Keene on the Market Review
Andrew Keene’s recent release, “Keene on the Market: Trade to Win Using Unusual Options Activity, Volatility, and Earnings” is a seamless 'how-to' manual for anyone looking to trade equity options. In his unique, almost autobiographical style, Keene manages to keep his readers amused while revealing his secrets for making money through options trading. Keene seems both knowledgeable and enthusiastic as he describes the ascent from his early beginnings in the pit of the Chicago Board of Options Exchange (CBOE) to becoming the biggest Apple trader in the world in 2009.
He interlaces his stories of the last eleven years with clear, succinct explanations of options strategy which brings an honesty to the lessons that is so often missing in books that teach broad strategies only.
Keene is a trader who has made money consistently and continues to do so. He admits to never being satisfied when placing a trade and is always looking ahead to his next trade. Instead of simplicity, Keene prefers complexity, choosing the butterfly strategy as his favorite trading move. He watches price action and price momentum before placing a trade but he advises his readers to use caution before making any moves.
Nothing But the Truth
This is not a fairy tale book describing the world of trading as one where everyone comes out profitable in the end. He devotes several chapters to describing the challenges and risks involved in option trading and focuses on specific actions each trader should take. Keene’s honesty is noteworthy and most of his suggestions ring true for any investment: read up on the subject, start out using a demo account, trade only a small portion of money, write up a plan and keep to it, hold losses to a minimum. Option trading is “not quite as glamorous” as some people think and it is vital to stay attuned to whatever is happening in the markets by monitoring media reports and financial publications: The Economist, the Wall Street Journal, Bloomberg News and CNBC.
Keene does a great job of walking readers through various options strategies while drawing on his years of experience to help traders fully understand the risks versus rewards, breakeven points, and more advanced strategies. Keene doesn’t gush but his readers do come to know that options trading can be rewarding. Some people trade options for a living; most trade options for a bit of extra cash. The former group should start out part time and then move to full time as their abilities strengthen. They should stick to the simpler trades to start with and with enough experience, attempt the more complex ones such as covered calls, straddles, condors and butterflies.
He advises using two simple strategies--purchasing calls and puts outright and suggests reaching a certain comfort level and consistently profitable trades before progressing to a higher level of trading. According to Keene, “the value of the results is greater than the value of the parts that went into the project.”
The Book at a Glance
In chapter 5 Keene discusses the best way to choose a broker and warns the reader that the more customer support provided by a broker, the heftier the commission. Keene is confident in making his own decisions. New traders, however, should examine their abilities and choose a broker accordingly.
Full service brokers offer extensive fundamental research while discount brokers are only for “the fully self-directed trader” who knows what he or she is doing.
For day trading, Keene recommends viewing daily charts and appreciating support/resistance levels which he believes is the ‘psychology of a security’s price.’ Readers are introduced to concepts such as breakouts, pivot points and gaps. Keene uses both the Dow Theory, which is used to plot the future movement of a security using the Dow Jones Industrial 30 and Dow Jones Transportation averages as a baseline and the Elliot Wave Theory, which employs past information from a security’s movement to predict future direction. But he admits that both theories have flaws.
He discusses the various different moving averages--20-day, 50 day and 100 which he feels work well on a broad scale but not so much on a daily basis. Keene also explains why and how Japanese candlesticks charts and the Ichimoku cloud indicator (his favorite indictor) are also useful in charting patterns before placing a trade. Another tool is the Beta, a measure of a stock’s upward and downward movement as it relates to the overall NY stock market. A stock’s beta is a statement that tells the trader how much the stock will move in percentages when the S&P 500 moves up or down.
One chapter is devoted to definitions of basic trading terms and details option pricing. Several other chapters cover actual trading moves and point out which trades to make in certain markets. Later chapters get into more complex trades and although they are clearly outlined, some of them can leave the novice trader somewhat confused.
I found the chapter devoted to the Greeks and how the stock market came to use Greek terms as financial references quite edifying. Keene’s knowledge of history seems to equal his financial acumen. Most interesting is what he calls his two distinct ‘non-blowing trading plans- OCRRBTT and HIMCRRBTT.
Andrew Keene’s book exposes a remarkable capacity to read unusual options activity and reveal what others don’t see. His delivery is entertaining and he manages to demystify the basics of options trading in a most enjoyable and gratifying manner. This book will be a must-read for equity options traders for many years to come.
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