OPTIONSDOJO.COM Advised our members to buy CNX and ANR, on weakness. They are up 6% and 8% respectfully. Now will you pull the trigger. These kind of returns are very respectful for one day. The dollar will rise against the EURO as Europe figures out what to do. This being said we would take profits and buy again on weakness. As always consult you advisor before making investment decisions.
If you have been watching GOLD it has been trading in a range. If the world is coming apart, why isn’t it rising? You see as the dollar becomes the safe haven and the Euro declines, gold has softened. Now remember you can’t eat it, it is not a necessity, and it is volatile to say the least. This being said, you want to look for protection in this market place. You know that commodities are used and gone, so watch for weakness as the dollar rises and the commodities are slammed. As winter comes upon us coal has been a great trade. Today you can buy CNX or ANR and hold until late winter. These two stocks have great rebounding power. Don’t be afraid, the market has always had it’s ups and downs.
As you can see this call was right on the money. Time can be your best friend or worst enemy. GOLD is down and should continue as the dollar strengthens against the EURO.
On November 22, 2011 optionsdojo.com encouraged you to sell puts against, CNX, ANR, GLD, BTU, and we currently show some positions up from 3% to 16%. SO if you sold the put you are making money. As the stocks move further away from the PUT price your options increase in value. Now that being said don’t be afraid to take profits. The December Puts have 12 trading days left, so look at profits or stop losses to keep present gains. For those of you that like to be the PLAYER and have bought calls you should take your profits as well. As always look to your advisor before investing.
What stocks are on your radar? For me I am looking at the commodity stocks like CNX, ANR, ACI, PAT, BTU, and GLD. When we have a crushing day for commodity stocks it is my opportunity to sell a PUT. The decrease in price forces the current premiums for PUTS UP. I can now sell a PUT at 5-10% lower then current market prices. This gives me two options. It makes me wait and see if the stock moves lower, thus buying at a lower price and two it pays me for waiting, and third it cushions my downside. The risk is that your stock goes considerably lower then expected and you are forced to pay more then market price. By allowing an additional downside you cushion that possibility. You may want to look at the 50 day and 200 day lows for guidance. The more conservative the lower the premium, however the higher the level of success. The key is to have a successful trade. As always consult your advisor before investing.
Yesterday we had a dramatic move down after some concerns about Europe, with this in mind, remember that STOCKS MOVE. They generally move in the direction of the market when we have a significant push in either direction. In fact 70% move in the direction of the herd. It is important to keep your eyes open and look for factors that may push in the opposite or same direction, like inside buying or selling, earnings announced the same day, or analyst changes. These drew my attention to CF. It was down as much as $20.00 with no obvious reasons. I did see some inside selling but nothing significant, thus I bought a call for December. Why December? It gave me time to see if the move is warranted, it allowed me to set my loss, and it allowed leverage. I bought the 145 dec calls for $11.25. I sold them this morning at the open for $14.85. A 32% return. (always consider your trading fees). You decide the BANK or the Player. In this case the Player had the good hand. As always consult your advisor before investing of any kind.
If you are not familiar with options I would encourage you to view our site. In early October I got a call from an investor looking to buy HW. As we looked at the financials I didn’t see a reason to support a decision to buy. The investor suggested that they may be a take over target. As I continued to look at the possibilities I could rationalize how this company may be taken out but couldn’t see buying the stock. The company had losses exceeding the current stock price. The obvious option to play was to use options. The key here is to buy a call option where most of the premium is time. In this scenario we looked at the February 2 calls, the premium was .15 . We therefore define our risks at .15 and give ourselves time to allow the stock to move. If the stock does not move in the short term we can cash out and get a return of some of our premium. The stock was $1.45 at the time. As of today the stock hit $2.80, giving a 500% return on the option. By being the PLAYER in this scenario we leveraged the dollars at risk. Now I don’t suggest you seek stocks under $5.00 as many never come back. In this case I had my ears open to another view on the stock but took caution not to invest to heavily. As always consult your advisor before investing.
Like a See Saw the market needs two sides to balance itself. Like a See Saw the market goes up and down. The question is how do you know which way it is going to go? The options market can give you a clear indication of sentiment. If you look at call options and see high premiums being paid that suggest people are optimistic, however if you see high put premiums then people are looking for protection. Now sometimes premiums are dramatically affected by upcoming earnings, or speculation. In these cases you take advantage by selling collars to take advantage of either side. You need to look at volume of options, the stocks beta, and previous movements prior to and after earnings. These are not the only indicators but give credence to direction. When you decide to play remember to have a plan in place for exiting, reducing potential losses, and possible scenarios where you want to dollar cost average. As always consult your advisor before making any investment decisions.
As many of you know I’ve been playing the coal stocks, like CNX, ANR, and ACI. If you have been doing the same, buying on the down day and putting a limit order in to sell when we swing back you have been making money. The key to volatility is to look at the range, if you do the same for stocks as many charters do, you can play the middle. You may notice that if the market is down most stocks will be down. When we had our 400 point drop we step back in to CNX, ANR, BK, and ACI. We mentioned 2% is a decent return, so once you get to that mark you can place a stop loss to hold on to that gain or sell calls at the money to protect the downside. Look for upcoming live web class. As always consult your advisor.
Why OptionsDojo? At OptionsDojo we guide you through simple and practical option trading strategies. Our goal is not huge speculative returns, instead we teach dependable and consistent strategies that earn you “a little bit more.”
Options Dojo is the result of the Sensei’s desire to use his years of financial experience teaching his passion. Options Dojo is that platform.
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