StockFetcher Forums · General Discussion · need weak stocks to short with "puts"<< >>Post Follow-up
woofys
212 posts
msg #58177
Ignore woofys
12/15/2007 4:13:06 PM

Need stocks that are going down faster than normal etc. Your suggestions please.

clbradley17
4 posts
msg #58246
Ignore clbradley17
12/18/2007 7:26:22 AM

I've found that RIO follows the market, and now that the market is in an overall downtrend, I would buy puts a month or 2 out on every big rally. RIO has been trading in a range between 31 and 36 or so for a couple months, so when this rally starting today (Tue.-12/18) gets to it's peak on Wed. afternoon or Thur., I am going to buy some puts on Rio at either 32.50 or 30 for Jan. or Feb.. I usually try and see how low the price goes and then put in a limit order for 20-30 cents less than that and hope to catch it, but keep a close eye on it and use moving averages and Bollinger Bands on different intervals on a daily, 5-day, and smaller interval basis. But try and catch it at as high a point of the range as you possibly can so they will be the least expensive and you can get the best entry point. I am actually going to try and buy calls today on DRYS since it came to a double bottom yesterday on a BIG pullback, but really wish I would've seen it yesterday at that point before I went to work. If it goes up too much too fast this AM, there isn't going to be a good entry point. This may be another one to buy puts on at the end of this 2-3 day rally. Hope that helps.

clbradley17
4 posts
msg #58247
Ignore clbradley17
12/18/2007 8:30:17 AM

Another good possibility is at the end of this week's or couple days or so rally, Apple (AAPL) will be around it's recent all-time high of around 200, a double-top, and an excellent candidate for a Jan.-Feb. put between 180-190. Just a thought, and as always, try and buy at the stock prices high (could be anywhere from the mid to high 190s to 200-205) and put options prices low for the best entry point and the best way to optimize your chances to make the most $.

EWZuber
1,373 posts
msg #58269
Ignore EWZuber
12/18/2007 5:04:59 PM

Everything about the GS chart says LT bearish, IMO.

clbradley17
4 posts
msg #58552
Ignore clbradley17
12/27/2007 1:44:36 AM

I'm watching ADM (Archer Daniels Midland) for when it gets to it's high sometime this week or next around 47 or 48, because that will equal it's only previous top (double top) from spring '06. The thing that scares me is that the new energy bill helps the ethanol producers and it could keep rising , but frequently at a stock's first double top it meets resistance, and it has run up quite a bit real fast, so I might get the March 45 puts if there is a good entry point.

I used to get the same month calls and puts thinking a stock was in a range and going to rise or fall right away, but the market rarely gives anything easy, and I lost money doing that. Options expert Price Headley advises getting options in the "sweet spot" of 6 weeks to 3 months out. If you get them too short of a time frame, they can seemingly evaporate quickly if they go down even a little once or twice, and it eats up the premium and they depreciate with the Greeks and the short time almost exponentially.

I've had same month options slightly out of the money and if the stock price even stays the same, your contract can lose most or all of it's value with the time frame. But if you get options 2-3 months out at least, you have more control and can get out with only a slight loss if it goes the wrong way or doesn't move. I used to get the same month options figuring they were cheaper and could buy more of them at 20 cents or so, and the same strike price was 2-4 times as much for the next month, and over a dollar for the 3rd month. But if it goes the wrong way, which it often does, you may lose half or 3/4 of your investment at the 20 cents same month options, but I've seen my more expensive options lose very little when they're 2-3 months out, say 10 cents down of a dollar+, with the reduced time depreciation and overall reduced risk.

