Written by Pastor
March 6, 2013
So new Dow record intraday and closing highs were set yesterday. To make sure we're on the same page, I'm going to briefly lay out some simplistic scenarios to illustrate what has happened in reality, between Oct 9, 2007 and March 5, 2013:
Scenario A: Person put $100,000 in cash under his mattress on Oct 9, 2007, and it still resides there.
Outcome for Scenario A: He's 52.4% poorer than he was on Oct 9, 2007 if his wealth is measured in gold (gold was roughly $750/oz on Oct 9, 2007, yesterday it closed at roughly $1575/oz, so 750/1575 = 0.476 x 100 = 47.6%). His original $100,000 has dwindled to $47,600 in terms of real purchasing power.
Scenario B: Person put $100,000 into the Dow Index right at market close on Oct 9, 2007, somehow equally weighted and actively managed and maintained to account for all changes, such as corporations moved out of and into the index and all re-weightings from Oct 9, 2007 to present, and then he cashed out yesterday right at market close. The Dow closed 89.24 points higher than the Oct 9, 2007 close.
Outcome for Scenario B: Well congratulations, he received a whopping return of 0.626% (89.24/14,253.77 = 0.00626 x 100 = 0.626%) on his initial investment, invested 5.5 yrs ago. He has managed to profit a whopping $626 (which will be taxed as a long-term capital gain). But now the bad news, you've lost 52.4% of your wealth. So 0.476 x $100,626 = $47,897.98 left in real purchasing power. Oops. But hey, at least before taxes he beat Scenario A mattress guy by $297.98 over 5.5 yrs lol.
Scenario C: Person magically decided to put $100,000 into the Dow (again this can mean a lot of different things, the detail of the vehicle(s) involved are critical) at market close on March 8, 2009. He cashed out this position yesterday at close.
Outcome for Scenario C: Kudos for precisely nailing the crisis bottom, 6547.05, as well as getting out 4 years later right at the breaking of the previous record top, 14,253.77. 14,253.77/6547.05 = 2.1771 - 1 = 1.1771 x 100 = 117.71% gain. 2.1771 x $100,000 = $217,710. Well done, what a trade, ooh, ouch though, that long-term cap gain tax is gonna take a nice bite there. But let's forget about taxes for now and see what the Fed did to you. Gold was roughly $920/oz on Mar 9, 2009, closed at $1575/oz yesterday, so 920/1575 = 0.584127 x 100 = 58.41%, thus 41.59% of your wealth has been lost. So 0.5841 x $217,710 = $127,164.41 ($90,545.59 lost courtesy of legal counterfeiting). By golly he did it, he actually managed to capture a true 27.16% (notice not 117.71% as they say on tv) genuine return over almost exactly 4 years. Of course this is a rare bird, who bought at the perfect crisis low then waited 4 years and sold at the new historic high. What does this return come out to on an annualized basis? I also wonder if he's been paying off any loans during those 4 years, and if so, what was the weighted average of annual interest rates being paid?
Scenario D: Person has put a fixed amount into the market (this can mean an infinite number of things) every month since Oct 9, 2007 and cashed out at market close yesteday.
Outcome for Scenario D: Because this process can mean an infinite number of things, obviously I can't conclude anything, the sample examples are endless. But I'm gonna go out on a limb and bet the vast majority of them did not fare as well as the person in Scenario C. This is pathetic too, considering the purchase of one or more simple Put options would've allowed these folks to outperform our psychic in Scenario C - it's funny how many money managers and financial advisors fail to inform their clients of the most basic form of options trading available to all, buying Put insurance on portfolios. I wonder why that is? If I had to guess, in many cases the manager has traded them for his own benefit based on the underlying shares being managed. This is quite a lucrative luxury to have, for example, in the crash of fall 2008, imagine the MM or FA's delight at collecting a hefty say $50,000 bonus while the client whose shares the options were based on just received his statement showing massive losses similar to this amount. Perfectly legal (lol, as if that matters if you're a MM or FA) as long is it's never discussed with the client, and the client has no idea it's even going on. Now imagine the MM/FA has 1,000 clients and $300 billion assets under management, and access to more derivatives markets than anyone even knows about, and it starts to become clear what we're up against. These folks would laugh at my simple options scam, why bother when you can leverage it up 100 times more than that?
