Quote:
Originally Posted by TechRider
OK..I have been trading stocks for a while (I would trade for few months and go dormant..and start again and dormant again).
I started trading options for the first time, since couple of weeks. I think I made couple of profits and a loss last week.
I am trying to get my act together with some sensible, educated investing 
OK..so I was wondering how exactly you guys pick your stocks to trade. Do you get into them after seeing some action in trading volumes etc or how?
Some one said, I could go to stockcharts.com and pick some indicators and you would know the ones people are currently trending.
I wanted to see if you have different ways to pick your picks  |
I am slowly moving to the stocks that have weekly options.
In today's market, 4-5 weeks can be a long wait, for a covered call to expire. All the while, the stock is getting killed, or runs way up past your strike price.
I am using weekly options because they begin trading the Thursday before. This reduces my risk period from 4 weeks
(or 5 in the few months each year when there are 5 week until expiration) to no more than 6 days.
I pick stocks that are volatile and are trading near a short term bottom, based on the charts, professional opinions I hear all day long on CNBC, and fundamental analysis, and educated guessing.
There are no magic formulas. You pick a buy point and jump in.
You also need a plan when you will sell.
I bought a Google March $620 call for $36.99. I am not worried that I'll lose all of that. I sold the weekly Dec. 21st $530 call for $5.30 and had to buy the call back for $1.10. So, my March $620 cost is down to $$34.79. It's now worth about $39.50, and is in the money over $13.00.
I get to ride Google through the holiday season, and through their earnings on January 19th. And another 8 weeks of follow through, hopefully, after the earnings.
Now that really puts me in a predicament. Monthly and weekly options both expire the 20th. And I'm sitting here with a stock that could go up or down $75.00 or more, on the 19th. I'll
carefully sell covered calls each week, until the 13th and then stop.
Selling them carefully, means that I won't be in a hurry to sell a Dec. 28th call, on Dec. 19th or 20th (which I did not). I want to give the stock a chance to move up, so I can sell at a strike price, much higher than the one I own, which is the $620.
Looking at current prices for Dec. 28th, I can get $2.50 for a Dec. 28th $640. I'll try to let the stock works it's way higher, before deciding what day and what strike price, I'll sell a call for Dec. 28th. I want to give the stock room to move around.
With earnings the 19th, I need to stay clear of the upside calls, so I won't sell one for Jan. 20th. And I need to protect my March $620 call, because that is 8 weekly's that I can sell after Jan. 20th. If the news is not good, and the stock drops down below $620, I'll be looking at a loser.
I'll buy a protective put at some price, at some point, before the 19th.
Options are not as complicated as they might seem. But, you have to be right in the direction as well as the time frame, or you can lose 100%.
$36.99 for 1 March $630 call, let me control $63,000 worth of Google stock.
Suppose Google runs up next week and late Thursday it is $642. I may go ahead and sell a weekly Dec. 28th $645 call for $1.00, or whatever I can get, anything, to offset my original cost.
Selling calls against the call I own is a simple calendar call spread with no option requirement (cash set aside) unless I was to sell a call with a lower strike than the one I own. As long as the stock is above $620 I can sell short calls and not need any cash on the sideline.
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