Of course if it goes your way in the same month, you can make more money quicker as well, but those are very few and very far between, and while you're learning that lesson you're losing money. The better risk management is to get them at least in the next month if not further out, and the #1 rule is not to lose money. My friend who's been trading for a very long time advises not to use options except a few times a year when there is a definite entry point, mainly on the indexes (QQQQ, SPY) like at the bottom in Aug. and a month ago, and at the top in July and October.

rtucker
318 posts
msg #58557
Ignore rtucker
12/27/2007 10:54:27 AM

Nice post clbradely17. I found it very helpful.


maxreturn
745 posts
msg #58570
Ignore maxreturn
12/27/2007 4:56:02 PM

clbradley....looks like we've had similar experiences. Very wise to buy as much time as you can whilst keeping cost reasonable. I would add that although buying in-the-money options adds to your cost, it gives you the ability to stay in a position even though the market may move against you for a day or two. An in-the-money option will lose far less on a percentage basis that an out-of-the money option.

clbradley17
4 posts
msg #58573
Ignore clbradley17
12/28/2007 6:42:10 AM

Thanks rtucker, and an excellent point maxreturn. I've seen all the professionals frequently recommend in the money options as your risk is also much less, and if you expect a pop one way or the other like just before the last couple fed cuts, and are not sure which way, it is possible to straddle or strangle the options, and buy puts and calls at the same time.

Say if the options on the NASDAQ, the QQQQ, is at 50 the day of the next fed cut, you can buy calls at 51 and puts for 49, again for at least 1 1/2 months away, or puts and calls both for 50, and once one makes a definitive move after a few days or a week+, sell the diminishing one (you may be able to sell it on a day the market moves that way), but try and make sure which trend is in so hopefully it doesn't double back on you.

Another thing I check on is if a company is announcing earnings, and if they are, you can either use the above strangle or straddle if a big move is expected like the last few RIMM or AAPL earnings, but the possibility exists that on a lot of stocks the price may consolidate or trade in a tight range for a while and you could lose money on both if it doesn't move over a long time. Cramer recommends staying away from earnings days altogether, and I'm all for that theory.

I first tried just buying stocks that were inexpensive and at a low hoping for max returns, buying at the bottom Bollinger Band and other indicators, trying for a bounce. But Cramer is right about a lot of things, although he is mostly just entertaining. I get a lot more from Fast Money, also on CNBC, but they all point to buying stocks (or the associated options) of well-run medium to big cap companies with global exposure and excellent mgmt., big buybacks, increasing dividends, and beautiful balance sheets with little or no debt. And try and catch these on a major pullback like in Aug. or late Nov.. Some of the ones I've mentioned including RIO, FCX (Freeport McMoran), and lots of other fantastic big companies that had pulled back a lot at those times rocketed up and followed the market when it came off those V bottoms. That's also the perfect time to get the options on those, once they start to rise, if all your indicators are lighting up.

I was watching a DVD and saw a very good speaker say that to buy stocks or options you need an "and" concept.....this indicator has to be working, and this, and this, and moving averages, trendlines, etc.. But when you sell/get out of a stock, you need an "or" concept.....if this points to getting out, or this, or this, if any 1 looks bad, get out quick. Especially if you bought at the lower priced buy signals and had a good entry point, you have already made a profit, so the worst you can have is cash on the sidelines. Occasionally it will take you out of extra profits, but most of the time it will get you out a couple-few days in advance of a big downturn.

One thing I wish I would've done is paper trade for a long time before I started because just now I'm starting to get educated enough to make a profit and lessen the mistakes, although I still make more than my fair share. I should have studied and read a lot of books like Alan Farley's Master Swing Trader, everything on candlesticks and a lot of the other technical indicators like Bollinger Bands, Fast Schotastics, Williams %R, more on moving averages, trendlines, and all the nuances of these over and over and backtested everything for months to a year before I invested my first dollar.

Just as or even more important than all that is to have a system and to be disciplined, writing down my entry and exit points on every stock or option before I buy them and sticking to it even with the possibility for more profits. Jon and Pete Najarian say once you get a double, take out what you put in and maybe a little more, and let the rest run. So many times I saw my options rise and then they went negative eventually because I didn't have a definitive exit strategy and also the aforementioned same month theory...just playing it by ear and the options would frequently expire worthless. Working on educating myself much more and getting better entry and exit points and a good disciplined system that works and staying with it are my goals for the future in the market.

moqual
38 posts
msg #58753
Ignore moqual
1/4/2008 11:12:52 PM

Great posts clbradley17
Mind if I email you? or you can email me at dru8923@yahoo.com
Thanks,Andrew

StockFetcher Forums · General Discussion · need weak stocks to short with "puts"<< >>Post Follow-up

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