If you are new here - please scroll down to the first post at the bottom of the page
Subscribe to Stockideas.net Feed!Friday, December 21, 2007
A new stock pick - Tetra Tech (TTEK)
Yikes, its been a while since I last posted. I think its my fault for just being lazy and paying more attention to my work. Nevertheless, I do still invest and enjoy trying new things. Before I go into my newest "pick" allow me to reminisce a bit on some previous posts.
WFR: chosen at 37.87 and has since risen to 95.00 (far far beyond my original sell point but it did come up at least 2 more times in my scans and has since responded predictably). This stock is probably the best example I have seen with respect to the 200 day sma as a support.
Q: chosen at 8.10 and did rise to about 10.20 which is much higher than the intended 10% gain of 8.91. Although Q took its time getting there, its low volality safely kept it away from the sell stop of 7.70. Q is the lowest priced stock I have ever considered using the support scan.
R: chosen at 52.62 and rose to about 55.03 before it fell to the sell stop. Because it never achieved a 10% gain and likely would have been sold before later rising to 57+, it underperformed based on my expectations. This may be because at the time the 52 week high wasn't much beyond the 10% target. In order to reach such a height, R would have needed to break new ground which is a difficult thing to speculate.
Now on to the current market condition:
DJ Indu 13,450.65 +205.01
Nasdaq Comp 2,691.99 +51.13
S&P 500 1,484.46 +24.34
Yes, today was a major increase in the market that many news outlets regard as a holiday rally. This type of day often brings many scan results that often wouldn't be seen (as well as a whole lot of stocks to avoid - hopefully not this one!).
Of the 26 results from the scan based on the close of 21 December, 2007, I found TTEK to be interesting. It exhibits many of the technical properties that I look for in a positively trending stock that has pulled back to a bargain price. Here is a chart of it:
WFR: chosen at 37.87 and has since risen to 95.00 (far far beyond my original sell point but it did come up at least 2 more times in my scans and has since responded predictably). This stock is probably the best example I have seen with respect to the 200 day sma as a support.
Q: chosen at 8.10 and did rise to about 10.20 which is much higher than the intended 10% gain of 8.91. Although Q took its time getting there, its low volality safely kept it away from the sell stop of 7.70. Q is the lowest priced stock I have ever considered using the support scan.
R: chosen at 52.62 and rose to about 55.03 before it fell to the sell stop. Because it never achieved a 10% gain and likely would have been sold before later rising to 57+, it underperformed based on my expectations. This may be because at the time the 52 week high wasn't much beyond the 10% target. In order to reach such a height, R would have needed to break new ground which is a difficult thing to speculate.
Now on to the current market condition:
DJ Indu 13,450.65 +205.01
Nasdaq Comp 2,691.99 +51.13
S&P 500 1,484.46 +24.34
Yes, today was a major increase in the market that many news outlets regard as a holiday rally. This type of day often brings many scan results that often wouldn't be seen (as well as a whole lot of stocks to avoid - hopefully not this one!).
Of the 26 results from the scan based on the close of 21 December, 2007, I found TTEK to be interesting. It exhibits many of the technical properties that I look for in a positively trending stock that has pulled back to a bargain price. Here is a chart of it:
Here is an MSN.com blurb of the Tetra Tech company which is a member of the technical services industry:
Tetra Tech, Inc. is a provider of consulting, engineering, construction and technical services focused on resource management and infrastructure. The Company serves its clients by defining problems and developing solutions. Its solution begins with a scientific evaluation of the problem. This solution may span the life cycle of a project, which includes research and development, applied science and technology, engineering design, program management, construction management, construction, and operations and maintenance. During the fiscal year ended September 30, 2007 (fiscal 2007), the Company managed its business in three reportable segments: resource management, infrastructure and communications. On October 1, 2007, the Company acquired the outstanding shares of ARD, Inc. (ARD), which provides applied research, planning, design and implementation services focused on a range of water, energy, environmental and institutional challenges.
And here is some ownership data obtained from msn.com:
Shares Outstanding: 58.00 Mil
Institutional Ownership (%): 85.04
Top 10 Institutions (%): 46.20
Mutual Fund Ownership (%): 1.67
5%/Insider Ownership (%): .34
Float (%): 99.66
Finally, here is my entry and targets:
Entry: Around 22.30
Exit: 10% Gain @ 24.53 and initiate a 3% sell-stop
Exit: 5% Loss @ 21.18 or purchase appropriate +TQIOX Mar 22 2008 Puts to cover losses currently trading at 1.85
Watch out! TTEK is currently trading at only 8% below its 52 week high which means TTEK may have difficulty achieving a new high in the near term. Please trade at your own risk and do proper research before engaging in any position!
Have a nice day!
-J. Walden
Stock Market Investing for Dummies
Stockideas.net
Sunday, January 7, 2007
Ryder System, Inc.
Hi everyone,
the last week I have been unavailable since my greater internet was down until Friday. However, I did manage to come up with one pick out of the last week.
I found that Ryder System, Inc. was a reasonably decent candidate from the support strategy. However, Ryder is slightly more risky since its interaction with the 200-day SMA has only been brief and recent. Therefore, Ryder could be unstable around the 200-day SMA without historical evidence of the 200-day as a strong support for the stock.
I grabbed the following blurb about Ryder from msn.com:
Insider trading for Ryder is minimal, kept fairly low and periodic which leads me to believe that leaders of the company have faith in it. Also, Ryder has outperformed the market and exceeded earnings estimates for the last year with substantial earnings growth.
Below is a chart of Ryder System, Inc.
I'll keep track of Ryder at its last close of 52.62. My ideal targets are as usual 10% above and 5% below the last close.
10% Gain: 57.88 (I usually initiate a 3% trailing stop)
5% Loss: 49.99
Beware that a 10% gain will require R to push exceedingly close to its 52-week high. For your own consideration, you may elect to use a 6 - 9 % target gain and adjust the loss target accordingly.
Have a nice day!
-J. Walden
Stock Market Investing for Dummies
Stockideas.net
the last week I have been unavailable since my greater internet was down until Friday. However, I did manage to come up with one pick out of the last week.
I found that Ryder System, Inc. was a reasonably decent candidate from the support strategy. However, Ryder is slightly more risky since its interaction with the 200-day SMA has only been brief and recent. Therefore, Ryder could be unstable around the 200-day SMA without historical evidence of the 200-day as a strong support for the stock.
