Obviously options are not for everyone. It's almost an art rather than a "set-in-stone" technique.
Molly has exited her trade. Reminder: She bought 5 contracts of the DIA 112 calls for October. This strike price represents the Dow (DJIA) at 11,200. She paid $2.57, or $1,285. She had in an order to sell them at $5. She bought the DIA $114 calls for $$1.70. Again five contracts totaling $850. Her order to sell was at $3.40.
The market went up and down, time was going away. Monday was a good day, the Dow going up 330 points. Yesterday it was flat, arguing all day with being up then down. Her options were up. Today she canceled her GTC order and just sold them.
I thought that if the Dow went up another 200 points or so, that would be the time to get out, if I were doing the trade. She looked at it around 12:30 PM, just before the market closed, and changed the order to sell to a market order. She got out at $4.30 on the $112s and $2.77 on the $114s. Not a double, but pretty good for ten days.
Here's the math: Costs equal $2,135 (S1,285 for the $112s and $850 for the $114s).
Sell Price equals $3,535 ($2,150 for the 112s and $1,385 for the $114s).
Profit equals $1,400---minus a few commissions.
Way to go Molly. Congratulations!!!!
Wade
Wednesday, October 12, 2011
Friday, October 7, 2011
CASH FLOWING THE STOCK MARKET
I have a few prices for you to look at. It's funny. People still come up to me and say, "Do people really come up to you?" Just joking for my family. That's an old Emo Phillips joke, I think. No, they ask for a hot stock tip. I say, "No, but I'll give you a hot stock strategy." And today's strategy is simply this---GET YOUR MONEY TO WORK FOR YOU. Get a group of assets that produce monthly income for you, so you can quit your job and spend more time with the grandkids, or travel and visit family.
In the stock market I'm talking about three good strategies for developing monthly income. One, Rolling Stocks. Two, Writing Covered Calls. Three, Bull Put Spreads. I like straight options and I would make that number four, but so few people make consistent money with call and put options. Look at some of Molly's trades in previous blogs.
So, the solid strategy, one that is the workhorse strategy for so many is Writing Covered Calls. Here are a few examples:
1) Bank of America (BAC). Earlier today (10/5) the stock was going for $5.52. You could buy 1,000 shares and wait. I like this as I think this is a good support level. However, if you want income, cash in your account, consider selling the November $6 calls for 52 cents. You would take in $520 cash now, and make another $480 if you get called out at $6. This is a six week trade.
2) RENN, RenRen, China's new facebook type company is going for $4.96. I think it's a bargain at this price. Check out the fundamentals yourself. Again, 1,000 shares would cost $4,960, or about $2,500 on margin. The $5 calls for October are 35 cents to sell. You would take in $350 cash now, and agree to sell it at $5, making a little more if you actually sell it. Either way, you get to keep the $350. Not bad for 2 1/2 weeks. This trade expires on October 21st. You can buy back this option later and sell out to October at that time. Oh, the November $5 calls are 60 cents now. That's $600 cash now.
3) American Airlines (AMR). The stock is $2.46. It's been beat up lately, and it has sold off, but at this price a lot of analysts are now recommending it. Don't just buy it , but do some research. The stock would cost $2,460 and the October $2.50 calls are 25 X 28 cents. That's $280 you'd take in and 4 more cents if you actually sell the stock. The November $2.50 calls are 41 cents to sell, or $410.
4) FAS, has been on a dip, along with the other stocks. It was at $9.62 to buy the stock. That's $9,620, or about $4,800 on margin. the October $9 calls are $1.61, or $1,610 cash. You'd have to give back $620 if you got called out. You'd still make about $1,000. The October $10 calls are going for $1.07 to sell. That's $1,070 cash now, and another $480 if you get called out. Look at the November calls. The $9s are $2.25, or $2,250 cash in. The $10 calls are going for $1.97, or $1,970 and you still make the extra $480 if you got called out. Two positions like this and the average American family can retire.