Now I can tell you one group of people who's beaten the folks in all of these scenarios by a mile - the billionaires (and their masters of course)...go figure. How? Thankfully that's well documented by the countless works of others spanning decades. But quickly, one way is by having so much money that one can singlehandedly control the price of a financial instrument. Another way is having the ability to buy so much stock in a company that one acquires a level of ownership which includes significant influence and/or control over the company itself.
Billionaires remind me that it really wouldn't be fair to leave a few of the lunatics out of these scenarios (of course we covered mattress guy, whose approach only makes sense over short periods of time for specific reasons). Afterall there are some seriously insane people out there that, for example, believe in crazy conspiracies like global central banks (which continue to buy up gold bullion in record amounts) engaged in legally counterfeiting currencies, and who attempt to preserve their wealth on the basis of such insane and similar theories:
Scenario E: Paranoid Schizophrenic bought $100,000 in gold bullion (or paper gold oddly enough lol) on Oct 9, 2007 and sold it yesterday (i.e. converted it into counterfeit US Dollars).
Outcome to Scenario E: Because gold has increased 110 % during this time period, he now has $210,000. The problem however is by converting his bullion back into counterfeit US Dollars, he takes the devaluation hit of the currency, 52.4% as measured in gold. 0.476 x $210,000 = $99,960. Thus he successfully retained almost all of the real purchasing power of his money while the folks from Scenarios A and B, and likely D failed to do so. This scenario is a very interesting one, and key to understanding just how far the global economy has drifted into the twilight zone of derivatives, fraud, and relative fiat currency pairs. This scenario demonstrates that investing solely in gold will only protect one's real purchasing power over time, but will not yield any additional return on investment upon converting it back to US Dollars, which is somewhat counterintuitive to many based on the remarkable bull run of gold in recent years. So I'll argue the mistake the person in this scenario made is that he sold his bullion (unless of course he needed he money). I believe the true value of gold bullion is being vastly under-reported, and more specifically that the price of gold is being intentially suppressedvia the orchestrated (and automated) trading of gold derivatives, a market that exceeds the size of the actual bullion market many times over, combined with the ever-present fraud in the underlying forex markets, where large moves in fiat currency pairs, such as the USD/JPY over the last 6 mos, can distort the true value of bullion (just compare the gold spot price charts for the past 6 months vs. the Yen and then vs. the USD, is gold falling or rising?). This scenario introduces complexities well beyond the scope of this article. But the end result is this schizo, who was ridiculed by the folks in Scenarios B and D back in 2007, beat them both handily, while in a straight jacket.
Scenario F: This moron bought $100,000 in silver bullion (or paper silver oddly enough lol) on Oct 9, 2007 and sold it yesterday (i.e. converted it into counterfeit US Dollars).
Outcome to Scenario F: Very similar outcome to that of the person in Scenario E. Silver was roughly $13.50/oz then, it closed around $28.75 yesterday. 28.75/13.75 = 2.1296 - 1 x 100 = 112.9%, meaning a 112.9% increase, thus he now has $212,900, actually slightly outperforming the gold schizo over 5.5 yrs, and even bringing in 0.476 x $212,900 = $101,340.40, and thus a small $1,340.40 genuine gain (1.34%).
Scenario G: This idiot bought $100,000 in corn (futures perhaps, we'll say an ETF) on Oct 9, 2007 and closed out his position yesterday. He ended up over 100%, roughly turned that $100,000 into $210,000. Did pretty damn well considering he isn't Merlin and didn't have the crystal ball used by the rare bird from Scenario C to pick the perfect bottom and top to enter and exit a trade. 0.476 x $210,000 = $99,960. Impressive, he almost retained all of his wealth over 5.5 years during the biggest round of central bank counterfeiting the world has ever seen.
