So I’ve been brokering (?) here at HSB&R for almost a year now, but I realized that never once in my tenure here have I given advice on how to make money. Oh, sure, I’ve given out plenty of opener advice, and pointed out some long-term buys, and pontificated on Oscar options, and all that. But I’m talking money. Fast money. You know, playing-to-make-the-Year-to-Date-Leaderboard kind of fast money.

I actually had never had any experience going for the big money until this year, when I opened up a small port for the FY2000 race. Since then, I’ve had a fair amount of success (I’m currently ranked thirteenth for the year with $11M), but have also taken my share of lumps. Here are some of the lessons that I’ve taken away from it all.

Start strong

I think a big key to the YTD race is in the first week or so. My best decisions were on day one (I caught a big jump in WONDR and played GINTR and its associated options the right way), which allowed me to be in first place after one day. I haven’t been able to match that success since, but the distance (percentage-wise) that I gained on the field that first day has kept me near the top. (Plus some good choices on the openers, but the impact of those decreases as the year progresses.)

Don’t be afraid to take big risks for big payouts at the very beginning. There’s a reset button there for a reason — if your gamble doesn’t pay out, you only lose time, not money. If it does, then it’s off to the leaderboard with you!

Keep track of your ROI’s

ROI is Return on Investment. Generally, you want to have investments that are getting the most bang for your buck in the quickest time. Read Tom Miller’s explanation of the Time Value of Money if you don’t know about this concept.

Most of you out there probably know about this already. However, there are some details that are easily overlooked. When a stock that you’ve shorted has gone down, the amount of capital you currently have invested in the stock is not the current price of the stock, but rather includes the amount that the price has decreased by. Once again, Tom Miller wrote the definitive column on this, which everyone should take the time to read at least once in their HSX lifetime.

Basically, the upshot is this: on shorted stocks that have decreased in price, your ROI is less than current pricing would indicate. If you’re online on commission-free Saturdays, you should always reshort anything that falls into this category. On shorted stocks that have increased in price, your ROI is more than current pricing would indicate. If I need cash, I usually sell off something else rather than squander what in essence is a free loan from HSX.

Play the openers intelligently

Openers can be a boon to the non-daytrading small port. Scheduled occurances and the potential for big, non-random movements combine to make them truly the best part of the HSX economy. Some say that small ports shouldn’t play openers, as they’re too risky. Hogwash. If you have a decent idea of what you’re doing, they can actually be fairly safe, and can really give your portfolio a boost.

However, this doesn’t mean that you need to play the openers just for the sake of playing the openers. Don’t forget that playing the openers means that you tie up your money for two days. Thus, of the three possibilities for the weekend (adjust up significantly, adjust down significantly, or a small adjust), one is a big win, one is a big loss, and the third is a small loss due to the wasted time. If you think that a stock is priced about right or you have no clue about its prospects, you essentially think that an adjust up and an adjust down are equally likely; with the presence of the “no adjust” possibility (think of it as the 0 slots on a roulette wheel), you should invest your money somewhere else.

Also, don’t forget to play the opener options. Most of the time, they offer a better ROI than the openers themselves, and sometimes they’re even safer, as well.

Be careful with daytrading

So one day last week, I notice JALEX at $200. Each of the next two days, I notice his price go up by over $100, until eventually he’s sitting at $500. Now, I know there’s no good reason for this movement – he doesn’t have an upcoming movie anytime soon, and hasn’t been in the news. So I short him at $500, figuring that he’s bound to go back down to $200. Bad move. The next day, he shoots up almost to $800, before stabilizing in the mid-$600 range. I managed to get out at $625.

Moral of the story: if you’re not an experienced daytrader, don’t try daytrading unless you’re sure of what you’re doing. If you’re trying to catch a downswing, make sure you know why there was an upswing (and why it stopped where it stopped). (The HSB&R Graph-o-matic, once it’s back up and running, would be very useful for this.) And of course, it helps if there’s an upcoming adjust or delist that will serve as a backup in case the price swings the wrong way on you.

Think like everyone else

On securities that don’t have any near-term adjusts, that is. For instance, when the Oscar nominoptions were released, I instantly snapped up several per category. Some of these were no-brainers, but there were some more low-key ones that I nevertheless felt had a better-than-average chance of getting a nomination, such as Cate Blanchett or the Three Kings screenplay. So I bought in (there were a lot more).

Horrible decisions. Most of my sleeper picks went up a tad (just like everything else) but ended up hovering around $1.50. Why? Because not too many other people thought like I did (that’s why they call ‘em sleepers). On the flip side, I sold out of the Green Mile best picture option at $5 and promptly shorted, thinking that there was at most a 1 in 2 chance that it would get nominated. (I still think so; maybe part of that comes from the fact that I didn’t like it all that much. But I digress. . . ) Of course, that reasoning failed to take into consideration the fact that tons of traders had seen the film and had liked it. It went to $6.50 and has stayed there pretty much ever since.

Know what’s going to move

A similar concept. Say it’s Wednesday afternoon, and there are two movies opening this weekend which you estimate will give you similar ROIs. Which do you invest in? Answer: invest in the one which will move in your direction fastest. For example, if you think that BOG’s update will yield an unexpectedly high screen count for one and not the other, that’s the one that’ll move.

Of course, you should also know what won’t move, and avoid it. I managed to resist investing in the sure-thing Holiday Warrants for quite some time, even though they were offering 1.5% daily ROIs. This was a good thing – until a week ago, they hadn’t moved a whit for several weeks. That’s when I bought in (looking for a shelter from the crash). And they still haven’t moved. Argh.

So that’s it. It’s easier said than done, of course, and it might be that you (like myself) need to actually make some of these mistakes before the lessons truly dawn on you, but at the very least you should be able to sharpen your hindsight with these. Good luck storming the castle; just don’t pass me on your way up!