I've been following and trading Micron Technology (MU) and Advanced Micro Devices (AMD) for years. They seem to form a rolling pattern, though not perfect. Almost always they are a good candidate for covered call writing. Why? I'm glad you asked. For a stock to be a good candidate it needs to be solid, meaning making a profit and have some fluctuation, but not wild gyrations.
I also look for the 6% to 8% return, without margin. 10% and more is nice, but sometimes a really high option premium signals a volatile stock in the extreme. Pharmaceuticals are a case in point, especially when they are coming up on a new medicine approval. What I mean by 6% to 8% is this: Say a stock is around $7. The one month out options at a $7 strike are going for 50 to 70 cents, or 6% to 10% of the stock price. Think of this simply. If you buy or already own a stock at $7, and you sell an option against your position for 60 cents, you'd take in $600, if you owned 1,000 shares and sold 10 contracts.
This is a good cash return. Someone is willing to give you $600 cash right now---cash you can use for anything you like, including buying more stock---to tie up your position for a few weeks to a month. This is stock as an asset that you use to generate monthly income. If you think your stock may move up to $9 or more, you shouldn't encumber your position with a covered call. By selling the option we have reversed the process of traditional option trading. We have not purchased the right to buy the stock at a certain price, we have obligated ourselves to sell the stock at a certain price. We are covered in this obligation because we actually own the stock.
Let's look at a real example: MU. The stock closed at $4.96 today (10/6). If we purchased 1,000 shares we would spend $4,960, or about $2,500 if we used margin. Now we sell the October $5 call options, obligating ourselves to deliver the stock at $5 on or before the third Friday of the month, the 21st. The options are 43 X 45 cents. The 43 is the bid, the 45 is the ask. We sell at the bid, for these examples, though in real life we can try to get more with a limit order, say 52 cents. But again, in this format we have to use static numbers. Back to the 43 cents. That's $430 cash now that someone is will to give us to tie up our stock, and potentially buy it at $5, on or before the 21st. What could you do with an extra $430 now? If we sell this stock we'll make an extra 4 cents, or $40---almost enough to pay commissions. If we do not sell the stock we get to keep the stock to generate income another day, as in tomorrow; and we get to keep the $430 for our trouble, which was no trouble at all.
What if $2,500 generated $400 plus per month? Oh, and if you had $5,000 and lived a little on the wild side (read that margin), your $5,000 would have purchased 2,000 shares, and you would take in $860. Again, the business I like to find myself in is helping people live a better life. Call it retirement. Call it passive income. Call it freedom.
FYI. The $5 calls for November are 63 cents to sell, or $630. Rule of thumb: Take the money in the current month. The next month will be there . . . well, next month. Pretty cool huh? And we did this without double dipping---doing a second or third trade within one month, using the incredible buy-back.
FAS, RENN, EK, AMR also look good. Remember the way to get good at these strategies is to practice trade, and then practice trade some more.
Wade
In the stock market I'm talking about three good strategies for developing monthly income. One, Rolling Stocks. Two, Writing Covered Calls. Three, Bull Put Spreads. I like straight options and I would make that number four, but so few people make consistent money with call and put options. Look at some of Molly's trades in previous blogs.
So, the solid strategy, one that is the workhorse strategy for so many is Writing Covered Calls. Here are a few examples:
1) Bank of America (BAC). Earlier today (10/5) the stock was going for $5.52. You could buy 1,000 shares and wait. I like this as I think this is a good support level. However, if you want income, cash in your account, consider selling the November $6 calls for 52 cents. You would take in $520 cash now, and make another $480 if you get called out at $6. This is a six week trade.