Scenario F: This nutbar bought $100,000 of cases of ammo weighted and broken down according to the most popular calibres in the summer of 2012, then sold it all during Jan and Feb 2013. Go figure I haven't yet found the data to determine how well this guy has done. Oddly I'm having difficulty finding solid comparison data post-2008 (well, the data's there, I'd just have to spend hours aggregating it into a meaningful chart, which I was hoping someone else had done for me, I'm sure not going to do it). I'm willing to bet this guy has done really well, I'll argue he's right up there with the best of all scenarios presented thus far, based on my personal experience and knowledge in the realm of ammo prices. I bet he's not only preserved but increased his wealth, and in less than 9 months vs. 5.5 yrs. Of course he's gotta worry about being arrested now, he might've crossed some legal quantity threshold or some other unknown detail tucked away in legislation no one's ever read, possibly end up labelled an enemy combatant and find himself in prison without being charged for a crime. Or they might just sick the IRS on him, who knows, the playbook is infinite. Or he might be left alone. Any way you cut it he executed a fantastic trade. Can't read or write and has no teeth, but beat most on the trade, how 'bout that.
Conclusion: The only conclusion I can reach is that anyone enslaved to the ruling class will continue to become poorer and poorer in terms of real purchasing power unless they protect their wealth by spending their counterfeit currencies on real, tangible assets of value. Clearly gold bullion is the proven historical measure and preserver of wealth, as are silver and other precious metals, but the list of possible assets is endless, anything from collectibles to properly stored wines, etc... But the ruling class has made their global currency devaluation assault more problematic to defend againstthan meets the eye, because they are able to manipulate the prices of commodities themselves, leaving a holder of bullion under the impression that his bullion is worth less than it really is. This is precisely why the folks from Scenarios E, F, and G only broke even and preserved their wealth instead of significantly profiting from their foresight - it's at the moment of conversion back to US Dollars that their true, invisible gains were wiped out. And the ruling class continues to somehow tighten screws that have been stripped for many years. I don't know of a single investor who is seeking to lose money, and the vast majority are seeking real returns. However it's been my experience that most investors fundamentally fail to grasp the difference between a nominal return and a genuine return adjusted for inflation. Certainly the mainstream media focus is on the nominal, outside of specific moments on some business/investment-specific channels such as CNBC or Bloomberg, where the focus is always on nominal, but where at least the adjustment to genuine is occassionally mentioned. And then there are plenty of us who are simply trying to prevent losing our wealth by merely being alive, merely because of the passage of time. Gold and silver bullion are proven preservers of wealth for us, but be ready to hide it well from our government, and at great risk, in the years ahead (anyone who thinks Executive Order 6102 can't happen again is lost). Similarly, you might have noticed recent attacks on storers of ammo and food...kinduv interesting in light of the Scenarios laid out above.
It is also plain to see that we needn't feel any urgency to pay off our insignificant personal debts, in fact quite the opposite, take whatever low fixed-rate money you can get your hands on, it doesn't exist anyway so enjoy it. Hell, may as well take the view of a schmuck like Getty if you're in a position to, or as he put it:
“If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” – J. Paul Getty
I used to not feel this way, I used to feel a certain ethical/moral/principled obligation in regard to paying back the debt I was issued. But that was before I understood what was going on. Now that I understand I'm being criminally assaulted, yet legally, I no longer feel this obligation. Why any of us cannot have most of our debt absolved legally in court by demonstrating the money borrowed never existed to begin with is beyond me. In the realm of debt and finance, my natural rights are my current guide. The statutory rights I've been assigned are only useful to me as a means to avoid being incarcerated.
(Often Voluntarily-Submitted) Data Exploitation and Other Manipulations
The real kicker though is the return one could have obtained had they traded the market throughout these years. Just as one side-note example of one extremely lucrative trade, near the market lows of early March 2009, a person could've spent $100,000 and bought 1 million shares of Pier 1 Imports (PIR), which was teetering on the brink of bankruptcy, for 10 cents a share. This person could've then sold his shares at close on March 5, 2013 for $23.23/share, or $23,230,000, provided the Bid complied given that quantity of shares is almost the daily average of PIR shares traded. Using Merlin's currency devaluation percentage from Scenario C, this individual would've ended up with 0.5841 x 23,230,000 = $13,568,643. That's quite a return there, 13,468% in 4 years, and clearly this person has blown everyone else I've discussed away (in fact, even the guy who bought Apple in the mid-90s can't touch this).
