I have a scenario for all of you to think about. It involves doing a riskier trade to make some money and then a more sensible and stable trade to make monthly income. I'm picking this up from Molly's idea.
It starts with doing some quick trades on a stock that has four fork lifts waiting to move it. Right now that is Ross Stores (ROST). For years I've talked of an event, an announcement or some such that would move a stock---up or down---to a new place. In most of my early books I called them OMFs, or Other Motivating Factors. I wrote and spoke of this in regards to analysis. I taught that Fundamental Analysis (my favorite) check on the health of the company---earnings, growth, debt, other factors---like putting a thermometer in the mouth of the company to see if it is healthy.
Technical Analysis on the other hand explored ways to get into the stock or out of the stock at better points. Money Flows, MACDs, Support and Resistance, and the moon in the seven sky, all played into this aspect of looking at and doing trades.
OMFs were the events that moved the stock now---news announcements like a lawsuit starting or ending, dividends, stock splits, managements changes, etc.
In summary or to solidify the point of this I mentioned that Fundamentals tell you WHAT to buy, Technicals tell you WHEN to buy, and OMFs tell you WHY NOW.
Later I called these OMFs compelling reasons. The past few years I've changed it to the Forklift analogy. It's easier to explain. You want this box in the warehouse moved over there, where's the forklift. No forklift, it's not getting moved.
So, back to Ross Stores. Great earnings. A 2:1 stock split. A dividend on Dec 29th. Christmas and hopefully the Santa Clause Rally. Molly picks up on this and wants to make several trades with options. She'll play it into the split, rolling it beforehand.
It could be a great two weeks. Her attempt is to take $5,000 and turn it into $20,000---netting $15,000. That's quite an undertaking. I hope she makes it, though I think it's a little risky for my blood.
That's why I wrote GGMM---Good Golly Miss Molly. We'll see how she does. She's on her way as of this writing.
Let's say she makes it, and even if not consider the following anyway. She takes the $20,000 plus dollars and buy 10,000 shares of BioSante (BPAX) for $2.25. That's $22,500. Molly, make sure you put in a stop loss at, say, $2. Now she can sell the $2 call for .65 cents, taking in $6,500 now. Yes, she would have to give back $2,500 if called out, but with the buy back there is no reason to get called out.
Or she could sell the $2.50 calls for .40 cents, taking in $4,000 now and maybe $2,500 more if called out. Most of my friends could live on around $4,000 a month. That would be a great month if she can make it happen. She's starting with about $5,000 and could end up retired for the rest of her life. GGMM. Go Get'm Miss Molly.
More on this and other exciting developments coming up.
Wade
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