Stock Capitalist » Options

Is this another false alarm like July?

Simon — Tue, 17 Nov 2009 17:38:54 +0000

Great artice by Chris Rowe. Based on this i’m lightening up a few of my bearish positions and hedging with some bullish ones.

“If you’re like me and just about every trader/investor I know in the market right now, you’ve been looking at one “false market signal” after another, one “whipsaw” after another, and one “head fake” after another.

At the market’s current levels, we’re clearly overbought — no matter which way you slice it. Of course, we can stay overbought for a very long time, and being overbought isn’t enough to bet against the trend.

In fact, at times when the market condition is internally and externally “overbought,” is often when we see the market’s largest advance.

But when we saw the sell signals in the market that came after being very overbought, most of us took action that we know has made us money a large majority of the time…”

ORIGINAL ARTICLE

Enjoy!

URGENT – Market has reversed and bears are now in control

Simon — Tue, 03 Nov 2009 18:09:59 +0000

Last week, 11%of all stocks (net)on the New York Stock Exchange broke through support levels, putting them on sell signals.

I’ll make the importance of this event very simple.

All you have to understand is that, if a stock declines and breaks through a key level, the stock is much more likely to continue lower (because the big buyers who were supporting the price of the stock are no longer there, or the sellers had more stock for sale than buyers had to buy)….

ORIGINAL ARTICLE

Enjoy!

Caution moving forward – NYSE BPI has reversed to “O’s”

Simon — Fri, 30 Oct 2009 06:51:48 +0000

Just a quick market caution… i received a report that as of yesterday morning the New York stock exchange bullish percent index has reversed to “O’s”, meaning that the sediment has changed from a “bullish” stance to a “bearish” stance and the bears have taken control of the market.

The last time this happened was in July, and it turned out to be a false alarm… but more indicators have been triggered this time, and since we are still in crash season I think it’s prudent to be cautious at this point.

If you want to learn about how to trade stocks and options (for free) and use some strategies that work well in a bearish market, click ‘beginning stocks and options’ above for some more info.

How to deal with options expiration

Simon — Mon, 21 Sep 2009 16:28:46 +0000

Excellent article on strategies for options that are expiring. I learned allot from this… since my trading style dictatesi always sell my options, way before expiry.

Excerpt:

“As you may know, the third Friday of every month is known as “expiration Friday.”

This weekend, expiring options “come off the board.” In anticipation of this, many investors and traders are closing the books on their September options and getting positioned for October and/or other further-out expiration months, depending on the strategies they are using and the results they want to achieve.

Many of you have sent me e-mails, asking what happens during expiration week to both winning and losing positions. So today I’d like to take some time to talk with you about how to manage your positions during this very active time in an options trader’s world……”

ORIGINAL ARTICLE

Enjoy!

2 Great Tycoon Report Articles

Simon — Tue, 01 Sep 2009 07:11:45 +0000

Have a Portfolio You Can Be Proud Ofcovers a good money management strategy,

and

Options: What Your Broker Doesn’t Want You to Knowtalks about a brokers best interest for keeping you in the dark about how options work.

Plays of the day at play big stocks!

Simon — Wed, 26 Aug 2009 02:13:44 +0000

visit www.playbigstocks.com often and check out the ‘option plays’, ’stock plays’ , and ‘ETF plays’ tabs. They have some good trading ideas there. I also follow them on twitter.

Here is their option play of the month to check out! I happen to agree with the bearish direction. Always be aware of the stops however.

Check it out!

Understanding options ‘Delta’ part 5

Simon — Wed, 19 Aug 2009 18:45:46 +0000

During the last several weeks, I have been showing readers of The Tycoon Report why it typically doesn’t make sense to trade any stock or ETF if they can trade the stock option or ETF option instead. Using options, you can take just a fraction of the risk while being in the position to make the same (or much larger) reward.

Without knowing much about options, you can still position yourself so you’ll MAKEMORE when your stock/ETF moves in the right direction by 10 points (etc.) THAN YOU WOULD LOSE if the stock/ETF moves in the wrong direction by 10 points (etc.)…..

ORIGINAL ARTICLE

Enjoy!

Understanding options ‘Delta’ part 4

Simon — Sat, 08 Aug 2009 22:43:32 +0000

Here’s some advice that I have given that has made hundreds of people millions of dollars:

You probably shouldn’t ever trade a stock or Exchange-Traded Fund (ETF) again.

However, if you chose the right stock option or ETFoption to trade, you will be taking on a fraction of the risk that the stock/ETFtrader takes. And, at the same time, you will position yourself to realize the same (or much larger) profit when your assumption about the stock/ETF’s next move is correct.

I know, Iknow; everyone has heard that options hold more risk than stock, but the fact is, that’s not always true. In fact, it’s untrue in most cases. It’s really all up to you on how much risk you want to take on……….

ORIGINAL ARTICLE

Enjoy!

Understanding options ‘Delta’ part 3

Simon — Wed, 29 Jul 2009 04:04:35 +0000

Understanding delta could mean the difference between trading the right option contract that gives you low risk and high reward, or trading the wrong option contract that exposes you to unnecessary risk.

I’m actually updating a three-part series that I wrote in 2007, but even if you already read the series in the past, reading it again will almost certainly sharpen your knowledge on the subject and change your financial life……

ORIGINAL ARTICLE

Enjoy!

How To Use Deep-In-The-Money Covered Calls

Simon — Wed, 29 Jul 2009 03:44:43 +0000

With a conventional covered call strategy, you buy regular shares of a stock and then sell a call option against them, whose strike price is higher than the current share price. Your aim is that the shares will move higher and will get called away at expiration for a profit.