But the type of trading I'm talking about is the type which constitutes roughly 75-80% or so of all equity trading, and that is the high-frequency algo trading which allows the whales to gobble up the sharks that gobble up the fish that gobble up the minnows (me). We're talking about machines making millions of trades in fractions of seconds, and their masters have it better than ever right now, because not only do computers do their jobs for them, but they are also collecting more data than ever from unsuspecting and naive investors, who feed them such data as stop-loss orders, trailing stop orders, and even 'prepared' orders (LMAO - orders you pre-program for one-click execution in the future). Feeding the machines this data is even heavily promoted by money managers and financial analsysts, along with numerous so-called 'instructional' seminars, as well as mainstream shows designed to 'educate' traders. These proprietary software monsters aggregate and analyze all of this data to figure out what price movements are needed to steal the most money from the aggregate over variable time-frames. Ironically this is what allows certain small individual investors, even minnows, to beat the market, generally by locating unusually severe price dislocations and distortions created by these monsters. These monsters also sometimes leave discernable patterns in their wake which can be taken advantage of.
This is why, for example, a person who buys a stock and then immediately puts in a trailing stop order upon each successful purchase, will more often than not lose on the trade they have in mind over the long-term, regardless of whether or not he or she turns out to be right about the trade. Here's an example (based on a real life example actually):
Bill believes in a company called VMWare (VMW), it's some IT company related to cloud computing, I don't know a lot about it, but he did lay out a compelling long-term bullish case for the stock based on various fundamentals and other signals, especially because it had just recently rapidly declined from $100/share to $70/share in 2-3 days, at which point numerous large insider purchases occurred, massive volume became involved, bullish volume allegedly but that's debatable. Bill's M.O. is he's 'looking for heavily discounted stocks of great companies who are going to grow in the long-term, to buy and hold long-term', also known as 'bottom fishing'. So Bill bought an unknown quantity of shares at $73.30ish. He then explained to me that he was going to put in a trailing stop order with a $5 threshold, and would set this order to expire never, or in 60 days if 'never' isn't an option, in order to protect the bulk of his investment from being lost. Once he put that order in, that meant that if VMW hit 68.30ish, his online broker would sell his stock for a $5/share loss. Beyond that, a trailing stop has the additional wrinkle of following a stock as it rises. So let's say VMW goes up in a straight line to 78.30ish, the stop price would've followed it up, to 73.30ish at that point, meaning then if the stock reversed course and went back lower than 73.30ish, his broker would sell his shares for roughly what he paid for them, at which point his only loss would be the commissions on the trades. People like to Bill love this type of order, b/c they believe they're protected from significant loss and don't have to check in on anything, that they can just let it go and will be fine.
Sounds wonderful right? You're protecting your assets with a trailing stop-loss order that follows the share price higher, which is what you think the share price will do, which is why you bought the stock to begin with.
Big problem though. What if Bill had bought that trailing stop with the $5 threshold, and let's say VMW closed at $75 that first day. Bill would be feeling pretty good, b/c he's already up on the trade, and his trailing stop has increased to $70, thus he goes to sleep that night feeling great because now that the share price already went up 1.70/share he only has $330 risked (as opposed to $500 at the time he bought the shares and put in the trailing stop) - bzzzzzzz, WRONG. Let's say VMW opens at $50/share the next morning, guess what, his broker will liquidate his shares at $50, and he's just lost 23.30/share x how ever many shares he bought. The only way he can prevent this from happening is by remembering to check VMW's pre-market-open price that next morning prior to market open, see it's at $50ish, log into his online broker's site, and cancel his order before market open, in hopes the price will ultimately rebound, knowing if he doesn't cancel his order they will liquidate at $50/share. Or he can decide to leave it in place and go ahead and take his losses. But he didn't know this is how it worked until I explained it to him, he thought that in this example they would still sell his shares for him at $70/share, his last stop price as of market close the day before, but nope, afraid not. Instead they look at it as the literal nature of the order, which is when it hits the stop price, it becomes a market order. Market orders are directly from hell and should never be entered, because by entering a market order, you've just given the broker the permission to buy or sell for whatever price they come up with, market orders just fire off the next Bid price, which can be completely manipulated and rigged. I've experienced this, once, when the only market order I've ever entered bought me shares of AIG at the worst price of the day, literally my price was the high of that day, we can view it now historically, lol I made history, on a day when the price ranged from $4.2-/share to $2.5-/share...ouch, another less learned the hard way.