I grabbed the following blurb about Ryder from msn.com:
Ryder System, Inc. (Ryder) is a provider of transportation and supply chain management solutions. The Company's business is divided into three business segments: Fleet Management Solutions (FMS), which provides full-service leasing, contract maintenance, contract-related maintenance and commercial rental of trucks, tractors and trailers to customers in the United States, Canada and the United Kingdom; Supply Chain Solutions (SCS), which provides supply chain consulting and lead logistics management solutions throughout North America and in Latin America, Europe and Asia, and Dedicated Contract Carriage (DCC), which provides vehicles and drivers as part of a dedicated transportation solution in North America.Furthermore, Ryder has an institutional ownership of 98% which is fantastic. This could be the source of support for Ryder at the 200-day SMA.
Insider trading for Ryder is minimal, kept fairly low and periodic which leads me to believe that leaders of the company have faith in it. Also, Ryder has outperformed the market and exceeded earnings estimates for the last year with substantial earnings growth.
Below is a chart of Ryder System, Inc.
I'll keep track of Ryder at its last close of 52.62. My ideal targets are as usual 10% above and 5% below the last close.
10% Gain: 57.88 (I usually initiate a 3% trailing stop)
5% Loss: 49.99
Beware that a 10% gain will require R to push exceedingly close to its 52-week high. For your own consideration, you may elect to use a 6 - 9 % target gain and adjust the loss target accordingly.
Have a nice day!
-J. Walden
Stock Market Investing for Dummies
Stockideas.net
Sunday, December 31, 2006
Stock Picks on StockIdeas.net
Hi,
some have requested that I post picks from the support strategy. I would be glad to do this and I will begin posting picks starting next week. Not every day presents opportunities and down days on the market usually produce no results. I will only post picks that I personally believe I would buy with my own money. However, no matter what stocks are picked or how much they would have, could have, or did go up or down - no pick is an actual recommendation to buy or sell any stock or option and you trade at your own risk!! I hope you enjoy the ride.
Some information about the picks:
- They will be chosen after the close of the current day.
- The price of the pick will be the closing price of the stock for the day it was chosen.
- The exit points will be the typical 10% gain (trailing stop or normal limit) and 5% loss (limit)
I will try to write a program that will keep track of the picks online in one spot. This may take some time to put together.
Have a nice day!
-J. Walden
P.S. My webhost does not allow url fopen php functions nor socket connections to outside websites. Therefore, I will have to host the tracking program on a different server.
Stock Market Investing for Dummies
some have requested that I post picks from the support strategy. I would be glad to do this and I will begin posting picks starting next week. Not every day presents opportunities and down days on the market usually produce no results. I will only post picks that I personally believe I would buy with my own money. However, no matter what stocks are picked or how much they would have, could have, or did go up or down - no pick is an actual recommendation to buy or sell any stock or option and you trade at your own risk!! I hope you enjoy the ride.
Some information about the picks:
- They will be chosen after the close of the current day.
- The price of the pick will be the closing price of the stock for the day it was chosen.
- The exit points will be the typical 10% gain (trailing stop or normal limit) and 5% loss (limit)
I will try to write a program that will keep track of the picks online in one spot. This may take some time to put together.
Have a nice day!
-J. Walden
P.S. My webhost does not allow url fopen php functions nor socket connections to outside websites. Therefore, I will have to host the tracking program on a different server.
Stock Market Investing for Dummies
Saturday, December 30, 2006
WFR and the 50-day EMA
Hello everyone,
yesterday was the last day of trading for the year 2006. The final market condition:
Here, WFR appears to show all the healthy signs of a downtrend as mentioned in previous posts. But, looking at the next chart we see something interesting...
yesterday was the last day of trading for the year 2006. The final market condition:
DJ Indu 12,463.15 -38.37
Nasdaq Comp 2,415.29 -10.28
S&P 500 1,418.30 -6.43
WFR has performed precisely as the technical analysis would indicate except for one unforseen price anomaly. Please observe the following chart:
The 50-day EMA was not previously considered as a powerful technical analysis tool on this website (we've only considered the 50-day SMA!). However, this does not make it any less important to the instutions and traders that buy and sell WFR every day.
Therefore, this creates a problem for the current strategy. We really need WFR to track back to the 200-day SMA (which will net our synthetic short stock/collar trade of a long put and short call a LOT of money in the short term). Yet, this is clearly not going to happen if the 50-day EMA gets in the way.
I will need to carefully figure out the impact of the 50-day EMA on the downtrend at hand. If WFR turns around substantially (meaning we get the 3 buy indicators for WFR), then right now at this point is where its going to do it. Even if WFR does go up, its great for my long WFR position. I am only risking the capital generated by selling the 4 calls.
Lets see what happens next!
Have a nice day!
-J. Walden
Stock Market Investing for Dummies
Stockideas.net
Friday, December 22, 2006
Pullback of WFR, lets make some more money!
Hi all,
here is the recent activity in the stock market (intraday at 1:37 PM ET):
As you may have seen, the stock market has pulled back a bit since its recent gains. This has had an adverse effect on the current WFR position. However, because WFR has begun pulling back as well, we are presented with another opportunity to make money on the trade. With the $1,600 earned from writing WFRDH, I can use this to open a long put position and take advantage of near term losses, also known as a collar trade. This transforms my neutral bullish written call to a very bearish collar. Please observe the following chart:
As you can see, the technical analysis shows that the trend is returning to a bearish state. There is still the uncertainty as to whether or not WFR will continue to go down or if that was it. I'm willing to take the risk and buy some in the money puts to hedge downside movement.
Here is a table of calls and puts from bigcharts.com:
here is the recent activity in the stock market (intraday at 1:37 PM ET):
DJ Indu 12,346.10 -75.15
Nasdaq Comp 2,402.22 -13.63
S&P 500 1,410.62 -7.68
As you may have seen, the stock market has pulled back a bit since its recent gains. This has had an adverse effect on the current WFR position. However, because WFR has begun pulling back as well, we are presented with another opportunity to make money on the trade. With the $1,600 earned from writing WFRDH, I can use this to open a long put position and take advantage of near term losses, also known as a collar trade. This transforms my neutral bullish written call to a very bearish collar. Please observe the following chart:
As you can see, the technical analysis shows that the trend is returning to a bearish state. There is still the uncertainty as to whether or not WFR will continue to go down or if that was it. I'm willing to take the risk and buy some in the money puts to hedge downside movement.
Here is a table of calls and puts from bigcharts.com:
As you may have noticed, the most reasonable put position to open is WFRMH, the first in-the-money put option. This is because WFRMH has a much higher delta that WFRMG and nearly the same delta as WFRMI (which costs about 4x as much). By buying WFRMH with WFR currently at 39.55 and the 200-day SMA support at 37.00, WFRMH should make around $2,000 if I buy now and sell when WFR drops this low.
