1st Video In This Free 4-Part Series

I’ve been told by tons of people that you’ve got to either have a lot of money or a really killer system to trade options and win. Some new indicator or signal that will transform your portfolio.

And I’m sure you’ve heard the same thing and are sick of these expensive, dead-end courses and websites wasting your time and money.

Honestly, there is no “magic secret” to trading options. It simply comes down to an understanding of risk management, option pricing and strategy selection.

Instead of learning these lessons the hard way (i.e. losing your shirt in the market), why not take my free 4-part video course as I cover each area in detail. Plus, I’ll go over the exact checklist I use for selecting trades each month!