But more importantly, aside from the overnight after/pre-market trading scams, all of these orders you can pre-program for your positions is merely voluntarily providing the ruling class with data that is instantly being aggregated and analyzed by supercomputers designed to gobble up what's on the buffet - this is why all online trading programs/sites highlight these types of orders as 'features' in their commercials and on their sites, when in fact they are our worst enemy and make Wall St's job much easier. It's very simple, is it in the best interests of the masses to provide more or less data to Wall St regarding their investment intentions and risk tolerance levels (i.e. investment/trading strategy)? Obviously less, but the current trend is that everyone is falling for the propaganda, and is providing them with more, and of course the ruling class is constantly coming up with new functionality available daily to provide them with even more data they can then use to exploit us even further and make it even more convenient for them. They can take advantage of this data on a second-to-second basis, and this is why many stock/equity moves are very large, strange, and out-of-the-blue. It's why the markets make less sense than ever, because they're much more about automated algorithmic theft from the aggregate now than any fundamental attachment to reality (this is one of many factors responsible for the market's increasing detachment from reality - for example did you know the Fed can print money right now and buy S&P 500 mini futures directly? LOL, geez, um, yeah that has an impact).
Now let's imagine a different hypothetical scenario, a more likely scenario I see play out all the time, to illustrate how Bill can be correct on his VMW trade and lose money (I'm going to round the prices to make the math simpler for me to write about):
Day 1: Bill buys 100 shares VMW at 73/share, then puts in a $5 dollar trailing stop (these can be entered using a percentage basis as well, but Bill chose to use fixed amount of $5).
Day 2: VMW goes to 74/share, stop price has moved up from 68 to 69.
Day 3: Intraday, VMW drops to 68.50 but ends the day at 74. Thus Bill's trailing stop order fired around 69 depending on how fast the move was, selling his shares for a loss of 4/share ($400 loss on 100 shares and now he owns nothing).
Day 4: VMW opens at 73 a share due to a drop in post/pre-market activity. Bill is pissed b/c he doesn't have a position now in the stock he believes will go up, and reasons with himself that since it's at the same price he initially entered at, he should go ahead and pull the trigger. He thinks he's learned his lesson on the trailing stop, so puts another one in, but this time using a $10 threshold, thinking his mistake last time was that his last stop threshold was too 'tight'. So he buys 100 shares at 73 again. Stop is now positioned at 63.
Day 5: VMW goes to 74, stop goes to 64.
Day 6: VMW leaps to 77, stop goes to 67, Bill is estatic even though this is allegedly a 'long-term' investment (he's ultimately looking for triple-digit share price, over months or even years).
Day 7: VMW goes to 79, stop goes to 69. At this point Bill should sell in my opinion, taking his $200 profit after covering his previous $400 loss, but no, he stays in, which intuitively is a normal response b/c thus far he's been right about VMW going up, and thus far he's made money, but the key is that his gains are currently unrealized. It's also key to note that this is only Day 7 of an alleged 'long term investment'.
Day 8: VMW pulls back to 76, stop remains at 69.
Day 9: VMW jumps to 81, stop trails at 71, Bill is ecstatic but doesn't change his trailing stop order. He's now less worried than ever. What he should do is change his stop from 10 to say 3, to lock in gains at 78, but Bill's not even really paying attention, other than noting the price of 81 at some point during the trading session.