I have entered an order into Ameritrade to buy WFRMH at 1.65 but it looks as though the bid has risen to 1.75. I am in no immediate rush to open this position so I will wait the day at my current limit.
Other positions:
Q
Opened at 8.10, currently 8.29, chg +.19 (+2.35%)
Enjoy!
J. Walden
Monday, December 18, 2006
One Stock to See
Hi all,
I wanted stockideas.net to provide valuable insight into various methods of finding stocks and evaluating emerging opportunities (for free). Why? Well, that's simple. If I could really make money buying and selling stock using the information on this website and become super rich, I wouldn't need anyone's money, right? Second, if what is on this website is as valuable as garbade, I'd be scandalous to try to sell it as though it were profitable!
Nevertheless, allow me to dispense with my findings. The scan, as of the close of 12/18/06, only came up with 1 acceptable candidate. Here is the info on that stock:
Symbol: Q (Qwest Comm Intl)
Last Price: 8.10
Change: +.15 (+1.89%)
Shares Outstanding: 1.91 Billion
Institutional Ownership: 83.20%
Top 10 Institutions: 59.20%
Mutual Fund Ownership: 48.11%
Earnings/Share (EPS): -.09 (-109 Mil income)
FY(12/06) EPS Estimate: .28
General Rating: 6
Chart:
I'll be keeping an eye on Q and append its performance at the conclusion of every new post until its price reaches a sell target (at which point, watching it will be closed and moved to a record of its tracking).
Have a great day!
-J. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Also note that Stockideas.net provides beginner stock market investing information that may assist in helping a good trader determine the best stock investments and also the top stock investments and even good stock investments using basic stock market language. This site teaches kids buying stock with the aid of free stock tips and learn how to invest in the stock market.
recent market data:
DJ Indu 12,441.27 -4.25
Nasdaq Comp 2,435.57 -21.63
S&P 500 1,422.48 -4.61
I wanted stockideas.net to provide valuable insight into various methods of finding stocks and evaluating emerging opportunities (for free). Why? Well, that's simple. If I could really make money buying and selling stock using the information on this website and become super rich, I wouldn't need anyone's money, right? Second, if what is on this website is as valuable as garbade, I'd be scandalous to try to sell it as though it were profitable!
Nevertheless, allow me to dispense with my findings. The scan, as of the close of 12/18/06, only came up with 1 acceptable candidate. Here is the info on that stock:
Symbol: Q (Qwest Comm Intl)
Last Price: 8.10
Change: +.15 (+1.89%)
Shares Outstanding: 1.91 Billion
Institutional Ownership: 83.20%
Top 10 Institutions: 59.20%
Mutual Fund Ownership: 48.11%
Earnings/Share (EPS): -.09 (-109 Mil income)
FY(12/06) EPS Estimate: .28
General Rating: 6
Chart:
Looking at this chart, all the technical data agrees with the criteria mentioned before; decent trends, possible bullish MACD, rising RSI, proper price reactivity etc. Also, Q has fair fundamentals. It is clear that Q has declined recently due to the losses it is facing for 2006. However, Q estimates a positive EPS (whether or not this will pan out is yet to be seen).
Furthermore, Q has terrible options trading possibilities and offers nearly no support there. A purchase in Q is 'as-is' making its success dependant on the sell targets. I would surmise that the stop loss would be safe at 5% below 8.10 (7.70) and the exit at 10% (8.91), initiating a 3% trailing stop (min 7% gain).
I'll be keeping an eye on Q and append its performance at the conclusion of every new post until its price reaches a sell target (at which point, watching it will be closed and moved to a record of its tracking).
Have a great day!
-J. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Also note that Stockideas.net provides beginner stock market investing information that may assist in helping a good trader determine the best stock investments and also the top stock investments and even good stock investments using basic stock market language. This site teaches kids buying stock with the aid of free stock tips and learn how to invest in the stock market.
Saturday, December 16, 2006
Recently with WFR and StockIdeas.net
Hello all,
I wanted post an update with the recent activity in the market:
WFR has gone up a total of 15.00% and my 455 shares are now worth around $19,815.25. Of course, I have a short option position currently worth -$2,640.00 not including the $1,320.00 from initially selling the 4 option contracts.
WFR is currently worth 43.55 a share which is a bit higher than my break even point with the options (by selling the options contracts at $3.30/share at a $40 strike price, its the same as selling the stock at $43.30/share and therefore the extra $0.25/share is unrealizable gain.)
Since the 4 WFRDH calls are now worth $6.60/contract, the break even point for any option buyer is $46.60/share of WFR. This means that in order for an option exercise to be profitable for a buyer today, WFR would need to rise above $46.60. Even though WFRDH is in-the-money, its still unlikely it'll be exercised anytime soon. WFRDH is worth about $3.05 in time value which is actually less than when I sold the options a month ago when WFR was at about $36/share.
In the meantime, I can still make money while I am forced to hold a position in WFR that is already making more money than I originally planned. Now that WFR is unusually high relative to my expectations, I am actually hoping WFR will drop a bit. $40 January 21 WFR puts (WFRMH) are currently worth nearly nothing at .65 - .70 with a delta of around .20 (a bit low but will get higher in a sell signal). With the remaining $1,600 in my account, I am just waiting for a sell signal to buy up these cheap puts to protect myself from a downturn on the stock (and make money!).
Please observe the following charts from StockCharts.com:
Through the use of options, I am prepared to take advantage of any move in WFR. I can define my WFR position in states:
State 1 (Initial Position):
- Purchase stock using 100% capital available (see my stock choosing strategy)
- Write supplemental amount of calls to make money from the start.
=>If WFR goes up, proceed to state 2
=>If WFR goes down, proceed to state 3
State 2 (My current state):
- Hold WFR until either the written option contracts expire unexercised or they are exercised and I exit the position at the desired amount (my chosen exit = strike price of calls)
=>If WFR goes down, proceed to state 3
State 3 (Secondary Position):
- WFR begins throwing up sell signals left and right (declining RSI and MACD, 5 day EMA falls below 20 day EMA)
- Purchase cheaper short term put contracts to offset downside movement.
=> Proceed to state 4
State 4 (Tertiary Positon):
- WFR has gone down and begins to turn around, showing buy signals.
- Close long put position (hopefully at a healthy gain)
- Close short call position (also, hopefully, they are now worthless and can buy them back)
- If desired, purchase more WFR stock with the profits
- Write more options contracts (appropriate strike/time value).