2) RENN, RenRen, China's new facebook type company is going for $4.96. I think it's a bargain at this price. Check out the fundamentals yourself. Again, 1,000 shares would cost $4,960, or about $2,500 on margin. The $5 calls for October are 35 cents to sell. You would take in $350 cash now, and agree to sell it at $5, making a little more if you actually sell it. Either way, you get to keep the $350. Not bad for 2 1/2 weeks. This trade expires on October 21st. You can buy back this option later and sell out to October at that time. Oh, the November $5 calls are 60 cents now. That's $600 cash now.
3) American Airlines (AMR). The stock is $2.46. It's been beat up lately, and it has sold off, but at this price a lot of analysts are now recommending it. Don't just buy it , but do some research. The stock would cost $2,460 and the October $2.50 calls are 25 X 28 cents. That's $280 you'd take in and 4 more cents if you actually sell the stock. The November $2.50 calls are 41 cents to sell, or $410.
4) FAS, has been on a dip, along with the other stocks. It was at $9.62 to buy the stock. That's $9,620, or about $4,800 on margin. the October $9 calls are $1.61, or $1,610 cash. You'd have to give back $620 if you got called out. You'd still make about $1,000. The October $10 calls are going for $1.07 to sell. That's $1,070 cash now, and another $480 if you get called out. Look at the November calls. The $9s are $2.25, or $2,250 cash in. The $10 calls are going for $1.97, or $1,970 and you still make the extra $480 if you got called out. Two positions like this and the average American family can retire.
I've been following and trading Micron Technology (MU) and Advanced Micro Devices (AMD) for years. They seem to form a rolling pattern, though not perfect. Almost always they are a good candidate for covered call writing. Why? I'm glad you asked. For a stock to be a good candidate it needs to be solid, meaning making a profit and have some fluctuation, but not wild gyrations.
I also look for the 6% to 8% return, without margin. 10% and more is nice, but sometimes a really high option premium signals a volatile stock in the extreme. Pharmaceuticals are a case in point, especially when they are coming up on a new medicine approval. What I mean by 6% to 8% is this: Say a stock is around $7. The one month out options at a $7 strike are going for 50 to 70 cents, or 6% to 10% of the stock price. Think of this simply. If you buy or already own a stock at $7, and you sell an option against your position for 60 cents, you'd take in $600, if you owned 1,000 shares and sold 10 contracts.
This is a good cash return. Someone is willing to give you $600 cash right now---cash you can use for anything you like, including buying more stock---to tie up your position for a few weeks to a month. This is stock as an asset that you use to generate monthly income. If you think your stock may move up to $9 or more, you shouldn't encumber your position with a covered call. By selling the option we have reversed the process of traditional option trading. We have not purchased the right to buy the stock at a certain price, we have obligated ourselves to sell the stock at a certain price. We are covered in this obligation because we actually own the stock.
Let's look at a real example: MU. The stock closed at $4.96 today (10/6). If we purchased 1,000 shares we would spend $4,960, or about $2,500 if we used margin. Now we sell the October $5 call options, obligating ourselves to deliver the stock at $5 on or before the third Friday of the month, the 21st. The options are 43 X 45 cents. The 43 is the bid, the 45 is the ask. We sell at the bid, for these examples, though in real life we can try to get more with a limit order, say 52 cents. But again, in this format we have to use static numbers. Back to the 43 cents. That's $430 cash now that someone is will to give us to tie up our stock, and potentially buy it at $5, on or before the 21st. What could you do with an extra $430 now? If we sell this stock we'll make an extra 4 cents, or $40---almost enough to pay commissions. If we do not sell the stock we get to keep the stock to generate income another day, as in tomorrow; and we get to keep the $430 for our trouble, which was no trouble at all.
What if $2,500 generated $400 plus per month? Oh, and if you had $5,000 and lived a little on the wild side (read that margin), your $5,000 would have purchased 2,000 shares, and you would take in $860. Again, the business I like to find myself in is helping people live a better life. Call it retirement. Call it passive income. Call it freedom.
FYI. The $5 calls for November are 63 cents to sell, or $630. Rule of thumb: Take the money in the current month. The next month will be there . . . well, next month. Pretty cool huh? And we did this without double dipping---doing a second or third trade within one month, using the incredible buy-back.