Day 10: VMW begins a short-term downtrend, drops to 79, stop remains at 71.
Days 11-20: VMW gradually declines to 72, stop remains at 71, Bill is not paying attention.
Day 21: VMW opens at 68, Bill's shares sell at 68, thus Bill has lost another $500 in this trade, bringing his grand loss total so far to $900 for simply trying to buy VMW at two different times while 'protecting' his trade. He's also paid roughly $40 in commissions for this privilege (4 trades).
Now Bill is back to square one, he doesn't own any VMW and is $940 poorer. He's so pissed at this point he decides to stay out b/c he keeps getting burned. He then watches VMW gradually climb to 110/share. So he was right, but he got killed.
How could Bill have handled this differently? There are many options. He could have simply bought the stock and not put in a trailing stop order. If the stock goes lower, he can buy more if he still believes in the stock's future by cost-averaging into the position by buying at different points in time at different prices. But my recommendation - simply buy a Put option to insure the shares. This leaves the only possible risk of loss as the cost of the Put contract, while leaving unlimited upside potential intact. If he did this, he could let his position go for months or years without checking on it at all if he wants. If he did this, it then doesn't really matter if VMW goes up or down, especially given this is allegedly a long-term investment. If the stock goes up enough to cover the cost of the Put contract he wins. If the stock declines, he can sell the Put which will have proportionally increased in value, and reinvest that in shares of VMW, and then re-establish Put positions as needed. Over a long enough timeline, he will win using this strategy, unless VMW goes to $0, at which point he'll only lose Put premiums + commissions, which will be a relatively small percentage of his overall investment. As opposed to just buying VMW and holding, in which case 100% of investment is lost if it goes to $0.
So above I laid out the game of being 'stopped-out' for losses. Well here's another little clever game they like to play, I call it the Bid/Ask game. I'm picking on a specific online broker because I have the most experience with them, though I'm confident these manipulations are industry norms, they're simply too lucrative and easy to get away with. Let's imagine I've decided to buy paper gold, but in the options market by buying a Call option on GLD, the ETF that tracks the price of gold/oz in US dollars (thus I'm purchasing a derivative of a derivative of gold). So I bring up the options chain to see what the going prices are for each contract available. Whenever you begin to place an order, you are confronted with Bid and Ask quotes, i.e. the highest amount someone is currently willing to pay for a financial instrument and the lowest price someone is currently willing to sell that financial instrument for. For starters, I have no idea if these quotes are even accurate, how would I? I can check across platforms and sites, but presumably theses game are being played across the board. The point is I'm relying on numbers appearing on my monitor which may or may not have basis in reality. I'm even completely convinced, based on trading experience, that in my broker's online system they have 2 layers of the Bid/Ask spread data, the real spread data, along with their modified versions which is what I see on my computer monitor. But on top of this fundamental scam, they also love to play the Bid/Ask game, here's a great example:
I begin to put in an order for a Call on GLD. As I have previously explained, market orders are from hell and should never be entered, thus you have to enter limit orders when buying or selling, so that you specify the highest price you will pay for something and conversely the lowest price you will sell something for. So what limit price are you going to enter? You have to base it on the Bid/Ask presented to you. So I see the Bid is 15.30 and the Ask is 15.40 (in the options world this means the Ask is $1,540). So I enter my limit price of 15.40, and the remaining details of the order. Guess what, the only button I can press is 'Preview Order'. I don't want to preview the order, I've already double-checked it, why am I made to preview it? Because they want to preview my order, otherwise I would have a 'Place Order' button to use at this point in time and wouldn't be forced to preview what I don't want to preview. Of course this is presented to me as a courtesy they are providing me with, allowing me to preview my order before placing it LOL. As soon as I press 'Preview Order', their machines now know the position I'm trying to purchase and the maximum price I'm willing to pay for it for the gap of time between that moment and when I'm able to click on 'Place Order' once it appears. Pressing 'Preview Order' also displays my order details in a nice new format, and at this point in time I finally have a 'Place Order' button available. Often at this point I will notice that the Ask has already increased by $5, so it's now 15.45. So pressing 'Place Order' now won't place and execute my