=> Return to state 2
At the moment, I am merely watching WFR to see what will happen next. If WFR is going to make a move, it really needs to be a strong move. My strategy will actually hurt me if I move into a new position on a weak downturn.
Thats all for the moment, in the future I will begin posting hypothetical positions to analyze more strategy at a faster pace and simply keep my actual positions in an online portfolio.
Have a great one!
-J. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: How do stick options work? Stockideas.net provides an intro to stock options that allows learning to invest in the stock market. This is not the same as stock market simulation game free trading. Understanding stock options and forex options trading is a long process even with free covered call option information.
I wanted post an update with the recent activity in the market:
DJ Indu 12,445.52 +28.76
Nasdaq Comp 2,457.20 +3.35
S&P 500 1,427.09 +1.60
WFR has gone up a total of 15.00% and my 455 shares are now worth around $19,815.25. Of course, I have a short option position currently worth -$2,640.00 not including the $1,320.00 from initially selling the 4 option contracts.
WFR is currently worth 43.55 a share which is a bit higher than my break even point with the options (by selling the options contracts at $3.30/share at a $40 strike price, its the same as selling the stock at $43.30/share and therefore the extra $0.25/share is unrealizable gain.)
Since the 4 WFRDH calls are now worth $6.60/contract, the break even point for any option buyer is $46.60/share of WFR. This means that in order for an option exercise to be profitable for a buyer today, WFR would need to rise above $46.60. Even though WFRDH is in-the-money, its still unlikely it'll be exercised anytime soon. WFRDH is worth about $3.05 in time value which is actually less than when I sold the options a month ago when WFR was at about $36/share.
In the meantime, I can still make money while I am forced to hold a position in WFR that is already making more money than I originally planned. Now that WFR is unusually high relative to my expectations, I am actually hoping WFR will drop a bit. $40 January 21 WFR puts (WFRMH) are currently worth nearly nothing at .65 - .70 with a delta of around .20 (a bit low but will get higher in a sell signal). With the remaining $1,600 in my account, I am just waiting for a sell signal to buy up these cheap puts to protect myself from a downturn on the stock (and make money!).
Please observe the following charts from StockCharts.com:
Through the use of options, I am prepared to take advantage of any move in WFR. I can define my WFR position in states:
State 1 (Initial Position):
- Purchase stock using 100% capital available (see my stock choosing strategy)
- Write supplemental amount of calls to make money from the start.
=>If WFR goes up, proceed to state 2
=>If WFR goes down, proceed to state 3
State 2 (My current state):
- Hold WFR until either the written option contracts expire unexercised or they are exercised and I exit the position at the desired amount (my chosen exit = strike price of calls)
=>If WFR goes down, proceed to state 3
State 3 (Secondary Position):
- WFR begins throwing up sell signals left and right (declining RSI and MACD, 5 day EMA falls below 20 day EMA)
- Purchase cheaper short term put contracts to offset downside movement.
=> Proceed to state 4
State 4 (Tertiary Positon):
- WFR has gone down and begins to turn around, showing buy signals.
- Close long put position (hopefully at a healthy gain)
- Close short call position (also, hopefully, they are now worthless and can buy them back)
- If desired, purchase more WFR stock with the profits
- Write more options contracts (appropriate strike/time value).
=> Return to state 2
At the moment, I am merely watching WFR to see what will happen next. If WFR is going to make a move, it really needs to be a strong move. My strategy will actually hurt me if I move into a new position on a weak downturn.
Thats all for the moment, in the future I will begin posting hypothetical positions to analyze more strategy at a faster pace and simply keep my actual positions in an online portfolio.
Have a great one!
-J. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: How do stick options work? Stockideas.net provides an intro to stock options that allows learning to invest in the stock market. This is not the same as stock market simulation game free trading. Understanding stock options and forex options trading is a long process even with free covered call option information.
Friday, November 24, 2006
The Bullish Buy/Write - like getting $1320 for Free!
Hello,
I wanted to comment on the "Bullish Buy/Write" strategy. Essentially, this trade writes some number of call contracts while also buying 100 times that number in shares of underlying stock.
Recently with my stock WFR, I decided to try to make a little money on the side with the power of holding shares in the company. This is actually not a buy/write but a covered write. Here is what I devised:
an options value = intrinsic value + time value
intrinsic value = value of the stock - strike price of the option if strike price
0 if strike price > value of the stock
time value = arbitrary value attached to an option representing the opportunity cost for both the option writer and option buyer. (in other words, in the time between the purchase of the option and its expiration, there is the possibility that WFR could rise to infinity in value. The money paid in time value is the option writer's dismissal of the opportunity to take infinity gains and the option buyer is buying the opportunity to buy the stock at the strike price if WFR does rise to infinity value - this is also why writing options is said to have infinity risk because if WFR did rise to infinity, the option writer's losses = infinity - time value - value paid for stock which is still infinity loss).
We can take advantage of time value, the unique property of options, to essentially make money on the side while owning shares in WFR. But, how can this be done?
We must consider several different situations.
Situation 1:
We own 400 shares of WFR worth $36.00, we want to write 4 calls at strike $35.00 valued at $1.50. This options has $1.00 in time value and $.50 in time value.
Situation 1 produces two results:
Result 1 - the option is exercised. In this result, the 400 shares of WFR we own get called away at $35.00 (so we lose $400 on the stock) yet we still keep the value paid for the options we wrote ($600) so we take a total gain of $200.
Result 2 - the option rides to expiration. In this result, we keep both the 400 shares of WFR and the value paid for the option for a gain of $600 and a maintained position in WFR.
Situation 2:
We own 400 shares of WFR and want to write 4 calls at a strike of $40.00 worth $3.30 (this option is longer term). This option has $0 intrinsic value (out of the money and cannot be exercised) and $3.30 in time value. Also note that we will need to hold this short option position for a considerably longer amount of time.
Result 1 - the value of WFR never goes above $40 before expiration and therefore the option expires worthless. We maintain all 400 shares in WFR as a position and keep the $1320 paid for the options.
Result 2 - the value of WFR does go above $40 and the option is exercised. The 400 shares of WFR get called away at $40 for a gain of $1600 and we keep the $1320 paid for the options for a total gain of $2920.
The great thing about all of this is that if we purchase an option that is out of the money (where the strike price of the call is greater than the value of the stock) we always keep the premium paid for the option as long as we do not try to buy back the option contracts.
The problem with this strategy is of course time. If we write a long term option we are obligated to hold the 400 shares until either the options expire worthless, the options are exercised, or we buy back the option contracts. If we close out the position before any of these things happen, we may be obligated to buy another 400 shares to satisfy the obligation of the contracts if exercised (which of course.. is bad.. the same as a naked call).