FAS, RENN, EK, AMR also look good. Remember the way to get good at these strategies is to practice trade, and then practice trade some more.
Wade
Tuesday, October 4, 2011
The DOW Trade
THE DOW TRADE
Well, so far this DIA trade did not work today. I'm sure everyone wishes that they would have got in today, not Friday.
But, not to worry----yet. There is still time left. In fact, this trade might recover by tomorrow.
I still think the market has tremendous support at 10,600. I just wish it would quit testing it so often.
Stay tuned . . .
Wade
Well, so far this DIA trade did not work today. I'm sure everyone wishes that they would have got in today, not Friday.
But, not to worry----yet. There is still time left. In fact, this trade might recover by tomorrow.
I still think the market has tremendous support at 10,600. I just wish it would quit testing it so often.
Stay tuned . . .
Wade
Money and Politics
MONEY AND POLITICS.
When the newspapers and the radio shows are full of information on government intervention, you need to sit back and really consider the intent of the people in charge.
Ralph R. Reiland in the IBD said: "Bottom line, Obama is saying we'll get more jobs by way of less oil, less gas, fewer jets, fewer home sales and lower levels of charitable giving."
And then one of my favorite financial experts (one I'd make Secretary of the Treasury), Lawrence Kudlow intimated that the President won't tell us the details of his tax and spend plan . . . "but one things for sure: This new Buffett tax is a penalty on investment, risk-taking and job creation." It was good to see this week that Mr. Buffett disassociated himself from this new "Buffett" rule. Maybe there's hope for him yet.
Mr. Ludlow went on to state what seems obvious to any right thinking person: " . . . the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the capital-gains tax lowers revenues." I've written extensively on this in one of my "PATRIOT ESSAYS." We live in dynamic ways. Nothing is static. There is always the aspect of unintended consequences. People adjust, adapt and improvise---always looking out for their own best interest. Wouldn't it be wise to have a government that realizes that and figures out a way to get out of the way to let people's best interests direct their efforts to bettering the whole society? I have a lot more on this topic. Later.
And last comment from Mr. Kudlow. He was writing about how Mr. Reagan was so overwhelmingly re-elected. "Why? Because low tax rates reignited the economic growth and job creation."
I add once again, We need broad-based, permanent tax cuts and to shrink the size of government. We don't need temporary, targeted tax manipulations and more government spending.
Your comments please.
Wade
When the newspapers and the radio shows are full of information on government intervention, you need to sit back and really consider the intent of the people in charge.
Ralph R. Reiland in the IBD said: "Bottom line, Obama is saying we'll get more jobs by way of less oil, less gas, fewer jets, fewer home sales and lower levels of charitable giving."
And then one of my favorite financial experts (one I'd make Secretary of the Treasury), Lawrence Kudlow intimated that the President won't tell us the details of his tax and spend plan . . . "but one things for sure: This new Buffett tax is a penalty on investment, risk-taking and job creation." It was good to see this week that Mr. Buffett disassociated himself from this new "Buffett" rule. Maybe there's hope for him yet.
Mr. Ludlow went on to state what seems obvious to any right thinking person: " . . . the evidence is absolutely clear that a lower capital-gains tax produces huge gains in revenues. Raising the capital-gains tax lowers revenues." I've written extensively on this in one of my "PATRIOT ESSAYS." We live in dynamic ways. Nothing is static. There is always the aspect of unintended consequences. People adjust, adapt and improvise---always looking out for their own best interest. Wouldn't it be wise to have a government that realizes that and figures out a way to get out of the way to let people's best interests direct their efforts to bettering the whole society? I have a lot more on this topic. Later.
And last comment from Mr. Kudlow. He was writing about how Mr. Reagan was so overwhelmingly re-elected. "Why? Because low tax rates reignited the economic growth and job creation."
