[quote author="usctrojanman29" date=1235013945][quote author="BlackVault CM" date=1235012348][quote author="upperlowerclass" date=1235011846][quote author="BlackVault CM" date=1235002935]Love it so far. Cisco is doing just fine and I hope it pops to 16-16.25 here in short term so I can sell some calls to lock in profits.
Alcoa is looking sexy, buy stock and sell 7.5 calls for a 20% potential return.</blockquote>
I know your a technicals guy, but from a fundemental prospective "sexy" isn't how I'd describe AA. I work in the same industry and we're stealing a lot of business from their Cleveland branch due to multi-million dollar maintenance issues as well as poor customer satisfaction (heard frequently from their customers). This is a trend I see continuing through this year. Also AA is a bit of a dollar strength play, seeing as how they lowered all their cost estimates this year because they feel a strong dollar will dramatically lower their costs in Brazil. If the dollar turns south this year, something like a $750MM cost will turn north.
Just the same, you prolly won't see any of this when ur in and out within a couple hours-days. For me, even if I am planning a very short term trade, I try to stick to only stocks that I believe are in a long term upward channel.</blockquote>
Appreciate it. Yeah, I was looking at AA as a quick trade since it has been beat up recently.
If I do decide to buy something long term, it will be fortified with puts allowing me to sleep at night.
Only long term prospects I would consider owning right now are Cisco and Exxon. On the "maybe" list, I would add Microsoft, Oracle and Wal-Mart. Pretty much cash rich companies that don't need to ask banks for capital.
Eitherway, your information is valuable. Thanks!</blockquote>
BV,
Another strategy I've been doing test trades on the past 2 weeks was looking at Put/Call volume on companies that report after closing or in the morning and look for unusual volume vs. open interest. I've noticed that stocks that have huge put volume miss their earnings estimate and drop the next day (about 90% of the time). So the play would be to pick up a few slightly out of the money puts or calls before the close depending on whether you are seeing huge call or put volumes.</blockquote>
USC,
I look at that indicator for short term trades, but honestly I don't make trades based on that alone. It hasn't worked out for me in the past, so I tend not to use it. I also never buy puts/calls on stocks reporting earnings unless I think they are going to suprise or disappoint far more than what the market or everybody else expects.
Options have a higher premium built in when upcoming events like earnings are coming. So for example. Cisco option could be selling for .50 cents on a normal month, but on a month that earnings are reporting it might be selling for .85 cents.
So the only way that .85 cent option contract can sustain its value is if the earnings move the stock 5% or higher (this is rough estimate). If the stock reports earnings where the stock barely moves up, stayes flat, or even declines, that option contract will instantly devalue the following day.
I used to trade like that when I first started, but to me they are just bets. If you're right, then you'll be wrong the next time. If you are wrong this time, you will be wrong next time. I've done it so many times that its beat into my head that it doesn't work.
I'll tell you what does work...selling calls before earnings. You will profit if the stock stays flat, opens up slightly, or opens lower. Odds are in your favor.
My strategy is that I invest when I'm 90% certain that the investment pans out. Meaning I'd have to have a strong movement down or up in the stock, the stochastics are lined up, MACD is lined up, upcoming company events favor me, upcoming global events favor me, call/put volume ratio, and of course the media. I want to have as many indicators in my favor as possible.
There are times that I'm very active in buying and selling options (last 3-4 months), but there are times where I can go a months without touching an option contract. If easy money isn't there...it just isn't there. I'll wait. I only need 1 move a year to make a handsome profit. I look everyday, but I don't act everyday.
I don't want to come across like I'm saying your idea won't work, because it can. I just never was able to do it myself. It could be my technique or my style, my timing etc. Maybe you can share with me what you will do a bit ahead of when you actually do it. So I can see your setup and see how it works.