Another quirk is the problem of downside movement of WFR. What do we do if WFR goes down? Well.. this actually gives us another opportunity to make money. While we have chosen WFR because all the signs agree that it is in a bullish trend, what do we do if we begin accumulating bearish signals?
This is another great part to writing calls. With the decline of the stock we certainly don't need to worry about being called away when the value of the stock falls below the strike (though this shouldn't matter if we do not plan to buy back the options contracts). If we get enough bearish signals to warrant a downtrend while we are locked into a position of WFR, we can just purchase puts with the money earned from writing the calls. Therefore, while WFR drops in value, we can make even more money on the side. When WFR turns around and we begin accumulating bullish signals again we can sell the puts, buy back the calls if they are near worthless and haven't expired and either close the position all-together or buy MORE stock with the money gained, write MORE out-of-the money calls and make even MORE money on the side.
Therefore, if we play our cards right, we can take rather large gains while at the same time limiting risk (through the purchase of puts if we have a LEGITIMATE sell signal that we cannot obey).
I opened a short call position of 4 +WFRDH at $3.30 on Monday, 20 November 2006. While I took a gain of $1320 to my account, +WFRDH is currently worth $3.90 per contract as a result of the recent rise in WFR since Monday. The value of the option is meaningless to me unless I need to buy back the options for some unknown reason. However, I would actually be taking a gain in this case because of +WFRDH's extremely low delta (which means that my gains in WFR outpace the loss in the short options position).
I hope that is of interest to anyone and if you have any questions I'll be glad to answer them on AIM. My AIM is UberUdder09.
- J. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Options trading classes and stock investment clubs sometimes can deliver excellent educational information for stock market for beginners and top stock investments. Good stock investments are always hard to come by but with free stock tips derived from something like disandvantages of stock options one can help learn to invest in the stock market or also learning to invest in the stock market.
I wanted to comment on the "Bullish Buy/Write" strategy. Essentially, this trade writes some number of call contracts while also buying 100 times that number in shares of underlying stock.
Recently with my stock WFR, I decided to try to make a little money on the side with the power of holding shares in the company. This is actually not a buy/write but a covered write. Here is what I devised:
an options value = intrinsic value + time value
intrinsic value = value of the stock - strike price of the option if strike price
0 if strike price > value of the stock
time value = arbitrary value attached to an option representing the opportunity cost for both the option writer and option buyer. (in other words, in the time between the purchase of the option and its expiration, there is the possibility that WFR could rise to infinity in value. The money paid in time value is the option writer's dismissal of the opportunity to take infinity gains and the option buyer is buying the opportunity to buy the stock at the strike price if WFR does rise to infinity value - this is also why writing options is said to have infinity risk because if WFR did rise to infinity, the option writer's losses = infinity - time value - value paid for stock which is still infinity loss).
We can take advantage of time value, the unique property of options, to essentially make money on the side while owning shares in WFR. But, how can this be done?
We must consider several different situations.
Situation 1:
We own 400 shares of WFR worth $36.00, we want to write 4 calls at strike $35.00 valued at $1.50. This options has $1.00 in time value and $.50 in time value.
Situation 1 produces two results:
Result 1 - the option is exercised. In this result, the 400 shares of WFR we own get called away at $35.00 (so we lose $400 on the stock) yet we still keep the value paid for the options we wrote ($600) so we take a total gain of $200.
Result 2 - the option rides to expiration. In this result, we keep both the 400 shares of WFR and the value paid for the option for a gain of $600 and a maintained position in WFR.
Situation 2:
We own 400 shares of WFR and want to write 4 calls at a strike of $40.00 worth $3.30 (this option is longer term). This option has $0 intrinsic value (out of the money and cannot be exercised) and $3.30 in time value. Also note that we will need to hold this short option position for a considerably longer amount of time.
Result 1 - the value of WFR never goes above $40 before expiration and therefore the option expires worthless. We maintain all 400 shares in WFR as a position and keep the $1320 paid for the options.
Result 2 - the value of WFR does go above $40 and the option is exercised. The 400 shares of WFR get called away at $40 for a gain of $1600 and we keep the $1320 paid for the options for a total gain of $2920.
The great thing about all of this is that if we purchase an option that is out of the money (where the strike price of the call is greater than the value of the stock) we always keep the premium paid for the option as long as we do not try to buy back the option contracts.
The problem with this strategy is of course time. If we write a long term option we are obligated to hold the 400 shares until either the options expire worthless, the options are exercised, or we buy back the option contracts. If we close out the position before any of these things happen, we may be obligated to buy another 400 shares to satisfy the obligation of the contracts if exercised (which of course.. is bad.. the same as a naked call).
Another quirk is the problem of downside movement of WFR. What do we do if WFR goes down? Well.. this actually gives us another opportunity to make money. While we have chosen WFR because all the signs agree that it is in a bullish trend, what do we do if we begin accumulating bearish signals?
This is another great part to writing calls. With the decline of the stock we certainly don't need to worry about being called away when the value of the stock falls below the strike (though this shouldn't matter if we do not plan to buy back the options contracts). If we get enough bearish signals to warrant a downtrend while we are locked into a position of WFR, we can just purchase puts with the money earned from writing the calls. Therefore, while WFR drops in value, we can make even more money on the side. When WFR turns around and we begin accumulating bullish signals again we can sell the puts, buy back the calls if they are near worthless and haven't expired and either close the position all-together or buy MORE stock with the money gained, write MORE out-of-the money calls and make even MORE money on the side.
Therefore, if we play our cards right, we can take rather large gains while at the same time limiting risk (through the purchase of puts if we have a LEGITIMATE sell signal that we cannot obey).
I opened a short call position of 4 +WFRDH at $3.30 on Monday, 20 November 2006. While I took a gain of $1320 to my account, +WFRDH is currently worth $3.90 per contract as a result of the recent rise in WFR since Monday. The value of the option is meaningless to me unless I need to buy back the options for some unknown reason. However, I would actually be taking a gain in this case because of +WFRDH's extremely low delta (which means that my gains in WFR outpace the loss in the short options position).
I hope that is of interest to anyone and if you have any questions I'll be glad to answer them on AIM. My AIM is UberUdder09.
- J. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Options trading classes and stock investment clubs sometimes can deliver excellent educational information for stock market for beginners and top stock investments. Good stock investments are always hard to come by but with free stock tips derived from something like disandvantages of stock options one can help learn to invest in the stock market or also learning to invest in the stock market.
