鲜花( 473) 鸡蛋( 2)
|
MANAGING GREED& U# U0 A+ [8 `5 D2 Y; x& L
I find that the more details/indicators you use to study a stock, the more confusing it gets in terms of when to get IN and OUT. To me the price line is the main big picture (daily, weekly and monthly). All, and I mean all, other indicators either support it or show some divergence. I use a trading channel along with the price to see where the price is going or how much it can drop and still be in an UP trend. I started using the 10 and 40-day moving averages as well sometimes. In the 2nd window I use the BOP and Money Stream and sometimes the Rubber band (RSI). In the last window I have the volume, TSV and a Moving Average too. I am not going to detail how I translate them, since everyone should figure out for them selves what indicators work with what charts. I find some indicators are wrong very often for a few of the many
% u/ w4 `$ h8 L1 g5 y1 jStocks that I track. ) M1 y/ v& l) y. U) G
# t0 r. C% M. k' C% t$ m5 R! K
My main strategy involves my medium-term trades (3-9 months), I pick a stock that I like (their business model for example) for the last 1 year they have been in the Tech/Internet area. I pick one that is in my opinion oversold and a bit volatile. I tend to buy what I think are large amounts (10K-20K). I immediately "Sell to Open" options against them at a price that is out of the money. Say I bought @ $50. I then sell options with a strike price of $80 - $90. If they are volatile enough, the premium is high enough to make another $25 - $30. I always sell options with an expiration date 3-6months away. Mostly six months out, that is how I make large premiums. I am explaining this like a lesson for those vaguely familiar with covered calls. 0 F2 D* E. F% b* @( N
6 w7 h/ v2 p' m1 f7 f# Q# qNow, what have I achieved, you ask, and what do I do next? Well here is a little math first: If I get assigned (i.e., someone exercises their options and wants to buy my shares at the strike price set), I make, lets say, 10,000 shares X 80 (strike price) = 10,000 X 30 (profit portion) = $300,000 + lets say 10,000 X 25(premium) = $250,000, for a total profit of( t& E5 S: U1 n) g# E
$550,000 for a 6-9 month wait.
+ A: {. |+ u9 U4 |/ h& Z P! x! w1 d * _! j s. b. d4 x
If I do not get assigned, I keep the $300,000 profit and I still get to keep my 10,000 shares, and I start all over at step one. What has greed got to do with all this? Well, a lot of EXPERTS will tell you that you have capped/(limited) your upside potential. That is, the stock could run up to $180 after 6 months, or even $200 (like some do in a week or so). But you can say "So what, I am happy with what I made." That is what I say. Repeat to yourself "I cannot lose money taking a profit no matter how small a profit." It has taken me a long time to understand that simple phrase. Whenever I am in doubt as to what I should do with a position that has a profit (big or small) and shows no indication as to its next price move -- I sell. I sometimes break my own rules too, and lose money. Investing is one thing, but the minute you buy and
7 J; E; C1 ~( E" N, F1 Ysell you are trading and not investing. I trade and I lose money sometimes (when I break my rules) and I make money too, like 1999!
0 c9 z8 X: i3 } 2 C2 J+ R* @( @7 ?
My strategy has worked for me so far, even this year. I have losing positions too (ATHM, BRKA etc.). With ATHM I bought for the wrong reasons and then I failed to write the option that I thought I should have. BRKA I intended to keep. The trick is to pick the right stock (which I am sure we all know how to do (grin)) first and IMMEDIATELY write the covered call for a strike price + premium that gives you a fair profit that you can live with. Then do not get greedy. When you make the profit, take it and give yourself a pat on the back. I have never been able to buy at the bottom or sell at the top. If you know how, let me know. Building wealth is about taking profits small or big.
+ w& f0 L9 Y3 x; j3 s
/ n3 H3 p+ i' p: UAfter you write the option, you get a little of your capital back for other things, like rolling up your position, and especially for buying back your options if the share price drops enough to make a tidy profit on the buy back price. So much of my little wisdom/strategy.
& f% Z7 z/ c2 B5 z0 n" @4 Z
! m6 i6 Z2 @# q, B/ n8 {Do not try this at home until you have an understanding of options, premiums and the all important time value of option premiums.
3 G6 Z- V# O& `* |5 P0 ~: h! F
% O4 T, E, J: U. J) W2 E& HThanks for letting me share this with you, I used to work in private banking in HK (I am from there) for Chase. Then when I came here with my wife, I started my own business as a software designer/programmer and consultant. I worked very hard for 8-9 years, long days, etc. I did well, but I put all my money into my software products that I produced. I then created a great email client that was/is very good. This was before the Internet was known very well. I came close to doing a big deal with an ISP and it would have made me very happy and feel successful. I lost the deal to MSFT. No hard feelings. It is business after all. I then stopped my business and felt very sad. I got into trading as a temporary thing till I could figure out what I wanted to do. Since then, I have made a lot of money (more than the prior 8-9 years collectively), but the irony is that I do not feel I produce anything anymore. I am making money out of someone else’s hard work in the stock market. I do enjoy trading now, and my new passion is flying. I have my license and love flying. I also ride horses and speak 3 languages. Regards, RP |
|