Volatility makes for a 'swinger's market' - Buy And Sell Fast

Richard Morrison, Financial Post
Published: Wednesday, October 29, 2008

Doug O'Brien, a 65-year-old retired insurance sales manager from St. Hyacinthe, Que., maintains his commanding lead in the financialpost.com Stock Market Challenge.

Mr. O'Brien, who plays as rising-star, had turned his $100,000 in play money into $830,595 as markets closed yesterday, for a gain of 731% in 44 trading days. The second-place player is $442,000 behind.

"It's a swinger's market," said Mr. O'Brien, referring to the volatility that makes it too dangerous to hold on to a stock for more than a few hours.

Mr. O'Brien said he tries to identify the most volatile stocks, buying them or going "long" when markets are rising, then switching to a short-selling position in a matter of hours or even minutes. The strategy requires constant vigilance, said Mr. O'Brien, who rarely leaves his desk -- arrayed with five computer screens -- during trading hours.

"I'd rather have a stock-picker's market where you can keep the stock for several days," he said. "I read the technicals on a stock and I can usually tell whether it's going up or down, but in this case you just go with the market."

Normally, Mr. O'Brien said, he's careful not to be invested in anything at the end of the trading day, in case the market moves against him on the opening. On Monday afternoon, he said, he took a chance and shorted a stock, only to see it rise immediately the next day -- a move that cost about $10,000.

"I think we've had a double bottom in the markets and we may be on our way up," he said.

The contest, which ends in mid-January, awards $25,000 in real money to both the top trader (25 or more trades) and the top investor (fewer than 25 trades), with $15,000 for second place and $10,000 for third in each category.

The second-place investor and third overall is Maria W., who plays as mariasa. Her portfolio was worth $362,357 at yesterday's close, for a gain of 262%.

"If only my own portfolio had been doing as well," she said. Maria works for the federal government but said she is home in Ottawa on maternity leave, and alternates her trading with taking care of nine-month-old Olivia.

"So far, I've limited myself to very few trades -- all relating to Wachovia. So I'd have to say Olivia is taking up quite a bit more time than the trading," she said.

"I've been fully invested in Wachovia since the beginning. I really thought the chance of a buyout was good, so I put all my marbles in one basket, so to speak."

Maria's husband, Jason, has also entered the contest, "but he is not doing well at all, much to his chagrin," she said. "This gives me dinnertime bragging rights, for now at least."

For much of yesterday, Dave Smethurst, a 43-year-old Vancouver-based IT consultant playing as kndata, was the top investor and in second place overall with a $400,000 portfolio, then plunged to ninth place with a portfolio worth a little over $269,000 at the close. His latest trade is given as Hudson Resources (HUD/TSX-V), which fell 30% yesterday, falling from $1 to 70¢.

Many of the leading contestants do not want to be identified. Although they have not offered specific reasons, we can make some assumptions.

First, stock markets open at 9:30 a. m. ET and close at 4 p. m. ET. That means that unless they are retired, unemployed or work nights with little sleep, active traders who have day jobs must line up their trades before going to work, unless they work in Western Canada. The alternative is to play the game on company time.

If, for example, you are scheduled for a heart bypass and just before the anesthetic takes hold, you see your surgeon tapping frantically into a laptop beside the operating table and hissing "sell! sell! sell!" there is a good chance he's playing the financialpost.com Stock Market Challenge.

Second, for active traders, it's an advantage to have access to real-time stock-market information. What sort of folks have this? And noting point number one above, who might be able to access these data during working hours?

Many of the leaders describe their occupations as information technology specialists -- computer geeks who are obviously playing the game when they should be.... Come to think of it, no one knows what IT specialists do, anyway.

Other successful players would rather be shot dead than reveal their names, yet they have sloppily provided the contest organizers with e-mail addresses that look suspiciously like the names of major Canadian banks and investment dealers. It might also explain why you're having trouble reaching your broker.

As for me, desperate times call for desperate moves: The Horizons BetaPro series of geared, or leveraged, exchange-traded funds, which provide twice the momentum of the underlying index -- up or down.