Friday, November 17, 2006
Options Trade with WFR
Hi,
Allow me to briefly summarize the day's events:
DJ Indu: 12,342.56 (+36.74)
Nasdaq Comp: 2,445.86 (-3.20)
S&P 500: 1,401.20 (+1.44)
WFR: 36.31 (-1.03)
WFR was traveling down today to 36.31 (-1.56 from 37.87) and I decided to take advantage of the situation. By owning shares in WFR, I have the opportunity to write covered calls (Sold to open 4 contracts of +WFRKG @ 1.75) and pocket $700. Please note, writing calls is generally a bearish strategy! I then took the $700 to open a long put position (Bought 4 contracts of +WFRMG @ 1.90 OTM -1).
These positions act as a synthetic "short stock." This means that the options together operate in much the same way a short or margin position in stock would (ideally costing $0 to open the position and have a return negative to the change in stock price). Therefore, the goal of having these options is to gain value with the decline of the stock price for the day. I see no real reason for WFR to be in a down trend so this position was merely an experiment rather than an adjustment to my original trade.
With the declining price of WFR, I almost immediately began realizing gains. The value of the written calls declined (which is good for me) and the value of the put increased. I really didn't plan this that well since the put was OTM -1 and it was a long term put (Jan 07) and therefore its delta kinda sucked. The trade would have functioned MUCH better if I had purchased near-term ITM +1 puts especially since I definitely did NOT need the time value associated with the long term puts :(.
Near the end of the day I needed close the position since as I said before there was no considerable evidence to a negative trend and therefore I cannot afford to maintain a bearish position. I immediately placed an order in for the sale of the put (so that I could buy back those calls). I sold the calls for a $100 gain and then initiated a limit buy on the calls. Unfortunetly this trade wasn't so easy. I tried to adjust the order to get the price I wanted but at 3:59 PM I was forced to change my order to market to avoid the unnecessary risk of assignment. Nevertheless, I still took a several hundred dollar gain on the down day and off-set my losses on WFR.
I agree that the trade is amateur at best but I demonstrated to myself the validity of the synthetic short stock position and also found how great my broker is at filling these orders!
On monday, I will consider initiating a bull-put spread to take advantage of potential gains in the stock price (I must first evaluate the market condition before I engage in this trade).
- James Walden
P.S. I'd rather lose money and control risk than see money sit!
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Free stock picks and tips and free covered call information help all traders learn how do stock options work and even stock market simulation game free software. Stock market for beginners and best stock investments information is available free at StockIdeas.net. Kids buy stock because it is so easy to find good stock investments and even the best stock investments or, with StockIdeas.net, the top stock investments.
Allow me to briefly summarize the day's events:
DJ Indu: 12,342.56 (+36.74)
Nasdaq Comp: 2,445.86 (-3.20)
S&P 500: 1,401.20 (+1.44)
WFR: 36.31 (-1.03)
WFR was traveling down today to 36.31 (-1.56 from 37.87) and I decided to take advantage of the situation. By owning shares in WFR, I have the opportunity to write covered calls (Sold to open 4 contracts of +WFRKG @ 1.75) and pocket $700. Please note, writing calls is generally a bearish strategy! I then took the $700 to open a long put position (Bought 4 contracts of +WFRMG @ 1.90 OTM -1).
These positions act as a synthetic "short stock." This means that the options together operate in much the same way a short or margin position in stock would (ideally costing $0 to open the position and have a return negative to the change in stock price). Therefore, the goal of having these options is to gain value with the decline of the stock price for the day. I see no real reason for WFR to be in a down trend so this position was merely an experiment rather than an adjustment to my original trade.
With the declining price of WFR, I almost immediately began realizing gains. The value of the written calls declined (which is good for me) and the value of the put increased. I really didn't plan this that well since the put was OTM -1 and it was a long term put (Jan 07) and therefore its delta kinda sucked. The trade would have functioned MUCH better if I had purchased near-term ITM +1 puts especially since I definitely did NOT need the time value associated with the long term puts :(.
Near the end of the day I needed close the position since as I said before there was no considerable evidence to a negative trend and therefore I cannot afford to maintain a bearish position. I immediately placed an order in for the sale of the put (so that I could buy back those calls). I sold the calls for a $100 gain and then initiated a limit buy on the calls. Unfortunetly this trade wasn't so easy. I tried to adjust the order to get the price I wanted but at 3:59 PM I was forced to change my order to market to avoid the unnecessary risk of assignment. Nevertheless, I still took a several hundred dollar gain on the down day and off-set my losses on WFR.
I agree that the trade is amateur at best but I demonstrated to myself the validity of the synthetic short stock position and also found how great my broker is at filling these orders!
On monday, I will consider initiating a bull-put spread to take advantage of potential gains in the stock price (I must first evaluate the market condition before I engage in this trade).
- James Walden
P.S. I'd rather lose money and control risk than see money sit!
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Free stock picks and tips and free covered call information help all traders learn how do stock options work and even stock market simulation game free software. Stock market for beginners and best stock investments information is available free at StockIdeas.net. Kids buy stock because it is so easy to find good stock investments and even the best stock investments or, with StockIdeas.net, the top stock investments.
Wednesday, November 15, 2006
Purchased 455 WFR at 37.87
Hi!
Today I was cruising around the market looking for a new position having just sold JCOM. I did some testing of the scan as I usually do before I open a position to make sure I know what I am looking for (I run the exact same scan on 10, 20, 50, 100 day old data). After a little confidence building I ran an intraday scan and came up with some garbage results including FL, FPIC, IDNX, INSU, INTL, LEG, RFMD, WABC. I decided that while all of these met the criteria of the scan, none of them really convinced me they had potential to go up. This doesn't mean they can't! I just don't have reason to believe in any trends with these stocks.
The very last one on the scan, WFR did come up as interesting. It met all the criteria and had some excellent qualities in price movement. After looking at the chart, I moved to some commonly available company information and found that, in brief, WFR (MEMC Electronic Materials) has had recent success in Asian markets selling silicon wafers. Their revenues and profits have increased substantially in recent months/years. I am also pleased to see that WFR has outperformed many of its peers and has also done very well compared to the rest of the market.
I decided to purchase WFR (whats the sense in having cash or money market? I'd rather be making or losing money than see it sit!) and here is a chart annotated with some details recovered from the scan..
The period is really too small to see the much stronger up trend over the last year. The high of WFR is as high as 48 which would be incredible if WFR managed to get that high.
My targets for WFR are:
High sell: Trigger at 41.657 initiate a 3% Stop Loss (minimum gain of 7%)
Low sell: Trigger at 35.9765 initiate a Market Sell (loss of 5%)
These are modest targets. Depending on the circumstances I may increase the targets (such as the opportunity presented by the coming new year).
