Post by UnderCover on Aug 12, 2009 4:40:35 GMT -5
I'll keep it extremely brief as the subject of options trading or any type of trading for that matter can be reduced to the Nth degree and I don't have time for a lengthy debate or discussion. I came across this site by chance and felt compelled to throw in my two cents. Hope it helps.
1. I use power options to screen for good combinations of stock and in-the-money puts.
2. I take a long-term view of the company, at least 6 months ahead.
3. I examine the trends and channels over the last 1-2 years using monthly charts.
4. I research the company as best I can using Bloomberg, Yahoo! and the companies' own web-site or investor relations publishings to find out if there is anything positive or negative coming up over the next 6 months that might affect the stock price one way or another.
5. I look at the analyst reports and recommendations, it must be weighted in favour of a buy.
6. If the outlook is good based on technical analysis and fundamental analysis I'll consider the trade.
7. If I take the trade I buy the stock and put together and then I sell NOTHING!
I think a lot of people start out the right way, they buy a stock and then a put to protect it so they know their maximum loss immediately. But then they go right ahead and sell a call which guarantees them a loss or if they're lucky a bit of 'nervous' income. They've also given up control of the stock.
That seems crazy to me, to go right ahead and set up a safe investment model (safe as in the worst case scenario is immediately realised) and then shoot themselves in the foot by putting a cap on the thing.
Here's my tip. Leave the lid off! I've made far bigger gains by leaving the lid off for a few months on a stock that in my mind has a great chance for gains and then selling the stock and letting the put EXPIRE! You've already paid for the put up-front, you don't need to realise a bigger loss on the thing by PAYING someone to take it off your hands because it's worth less due to the stock climbing and pushing it out of the money.
I do sell calls against these set-ups when the stock is in a confirmed downward cycle, but they're usually out of the money so only generate a few cents income. I'm more likely to shift my put down to generate a few bucks.
So apart from the leaving the lid off you might be thinking "well that's exactly what I do now" - Is it?
When I research a trade I scrutinise hell out of it. How many of you go straight from point 1 to point 6? Be honest with yourself, it doesn't affect anyone else but you. It's your money.
Ok so that's great right? But what (if like in recent months) all the indicators point to a continued downward trend?
Well I used to simply not trade. Until what with the total bear market of the last year that became so common that I was hardly trading at all. The primary reason I started to trade was to get a better return on my money than by leaving it in a bank and not trading wasn't helping.
So here's what I do when great bear opportunities come along. I sell stock short, buy an in the money call and (sometimes) sell puts against it.
Hope this is of some use to those that read it.
1. I use power options to screen for good combinations of stock and in-the-money puts.
2. I take a long-term view of the company, at least 6 months ahead.
3. I examine the trends and channels over the last 1-2 years using monthly charts.
4. I research the company as best I can using Bloomberg, Yahoo! and the companies' own web-site or investor relations publishings to find out if there is anything positive or negative coming up over the next 6 months that might affect the stock price one way or another.
5. I look at the analyst reports and recommendations, it must be weighted in favour of a buy.
6. If the outlook is good based on technical analysis and fundamental analysis I'll consider the trade.
7. If I take the trade I buy the stock and put together and then I sell NOTHING!
I think a lot of people start out the right way, they buy a stock and then a put to protect it so they know their maximum loss immediately. But then they go right ahead and sell a call which guarantees them a loss or if they're lucky a bit of 'nervous' income. They've also given up control of the stock.
That seems crazy to me, to go right ahead and set up a safe investment model (safe as in the worst case scenario is immediately realised) and then shoot themselves in the foot by putting a cap on the thing.
Here's my tip. Leave the lid off! I've made far bigger gains by leaving the lid off for a few months on a stock that in my mind has a great chance for gains and then selling the stock and letting the put EXPIRE! You've already paid for the put up-front, you don't need to realise a bigger loss on the thing by PAYING someone to take it off your hands because it's worth less due to the stock climbing and pushing it out of the money.
I do sell calls against these set-ups when the stock is in a confirmed downward cycle, but they're usually out of the money so only generate a few cents income. I'm more likely to shift my put down to generate a few bucks.
So apart from the leaving the lid off you might be thinking "well that's exactly what I do now" - Is it?
When I research a trade I scrutinise hell out of it. How many of you go straight from point 1 to point 6? Be honest with yourself, it doesn't affect anyone else but you. It's your money.
Ok so that's great right? But what (if like in recent months) all the indicators point to a continued downward trend?
Well I used to simply not trade. Until what with the total bear market of the last year that became so common that I was hardly trading at all. The primary reason I started to trade was to get a better return on my money than by leaving it in a bank and not trading wasn't helping.
So here's what I do when great bear opportunities come along. I sell stock short, buy an in the money call and (sometimes) sell puts against it.
Hope this is of some use to those that read it.
