Even at the height of the bull market, Lowell Koppel did not fit the mold of the hyperactive day trader who jumped in and out of technology stocks dozens of times a day. Instead, he relied on evenhanded options strategies to generate consistent returns that had little to do with the Internet stock bubble.
Maybe that is why, after two years of stock market declines, Koppel, 66, a former software executive, is still trading 100 times a month. Last year, he said, his trading returned 11.5 percent. "I'm a conservative investor," he said from his home in Winchester, Massachusetts. "I only use about 25 percent of my assets to do this stuff with. The rest is in bonds."
Day trading became a prominent part of the market landscape in the late 1990s as individual investors using online trading technology left their day jobs and leveraged their nest eggs to trade stocks, often jumping in and out of positions within minutes. The market downturn that began in early 2000 thinned these ranks by the thousands and forced out of business many firms that had provided traders with training, trading privileges and technology.
Many individual traders who remain have adopted relatively conservative approaches. They say they are holding positions longer, using less aggressive strategies, diversifying their holdings and relying more on short-selling, the practice of borrowing shares to sell in the hopes of buying them back later at a lower price.
"In the old days it was, 'Buy whatever you can afford and go home happy,"' said Joseph Cammarata, president of Sonic Trading, a day-trading firm in New York. "Now, you have to try to preserve capital."
Michael Parness, 38, who runs TrendFund.com, which dispenses trading advice online, said, "I think the main difference is that you have to be willing to take less." The title of Parness' new book,
"Everyone who's trading now is actually doing this for a living," said Don Bright, the head of Bright Trading, a day-trading firm with 42 offices and 600 clients in the US. "The people who treated it like selling real estate on the weekends are gone."
Koppel, who has been trading for three years, said he had never been comfortable with pure stock trading. Trained as a chemical engineer, he gravitated to the complex math of options and spends days analyzing them for potential mispricings.
"It's really only in the last six months that I've gotten my calculations to the point where I feel confident," Koppel said, adding that he gets most of his income from writing covered calls, a conservative strategy that involves buying stock and selling call options. The strategy sacrifices potential appreciation in the shares for guaranteed income from the sale of the options.
The confidence was tested when the market was near its peaks, Koppel said. "Sometimes I felt bad because the stock indices were performing so well and the opportunity loss was large. Now, though, I just try to consistently make money and not worry about the indices."
Teresa Appleton-Lutz, 37, began trading five years ago after leaving a job at Hewlett-Packard to care for her two children. She has moved from trading initial offerings and technology stocks that were so fashionable in 1999 to trading futures contracts.