Well thats all for now, hope it works out!
-James R. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Stockideas.net helps teach how do stock options work in simple stock market language even so the stock market for beginners learn. Free stock tips should always be regarded as educational information only and true understanding of options and what are stock options comes from individual research into beginner stock market investing. This is not to be confused with disadvantages of stock options which surely do exist.
Today I was cruising around the market looking for a new position having just sold JCOM. I did some testing of the scan as I usually do before I open a position to make sure I know what I am looking for (I run the exact same scan on 10, 20, 50, 100 day old data). After a little confidence building I ran an intraday scan and came up with some garbage results including FL, FPIC, IDNX, INSU, INTL, LEG, RFMD, WABC. I decided that while all of these met the criteria of the scan, none of them really convinced me they had potential to go up. This doesn't mean they can't! I just don't have reason to believe in any trends with these stocks.
The very last one on the scan, WFR did come up as interesting. It met all the criteria and had some excellent qualities in price movement. After looking at the chart, I moved to some commonly available company information and found that, in brief, WFR (MEMC Electronic Materials) has had recent success in Asian markets selling silicon wafers. Their revenues and profits have increased substantially in recent months/years. I am also pleased to see that WFR has outperformed many of its peers and has also done very well compared to the rest of the market.
I decided to purchase WFR (whats the sense in having cash or money market? I'd rather be making or losing money than see it sit!) and here is a chart annotated with some details recovered from the scan..
The period is really too small to see the much stronger up trend over the last year. The high of WFR is as high as 48 which would be incredible if WFR managed to get that high.
My targets for WFR are:
High sell: Trigger at 41.657 initiate a 3% Stop Loss (minimum gain of 7%)
Low sell: Trigger at 35.9765 initiate a Market Sell (loss of 5%)
These are modest targets. Depending on the circumstances I may increase the targets (such as the opportunity presented by the coming new year).
Well thats all for now, hope it works out!
-James R. Walden
Disclaimer: This post, anything on this website or any link to any other website should NOT be viewed as any type of investment advice or substitute for investing research whatsoever. Trading is risky and you do so at your own risk!
Keyword cloud: Stockideas.net helps teach how do stock options work in simple stock market language even so the stock market for beginners learn. Free stock tips should always be regarded as educational information only and true understanding of options and what are stock options comes from individual research into beginner stock market investing. This is not to be confused with disadvantages of stock options which surely do exist.
The Support Trading Strategy History
Hi,
I wanted to introduce the history of the support trading strategy being analyzed. At the time, the trading strategy currently has 4 entries. They are..
This list will likely expand as time goes on. Be sure to check back!
I wanted to introduce the history of the support trading strategy being analyzed. At the time, the trading strategy currently has 4 entries. They are..
This list will likely expand as time goes on. Be sure to check back!
Practical applications of support and trends
Hello again,
Picking the right stocks from a scan is an art. With clearly defined things to look for, looking at charts doesn't have to be as difficult as predicting next month's weather!
First lets look at the concept of support. This can be difficult to define so I chose one of the stocks that I traded before and feel is a great representation of support. Please observe the following chart:
Picking the right stocks from a scan is an art. With clearly defined things to look for, looking at charts doesn't have to be as difficult as predicting next month's weather!
First lets look at the concept of support. This can be difficult to define so I chose one of the stocks that I traded before and feel is a great representation of support. Please observe the following chart:
Notice how clearly defined JCOM interacts with its 200 day SMA. This is the exact behavior we are looking for in terms of 200 day SMA support. In almost every case, JCOM undergoes a trend reversal when it touches the support. This is more common in stocks that have over 90% institutional ownership (which you can easily look up on any detailed quote and research website such as MSN). However, it is critical to understand when support is playing a significant enough role in the motion of the stock price.
Please also note that the 200 day, 50 day, and price in general are POSITIVELY sloped. If they are not all considerably (yes, this is a relative term) positive, then it is doubtful the stock will respond to the 200 day SMA as a support or in any meaningful way. Also note that the price and 50 day SMA are ABOVE the 200 day SMA. Uf one or both are considerably below the 200 day SMA, then not only is the 200 day SMA unlikely to act as any kind of support, it may even act as RESISTANCE to the stock price (obviously very bad for our stock investing strategy which is bullish in nature).
This should become more clear as the stock investing strategy undergoes deeper analysis.
Now let us turn to the problem of reading trends. If a stock is trending upward above the 200 day SMA, the stock must undergo a temporary downtrend or hiccup to drop to or below the 200 day SMA. This, of course, is dangerous to our investing strategy. Buying a stock clearly going up and one that has clearly been going down for the last days, weeks, or months are two completely different animals. Even if today, yesterday, and the day before have been trading higher than previous days, we need some assurance that the stock has a chance to turn around for us. This is where lagging price indicators or trend indicators helps out a lot. Please observe the following two charts:
 |
 |
These charts demonstrate the practical analysis of the most common trend indicators. As stated before, trend indicators (particularly simple ones) lag the price of the stock. The effect of lag and the comparison of two trend indicators together helps evaluate recent price moment compared to older price movement. Accumulation of more positive, recent price movement vice older, negative price movement helps verify the emergence of a new bullish trend. If we get all 3 or even 4 (though they all tend to agree with one another since they derive their solution from the same data), we can reasonably argue a change in price.
By having some evidence of a possible trend change, it is not completely illogical to purchase a stock that has been going down recently to meet its bargain price (200 day SMA for us).
This concludes the introduction to the support stock investing strategy. Lets give it a try!
-James R. Walden
The "Support" Stock Investing Strategy
Hello,
I created StockIdeas.net to share with everyone my own personal stock investing and trading strategy. You are more than welcome to evaluate it however you like!
First, I would like to share the basic theory of my stock investing strategy. I am a fan of buying and selling stock long rather than trading on margin or short selling. By avoiding these investing techniques all together, I do not need to worry about their inherent and sometimes infinite risks.
Speaking of risk, control of risk is CRITICAL to any trading strategy. One of the simplest forms of risk control is the use of stop loss or trigger orders to sell a stock once it has reached and/or exceeded a maximum risk tolerance. Take for example the hypothetical situation of purchasing stock XYZ. By buying the stock, setting the stop loss to -5% and the target sell at 10% you establish a basic form of risk control. Now, if you were to say that you had a 50% chance of guessing that the stock will go up then every two trades would probably yield a 4.5% gain (assuming you lost 1 and won 1 every 2 trades). Of course, actual trades are much more complicated than this and the probability of success or loss can depend heavily on a multitude of factors such as volatility.