order, instead it will only queue my order, and puts it in a pending state, because I defined my limit as 15.40 which following my preview is now lower than the lowest Asking price, which the computers auto-incremented up by $5 when I pressed 'Preview Order'. But all I'm trying to do is establish my position, and use a limit order so they don't kill me for using a market order. So I cave, fine, you want your $5 I'll give it to you, so I select the 'Change Order' option - well, I better increase my limit to 15.50, otherwise we'll just play this game all day, they'll just keep incrementing it up until they've ripped me off for an extra $20-$30. So I've learned you have no choice but to overshoot the Ask right off the bat, in other words I have to voluntarily overpay $5 or $10 to prevent overpaying by even more if I don't play their little game, just to establish a market position. They'll even rub this one in your face, because after your order finally goes through, you can return to the options chain, and often the Bid/Ask will appear as it originally did LOL. And for those who immediately interject, 'well that's probably just price action moving it in real time' - you are correct that sometimes that is true, however that is rare. Based on years of experience, I'll argue that more often than not it is pure data manipulation. Also you will have a hard time explaining such behavior to me when I'm purchasing an option contract with 0 open interest (i.e. no one owns one of the contracts yet, I am the first human participant trying to obtain the position, the Bid/Ask is algorithmically set by a computer based on the options chain and underlying equity - how can the Ask increase $5 based on human activity on such a contract when I press 'Preview Order', when there is not a human being on the other side of the trade?).
The ramifications of this add up quite quickly if you trade with any frequency. And it's so blatant. For example, using the above example, I could easily end up owning the GLD Call I wanted for $1,550 (15.50), and minutes later see this position down $40 when the commission was only $11. To make matters worse they might just lower the Bid by another $10, how the hell would I know what someone is bidding or not? So I just bought the contract, spot gold (the underlying asset of the underlying asset lol) is actually going up, but now that I've got the position I wanted I'm watching the Bid go down, and the Ask reset to where I found it originally. So immediately I'm slow out of the gates, down $50 due to commissions plus $39 paying fraudulent Bid/Ask dues, often all within a minute or two timeframe. Now at this point these are unrealized losses, and ultimately if I end up correct on the trade the position will pay for these criminal surcharges, but it's still theft. On top of this, often when you are putting on one options position, you are hedging against it with another,...they play the Bid/Ask game with every trade you make excluding certain equities (where the Bid/Ask is always too tight, where they don't have the wiggle room they need - short-dated options on SPY are a great example) until you start complying and paying their $5 (generally) Bid/Ask game surcharge to get your order executed. So no matter how low the commissions are, they are always being padded by the Bid/Ask game. I don't even need to see their computer code to prove what's happening, I can reproduce it at will, and have confirmed the same behavior with numerous traders using the online broker I use, as well as other brokers. I will acknowledge that every now and then I'll catch a break on the Bid/Ask, but in general they use it to milk me, and all of us. I am also fully convinced that on top of the Bid/Ask game they often flat-out inflate the Ask when you go to purchase something, and flat-out deflate the Bid when you go to sell something (don't forget they play the same Bid/Ask games when you are exiting a position). I've seen it, because I understand premium decay on options, and have been slaughtered in one day on a long-dated option for no reason at all other than the initial Bid/Ask games combined with the subsequent Bid mysteriously shrinking for no fundamental reason. Hehe, now to bring things full-circle, what if I'm trying to use trailing stop orders on these to prevent losses? LOL must be nice to be able to move that Bid down at will just enough to reach my stop-loss amount and close out my position for a nice loss.
Conclusion: Though it is certainly possible to make profitable trades via online trading, you are fighting much greater odds than just figuring out the trade itself, which is difficult enough as it is. These software monsters are like demonic pac-men, trolling around supercomputers chomping up any dollars they can get their programmed little mouths around. Their path is guided by data and mathematics. The more data you and other traders provide these proprietary trading software systems, the clearer their paths are for making the maximum amount of money at our expense in the shortest periods of time possible. It's a ruthless situation, I recommend not making it any easier for them than it already is.