While this does happen, it doesnt occur as often as you might think. Plus, it usually only happens during an upward moving market.

However, with the deep-in-the-money (DITM) covered call strategy Im focusing on today, were not expecting the shares to move higher. In fact, we dont even need the stock to trade higher in order for us to make money. It can actually go lower (sometimes much lower) and well still make money…..

ORIGINAL ARTICLE

Enjoy!

How to write covered calls

Simon — Wed, 22 Jul 2009 20:19:09 +0000

“The mainstream press does not want you to pay attention to option strategies such as covered calls.

There is a conspiracy here – and its meant to keep you ignorant to a sector of the market that just doesnt fit in with the buy stocks and mutual funds mantra that makes Wall Street money.

You see, there are no upgrades or downgrades for covered calls, LEAPs, or puts.

Its because most mutual fun managers cant see beyond what they have been taught, which has predominantly been to buy stocks.

Sure, theyve heard of options and even know how they work, but they are scared of showing options on their portfolios because the Average Joe that invests in mutual funds still looks at options with tremendous skepticism.

Theyre dead wrong……”

ORIGINAL ARTICLE

Enjoy!

Understanding options ‘Delta’ part 2 and Market Commentary

Simon — Wed, 22 Jul 2009 20:10:46 +0000

Part 1 of this newsletter is very important, because it talks about the current market stance. I want to quote it here so no one misses the opinion. Chris’s stance has changed from intermediate term bearish – to intermediate term bullish – with the failure of the latest head and shoulder pattern on the S&P to trigger a sell off. It doesn’t mean the market won’t sell off again, it just means that optimism has returned to the market for the short term. Read Chris’s words:

“Before getting into Part 2 of the three-part series Istarted last Tuesday, first I want to tell you that my intermediate-term stock market stance has changed from bearish to bullish. The reasons why can be found at my options trading service The Trend Rider.

I had been telling you that odds favored another sell-off and that you should reduce bullish exposure, and that the market’s true strength will show itself when we see how strong that sell-off is (was). The market sold off by about 8%, and then reversed higher relatively quickly.

My internal indicators show that demand has taken control, and since the sell-off was so mild, it seems to me that it’s likely the March low was, in fact, the bear-market bottom. I still need to see a few more things happen to convince me that it was the bottom but, based on the weak sell-off, it’s a lot more likely.

What I AMconvinced of, though, is that, in the intermediate-term, demand has taken control, and it’s now much-safer to take bullish positions.

Understand that, when odds strongly favor a particular outcome, we have to play those odds. But when the market reverses against all odds, it’s important to not be emotional but, instead, to get back on the bullish bandwagon and start making money.”

Part 2 of this newsletter goes on to talk about undersanding ‘delta’, the 2nd part of his series.

“One thing that I want to discuss today is the fact that there are so many options available to trade on each individual stock that expire in one particular month that it might be easy to misinterpret what I was saying last week about how to harness the power of delta to choose the best options to trade.

To review, I told you that, by purchasing deep in-the-money options, you give yourself a high delta, resulting in an option that moves up in value more (point-wise) than an option with a low delta as the stock trades deeper and deeper in-the-money…..”

ORIGINAL ARTICLE

Enjoy!

Understanding options ‘Delta’ part 1

Simon — Tue, 14 Jul 2009 23:46:54 +0000

Given the current market environment, where an overbought market has begun to sell off and people are wondering how low the drop will be, I thought that it would be a good idea for me to revisit this three-part series that I wrote last year because of its high level of importance. I’ve improved it with a few changes geared toward helping you to improve your trading game even more. Even if you remember reading it, it’s still a good idea to review it. This will be one of the most important and influential lessons you have ever learned about investing…..

ORIGINAL ARTICLE

Enjoy!

Hedging with options

Simon — Tue, 16 Jun 2009 15:33:04 +0000

“One day, about 12 years ago, my clumsy cousin came into my office on the corner of Wall and Water Streets. Although his breath stunk of alcohol from a 3 martini lunch, I pretended I hadn’t noticed as I offered him a seat and some water. As he turned to pick up the water, he knocked over my crystal ball, and from that point on, no mater how many reliable indicators I studied, I never knew for sure in which direction the general stock market was going to move next.
It was at that point I decided that no matter how confident or smart I thought I was in my predictions, I had to plan for failure, and position myself to make money, even when I was wrong about the direction of the stock market……”

Original Article

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Option Strategies

Simon — Tue, 16 Jun 2009 15:25:12 +0000

“You will reduce your risk if you take your 500 shares of ABC stock, sell them, and then buy five ABC call options that are a few strike prices in-the-money. (I”ll explain which expiration date the call options should have in a minute – it’s important.)

Example:

If ABC is at $60.00/ share, and you pull up the option chain and look at the 2009 January calls, you might see these call options available:

2009 January 60 calls trading at $9.00 (These are at-the-money)
2009 January 55 calls trading at $12.00 (These are one strike price in-the-money)
2009 January 50 calls trading at $15.00 (These are two strike prices in-the-money)
2009 January 45 calls trading at $18.50 (These are three strike prices in-the-money)

I’m saying that it makes more sense, instead of buying 500 shares of ABC stock at $60.00 (for $30,000.00), to buy five of the 2009 January 45 calls at $18.50 (for $9,250.00). THEN, put the remaining $20,750.00 in a money market account and earn 5%……”

Original Article

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