Moving right along..
Because I buy stocks long, my primary disposition using this trade strategy is bullish. There are many ways to trade but we are looking for stocks that will give enough positive price movement that we can trade accurately and precisely to achieve a predefined target sell.
I think that one of the finest places to get stock ideas is with a useful scan that picks out stocks with certain criteria important to you. I use the following criteria in my scans:
I call this scan "support" (I'll talk about that in a moment)...
United States Stocks with...
20-day Simple Moving Average of Volume for today is greater than 100,000
60-day Simple Moving Average of Close for today is greater than 1
Daily Close for today is greater than 200-day Simple Moving Average of Close for today
Daily Close for yesterday is greater than 200-day Simple Moving Average of Close for yesterday
Daily Close for 2 days ago is less than or equal to 200-day Simple Moving Average of Close for 2 days ago
50-day Simple Moving Average of Close for today is greater than 200-day Simple Moving Average of Close for today
Daily RSI(14) for today is greater than 50
5-day Exponential Moving Average of Close for today is greater than 20-day Exponential Moving Average of Close for today.
Note: These scan criteria can be used in any scan service. I use stockcharts.com to do my scans.
You may wonder, "what does this mean?" Well, I'd be happy to explain. The first 3 lines help remove all the international stocks and penny stocks from the results. This isn't necessarily because they are bad investments. I remove them because the things we will be looking at are ineffectual or non-existent with these types of investments.
The next 3 criteria deal with support (which is why the scan is called "support"). The 200-day SMA is commonly seen as a universal support and resistance level for any stock. Regardless of the truth in this, many investors and instutions do take the 200-day SMA into consideration for bargains and overpriced stocks and therefore gets a special spot in this scan.
The last 3 criteria deal with trends. Not only do we want to purchase our stock at a bargain, we also want to make sure that we at least have some good indication of a possibly fruitful up trend. This comes from the fact that the...
50 day SMA > 200 day SMA (a very common bullish trend indicator)
5 day EMA > 20 day EMA (another common but shorter term bullish trend indicator)
RSI > 50 (a popular momentum oscillator that represents a good bullish strength if over 50)
The theory of trends is both simple and complex. A trend line on a chart can be likened to a slope line of data points. A positive slope clearly indicates a positive trend. When we consider many days together and compound their data, the trend line tends to lag behind the changing price. A larger set of data lags more than a smaller set of data. If we take a shorter term trend and compare it to a longer term trend, we can say that the near term has been more positive or more negative than the longer term. By comparison, this helps us perhaps find developing trends and explains why trend criteria have won their way into the scan criteria.
These are the elements I will be looking for and the scan that I will be testing throughout this lab. I will definitely consider other trading strategies (even ones that trade options) in the near future and keep a detailed record of all my findings.
Hope you enjoy the ride as much as I do,
-James R. Walden
I created StockIdeas.net to share with everyone my own personal stock investing and trading strategy. You are more than welcome to evaluate it however you like!
First, I would like to share the basic theory of my stock investing strategy. I am a fan of buying and selling stock long rather than trading on margin or short selling. By avoiding these investing techniques all together, I do not need to worry about their inherent and sometimes infinite risks.
Speaking of risk, control of risk is CRITICAL to any trading strategy. One of the simplest forms of risk control is the use of stop loss or trigger orders to sell a stock once it has reached and/or exceeded a maximum risk tolerance. Take for example the hypothetical situation of purchasing stock XYZ. By buying the stock, setting the stop loss to -5% and the target sell at 10% you establish a basic form of risk control. Now, if you were to say that you had a 50% chance of guessing that the stock will go up then every two trades would probably yield a 4.5% gain (assuming you lost 1 and won 1 every 2 trades). Of course, actual trades are much more complicated than this and the probability of success or loss can depend heavily on a multitude of factors such as volatility.
Moving right along..
Because I buy stocks long, my primary disposition using this trade strategy is bullish. There are many ways to trade but we are looking for stocks that will give enough positive price movement that we can trade accurately and precisely to achieve a predefined target sell.
I think that one of the finest places to get stock ideas is with a useful scan that picks out stocks with certain criteria important to you. I use the following criteria in my scans:
I call this scan "support" (I'll talk about that in a moment)...
United States Stocks with...
20-day Simple Moving Average of Volume for today is greater than 100,000
60-day Simple Moving Average of Close for today is greater than 1
Daily Close for today is greater than 200-day Simple Moving Average of Close for today
Daily Close for yesterday is greater than 200-day Simple Moving Average of Close for yesterday
Daily Close for 2 days ago is less than or equal to 200-day Simple Moving Average of Close for 2 days ago
50-day Simple Moving Average of Close for today is greater than 200-day Simple Moving Average of Close for today
Daily RSI(14) for today is greater than 50
5-day Exponential Moving Average of Close for today is greater than 20-day Exponential Moving Average of Close for today.
Note: These scan criteria can be used in any scan service. I use stockcharts.com to do my scans.
You may wonder, "what does this mean?" Well, I'd be happy to explain. The first 3 lines help remove all the international stocks and penny stocks from the results. This isn't necessarily because they are bad investments. I remove them because the things we will be looking at are ineffectual or non-existent with these types of investments.
The next 3 criteria deal with support (which is why the scan is called "support"). The 200-day SMA is commonly seen as a universal support and resistance level for any stock. Regardless of the truth in this, many investors and instutions do take the 200-day SMA into consideration for bargains and overpriced stocks and therefore gets a special spot in this scan.
The last 3 criteria deal with trends. Not only do we want to purchase our stock at a bargain, we also want to make sure that we at least have some good indication of a possibly fruitful up trend. This comes from the fact that the...
50 day SMA > 200 day SMA (a very common bullish trend indicator)
5 day EMA > 20 day EMA (another common but shorter term bullish trend indicator)
RSI > 50 (a popular momentum oscillator that represents a good bullish strength if over 50)
The theory of trends is both simple and complex. A trend line on a chart can be likened to a slope line of data points. A positive slope clearly indicates a positive trend. When we consider many days together and compound their data, the trend line tends to lag behind the changing price. A larger set of data lags more than a smaller set of data. If we take a shorter term trend and compare it to a longer term trend, we can say that the near term has been more positive or more negative than the longer term. By comparison, this helps us perhaps find developing trends and explains why trend criteria have won their way into the scan criteria.
These are the elements I will be looking for and the scan that I will be testing throughout this lab. I will definitely consider other trading strategies (even ones that trade options) in the near future and keep a detailed record of all my findings.
Hope you enjoy the ride as much as I do,
-James R. Walden
Subscribe to Posts [Atom]