I add once again, We need broad-based, permanent tax cuts and to shrink the size of government. We don't need temporary, targeted tax manipulations and more government spending.
Your comments please.
Wade
Saturday, October 1, 2011
Business and Politics
Everyday I read and hear about more business leaders coming down on the government for too many regulations, too much red tape, and the threat of more odious regulations and taxes. This uncertainty has driven many to the side-lines. Business does not function in confusion and doubt.
One problem that is an offspring of this overbearing government is that businesses are making decisions, not based on solid business, marketing and accounting functions, but on politics. It's hard to imagine that every decision to grow and expand, develop new products or sources of revenues, and even decisions of pensions and 401Ks has business leaders turning their heads to Washington D.C. !
It's all backwards. It should not be this way. All of us need a stable environment, steady tax rates, low or no government intrusion. Business would flourish.
In short we need to "GROW OUT OF OUR PROBLEMS." If the current administration would do what I listed above, this would happen. We'd bring down our deficits and our debt with an expanding economy. We'd bring down unemployment with growth opportunities. New companies would start. Businesses would expand and grow. It would be a dream America again.
"Government is not the answer, it is the problem." Where is Ronald Reagan when you need him?
One problem that is an offspring of this overbearing government is that businesses are making decisions, not based on solid business, marketing and accounting functions, but on politics. It's hard to imagine that every decision to grow and expand, develop new products or sources of revenues, and even decisions of pensions and 401Ks has business leaders turning their heads to Washington D.C. !
It's all backwards. It should not be this way. All of us need a stable environment, steady tax rates, low or no government intrusion. Business would flourish.
In short we need to "GROW OUT OF OUR PROBLEMS." If the current administration would do what I listed above, this would happen. We'd bring down our deficits and our debt with an expanding economy. We'd bring down unemployment with growth opportunities. New companies would start. Businesses would expand and grow. It would be a dream America again.
"Government is not the answer, it is the problem." Where is Ronald Reagan when you need him?
OCTOBER'S MARKET
Hello my fellow friends.
Well the Dow is acting not so funny. In fact, the VIX, or the Volatility Index says there will be several days of movements, say, up 100 or so, then down 100 or so.
Here is my current thinking. This week was negative. I think some money wants to get into the market in advance of October. Yes, October has historically been an erratic month, but usually on the upside---as long as the news is good. There will be plenty of good news in the form of earnings, but also a lot of commentary and hedging on each companies' future.
It will give us a lot of movement. So here is a good practice/paper trade. I offer this here in the learning context to see the movement of the Dow and the options. Here's why:
1) As stated above, it's October. It feels like it wants to move up.
2) Thursday was Rosh Hashanah. Many people were on the sidelines on Thursday and Friday.
3) The Greek Tragedy might be ameliorated.
4) It's October. Oops, I already said that. Note that there are three weeks to the main option's expiration date.
So Molly jumped back in. I don't know if these are real or practice trades. What I do know is these prices are real. And beating the Autumnal Dog to death---it's October.
She bought the DIA (yes, that's the ticker symbol of an ETF trust that owns all of the Dow 30 stocks, and mirrors the Dow at 1/100). Options are in $1 increments. She bought 5 contracts or the DIAs $112 call options for $2.57, and 5 contracts of the DIA $114 call options for $1.69. Molly then put in orders to sell the $112s at $5, and the $114s at $3.40. This represents a double of the money.
Back-Up. One reason I like this trade is this: Even though this is designed to be a 2 to 3 day trade---not counting the weekend---if it doesn't work, she can get out and cut her losses or wait. It's October, with many days to go. I'll put in my projection. I think the Dow will go to around $11,600, maybe push up to $11,800. It's not a prediction, but a projection. We all do the best we can. But think about the potential. If you owned the right to buy a stock at $112 and the stock went to $118, the option would have to be at least worth $6, plus a little more if there is time left to expiration. Six dollars is in the money---above the strike price. Her $2.57, or $1,285 for the five contracts (each contract represents 100 shares), could turn into nothing if it goes down, but if it goes up to the $118 range, she would make $5 or $6 times 500. I think it was smart for her not to get too greedy and sell these for $5. That would be $2,500 is she gets filled, and that represents a net of $1,215. She'll make more on the $114 if the Dow goes up.
