MOLLY'S MONEY

A good trade in the market.
There is a lot I'd like to write but time is short. Molly made $2,390 in three days, based on $2,610. That should add up to $5,000. Here's what she did. I helped on the sidelines as I do not do trades from here.
The Dow had sold off. It was way down. It bounced off of $10,600. The Dow Jones Industrial Average is the most widely watched index in the world. Yes, there are bigger groupings of stocks, like the S&P 500, the Fortune 500, even the New York Composite and the Nasdaq Composite. So why the Dow? For me, it's simple, the numbers are everywhere. Every time I walk by a TV, there it is. When anyone generically says the market is up or down, they are talking about the DJIA. Don't confuse this with Dow Chemical, ticker DOW.

You can trade the index, or the DJX. I think a good alternative is to trade the DIA. That's a ticker symbol for an ETF, a trust that has the 30 Dow Components in it. It trades like a stock. If the Dow is at $10,680 the DIA will be 1/100 of that, or $106.80, plus a little more change.

Okay, Molly ascertained that the Dow was at a low. September is almost over, one of the worst months historically of all the months. October is coming up, usually an up month, but definitely a green-light month. It's a news reporting month---meaning a lot of earnings info to be released. Molly bought the call options on the DIAs at the $110 strike price. Buying calls she's hoping the Dow rises. It did. She paid $2.61, so 10 contracts cost $2,610. The next two days the market rallied. Remember my test question? For years there has been a ratio, though not perfect, of this: If you have a call close to the money---say $110 when the Dow is around $11,000---then as the Dow moves up or down the option will move about 50 cents. It sure seemed to hold this week on this trade. I checked several times and it was very close. This means if you paid $2.00 for the option and the Dow goes up 100 points (not just in a day but even in a few days) your option will go up 50 cents. That would be $500 if you owned 10 contracts (or the right to buy 1,000 shares). $2,000 to $2,500 in an hour or two or a day or two. Oh, and don't forget if the Dow goes down 100 points you lose the 50 cents.

Again, Molly thought after two really bad days that the Dow looked like it wanted to move up. One group of people say to stay away, another group says that a lot of money will move back into the market in advance of the October earnings season. I'm in this latter camp. One more quick thought on October. Even if this trade doesn't work this week, it still has time to work. October expiration date, the 21st is still 3-1/2 weeks away.

She was going to go for a triple, but in just two days the market went up nicely and she got out at $5.00. On the 10 contracts, that is $5,000, netting her $2,390 ($5,000 - $2,610 [cost] = $2,390). Not a bad two-three days work. Oh, and when she did the market went down quite a bit and she would have not made any profits until the next rise. I'll comment on this strategy later.
Congratulations Molly. Way to Go. Impressive, you Sky Walker.
UPCOMING: More comments on Business and Politics and Molly is in another DIA trade. It's just so exciting.