Back to our test. Watch the Dow on Monday and Tuesday. Ascertain how accurate our 50 cent rule of thumb is. If the Dow goes up 100 points, the option goes up 50 cents. The Dow would have to go up 400 to 500 points to make this kind of money. There is no guarantee We'll watch and learn. She can always change the order, sell it at a lesser profit, and get back in on the next dip. Too much fun.
And one last thing, this is all done with a back-up of more time in October for it to work out. Yes, it was designed as a two to three day trade for cash flow purposes, but it's nice to have some time if the trade doesn't work out right away.
Keep reading wadecook.blogspot.com and invite your friends.
More later, Wade
Well the Dow is acting not so funny. In fact, the VIX, or the Volatility Index says there will be several days of movements, say, up 100 or so, then down 100 or so.
Here is my current thinking. This week was negative. I think some money wants to get into the market in advance of October. Yes, October has historically been an erratic month, but usually on the upside---as long as the news is good. There will be plenty of good news in the form of earnings, but also a lot of commentary and hedging on each companies' future.
It will give us a lot of movement. So here is a good practice/paper trade. I offer this here in the learning context to see the movement of the Dow and the options. Here's why:
1) As stated above, it's October. It feels like it wants to move up.
2) Thursday was Rosh Hashanah. Many people were on the sidelines on Thursday and Friday.
3) The Greek Tragedy might be ameliorated.
4) It's October. Oops, I already said that. Note that there are three weeks to the main option's expiration date.
So Molly jumped back in. I don't know if these are real or practice trades. What I do know is these prices are real. And beating the Autumnal Dog to death---it's October.
She bought the DIA (yes, that's the ticker symbol of an ETF trust that owns all of the Dow 30 stocks, and mirrors the Dow at 1/100). Options are in $1 increments. She bought 5 contracts or the DIAs $112 call options for $2.57, and 5 contracts of the DIA $114 call options for $1.69. Molly then put in orders to sell the $112s at $5, and the $114s at $3.40. This represents a double of the money.
Back-Up. One reason I like this trade is this: Even though this is designed to be a 2 to 3 day trade---not counting the weekend---if it doesn't work, she can get out and cut her losses or wait. It's October, with many days to go. I'll put in my projection. I think the Dow will go to around $11,600, maybe push up to $11,800. It's not a prediction, but a projection. We all do the best we can. But think about the potential. If you owned the right to buy a stock at $112 and the stock went to $118, the option would have to be at least worth $6, plus a little more if there is time left to expiration. Six dollars is in the money---above the strike price. Her $2.57, or $1,285 for the five contracts (each contract represents 100 shares), could turn into nothing if it goes down, but if it goes up to the $118 range, she would make $5 or $6 times 500. I think it was smart for her not to get too greedy and sell these for $5. That would be $2,500 is she gets filled, and that represents a net of $1,215. She'll make more on the $114 if the Dow goes up.
Back to our test. Watch the Dow on Monday and Tuesday. Ascertain how accurate our 50 cent rule of thumb is. If the Dow goes up 100 points, the option goes up 50 cents. The Dow would have to go up 400 to 500 points to make this kind of money. There is no guarantee We'll watch and learn. She can always change the order, sell it at a lesser profit, and get back in on the next dip. Too much fun.
And one last thing, this is all done with a back-up of more time in October for it to work out. Yes, it was designed as a two to three day trade for cash flow purposes, but it's nice to have some time if the trade doesn't work out right away.
Keep reading wadecook.blogspot.com and invite your friends.
More later, Wade
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.
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.
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